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City Administrator Ulrich stated the only change to the original amount recommended is to correct for an apparent mathematical error that was discovered while reviewing the Development Manager Worksheet. He explained the Development Soft Costs, by contract and in accordance with the Worksheet, cannot exceed 20% of the sum of the land sales price, pro -forma building value, and site improvement costs. In the original calculation, the Development Manager used $450,000, which is 21.2 percent. If adjusted to 20%, the soft costs would be $424,411, resulting in a development incentive fee of $50,929 (a reduction of $512). City Administrator Ulrich explained why the HRA Attorney found that approval of the full development incentive would not create precedence. Because of that finding and in consideration of cost benefit, staff recommends the HRA approve the modified incentive fee calculation and make payment to Landform in the amount of $50,929 in accordance with the payment schedule outlined in the contract. The initial payment will be accompanied by a letter stating the City's objection to the fee calculation. Motion by Commissioner Kuzma, seconded by Commissioner Johns, to approve a modified incentive fee calculation and make payment to Landform in the amount of $50,929 in accordance with the payment schedule outlined in the contract. The initial payment will be accompanied by a letter stating the City's objection to the fee calculation. Further discussion: Pro Tem Chairperson Riley stated his objection to the proposed payment, finding this situation is indicative of the Development Management Contract between Landform and the prior City Council, whereby the Development Manager prepared the incentive fee based on estimates prepared by the Development Manager. Pro Tem Chairperson Riley stated this payment is now being considered based on a three -site project when it is now a one -site project (McDonald's) and under threat of a lawsuit by Landform. Commissioner Tossey asked whether infrastructure costs could be considered a public subsidy and should not be calculated within the incentive fee. City Administrator Ulrich explained that the Development Contract amendment specifically mentioned financing of the project but did not specifically cover subsidies/funding provided to the project. Commissioner Tossey stated that is neither his interpretation nor the intent of his amendment to the Development Contract. Commissioner Strommen agreed that was not the intent of the amendment and stated that has been one of the struggles with this Development Contract, the wording did not match the HRA's intent relating to not including public subsidies. She noted this is a lesson to assure the language is correct, not broad and general. Motion carried. Voting Yes: Commissioners Kuzma, Johns, Strommen, and Tossey. Voting No: Pro Tem Chairperson Riley. Absent: Chairperson Backous and Commissioners LeTourneau. 5:02 Discuss North Commons Letter of Intent (Portions closed to the public) HRA Executive Director LaFrance reported that through CBRE, staff received a Letter of Intent to purchase four lots in North Commons. He recommended the HRA move to Closed Session, as allowed by State Statutes Section 13D.05 Sub. 3(c) (3). Housing and Redevelopment Authority / March 25, 2014 Page 3 of 5