Minutes - Council - 06/09/1987 - Special

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Dick Treptow, Springsted, Inc., was present with recommendations for the issuance of three bonds. A $2,800,000 General Obligation Tax Increment Bond and a $400,000 Taxable General Obligation Tax Increment Bond will finance five projects within Development District #1. These five projects include River's Bend Addition and River's Bend Plaza, Oxbow Addition, Flintwood Hills 2nd and 3rd Additions and the Industrial Park. The reason Development District #1 projects were split into two separate bond issues is because of the 1986 Tax Reform Act which states that site improvements constitute private purposes and must be financed with taxable bonds rather than tax-exempt bonds. Mr. Treptow reviewed Exhibit 1 showing projections for cash flow income and expenditures for Development District #1. That exhibit shows that the income exceeds the projected expenditures by $400,000 per year once all the projected development occurs. The cash flow projections support a shorter bond issue but a 20 year issue is recommended because there is substantial potential for additional development and the City would then have the flexibility to fund additional project costs from the existing revenue stream. If there is no need for the City to finance more improvements, the bonds can be prepaid in 1996 with no penalty. The third bond issue is also taxable and will finance non-public costs associated with Muller's Rum River Project. The bond is structured separately because it is in a separate development district. It also differs in that it is in an economic development district rather than a redevelopment district like the other two bonds. Economic development bond issues are limited to 8 years of tax increment collection; cash flow runs tight because of the shorter period in which to pay off bonds. With Muller's project there are 3 years where projections show that the debt service exceeds the revenue; the remaining years show a $1,000 excess of revenue. This situation is not quite as tight as it appears because there is a 5% State required overlevy to protect the bondholder and the City in the event the incremental income is not sufficient. Mr. Treptow recommended that with Muller's project, the City obtain every assurance it legally can to guarantee revenue stream. Mr. Hartley explained that engineering costs were not included in the estimates for Muller's project; including the engineering costs has increased the obligation of the tax increment district from $131,000 to $160,000. Ail future project estimates will be sure to include all costs in addition to actual construction costs. Mr. Hartley stated that he has met with Mr. Muller and it is believed that some of the costs to be paid for with tax increment financing may be reduced somewhat. The City will still borrow $160,000 and the cutback savings will be provided to an escrow account to provide the needed security. Mr. Hartley added that this is one of the tightest tax increment issues he has ever seen but he thinks the City can get the level of assurance needed from the developers to insure that the city will not have to levy taxes to pay for this particular project. Case #2: Authorize Advertisement To Receive Bids For The Sale Of $3.395.000 O~ T~x Increment Bond~; Motion by Councilmember Sorteberg and seconded by Councilmember Cox to adopt Resolution #87-131 providing for the issuance and sale of $2,800,000 Special City Council/June 9, 1987 Page 5 of 12