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CITY OF RA11'ISEY, MINNESOTA NOTES TO FINANCIAL STATEMENTS December 31,1996 Note 7 TAX INCREMENT FINANCING REVENUE NOTES The City entered into several private development agreements during 1991 and 1996. Contemplated in the development agreements were the reimbursements to each of the developers for special trunk assessments. The vehicle used for this reimbursement is called a tax increment revenue note. The original assessments are as follows: Chestnut Hills Cedar Hills Windemere Woods Energy Park Second Addition #1 Energy Park Second Addition #2 Total 205,300 234,042 106,756 455,855 56,628 $ 1,058,581 During 1991, the City entered into private development agreements for Chestnut Hills, Cedar Hills, and Windemere Woods. The City agreed to reimburse the developers through future potential tax increments received from these developments. These notes provide for the payment of principal and interest (8%) up to the lessor of the note or 97% of available tax increment from these developments. The notes began accruing interest on December 1, 1993, with the first payment due to the developers on February 1, 1995, for tax increments received during 1994. The last payment will be February 1, 2000, based on increments received during 1999. Each developer receives only the increments generated by their subdivision. Payments from available increments are applied first to accrued interest and then to principal balances. If increments received through the year 1999 are not sufficient to pay off each developer, the note will be cancelled. Excess increments, if any, received after 1999, will be retained by the City. During 1996, the City entered into two private development agreements for the Energy Park Second Addition. The City agreed to reimburse the developers through future potential tax increments received from this development. Per the agreement document, the City will pay on each scheduled payment date up to the lessor of the net tax increment collected from this development or the scheduled payment due (with interest included in the payment of 8%). The first note begins accruing interest on January 1, 1998, with the first payment due to the developers on December 15, 1998, and the second note on January 1, 2003, with the first payment due to the developers on December 15, 2003, respectively. For both agreements, the final payments will be December 15, 2005, for tax increments received during 2005. Payments from availa'le increments are applied first to accrued interest and then to principal balances. Any excess increments received after 2005 will be retained by the City. Included in current liabilities for the year ended December 31, 1996 is $197,157, which represents the portion of increments collected in 1996 that were payable to the developers on February 1, 1997. These payments are recorded as capital outlay as they represent a payment for trunk infrastructure contributed by the developers. The outstanding principal balance as of December 31, 1996 for all of these agreements was $692,839. .This amount is not included in long-term debt because of the nature of these notes in that repayment is required only if sufficient tax increments are received. The City's position is that these are obligations to assign future and uncertain revenue sources and as such, have not been included in long-term debt. -23-