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12/15/1992 - City Council Special AGENDA SPECIAL CITY COUNCIL MEETING Tuesday December 15, 1992 5:00 p.m. I. ROLL CALL & ADOPT AGENDA II. CITY ADMINISTRATOR/PERFORMANCE REVIEW III. CIP PART I IV. MEDIA PRESENTATION V. OTHER BUSINESS VI. ADJOURNMENT MEMO TO: HONORABLE MAYOR AND CITY COUNCILMEMBERS FROM: CITY ADMINISTRATOR HEDGES DATE: DECEMBER 11, 1992 SUBJECT: SPECIAL CITY COUNCIL MEETING/TUESDAY, DECEMBER 15, 1992 At the December 8 Special City Council meeting,action was taken to set a workshop session at 5:00 p.m. on Tuesday, December 15 for the purpose of discussing the following items: 1) Results of City Administrator Performance Review 2) Further discussion on Part I CIP as it pertains to Recreation Facility and Municipal Center/Law Enforcement building expansion 3) Media presentation/training for use of cable equipment Performance Review/City Administrator The Personnel Committee,its Chair City Councilmember McCrea,and City Councilmember Awada, have completed the first formal personnel review for the City Administrator. The results of the performance review are to be shared with the City Council at the meeting on Tuesday. Two (2) memos that responded to information City Councilmember McCrea requested during the performance review process are enclosed without page number for your review. A special thanks to the Personnel Committee and City Council, especially City Councilmember McCrea, for all the time that was spent coordinating the performance review. CIP Part I At the direction of the City Council, the Part I CIP, as it relates specifically to the Recreation Facility and expansion of the Municipal Center/Law Enforcement building,was placed on the agenda for the workshop. Enclosed on pages 3 through 7 is a memo prepared by the City Administrator that summarizes a meeting that was held with John Freeman and Brad Schmidt on Friday, December 4, to discuss funding options for the Recreation Facility Project. This meeting was held at their request. The memo attempts to address policy questions that need discussion and action by the City Council if the staff is to proceed any further with the Recreation Facility capital project. Also attached to this memo is a copy of a memo from the City Attorney concerning his findings on the ice arena/building permit connection fees matter. Finally, enclosed on page 8 is a letter from John Freeman. Enclosed on pages through Nis a copy of a memo that was distributed with a recent Special City Counci meeting ack&that provides information on the municipal center/law g P p p ter/law enforcement building capital project. There has been no appreciable work done by staff since that memorandum with the exception of the municipal center building tour. The City Administrator has informed City Councilmembers-Elect Hunter and Masin that a tour of the building in the next couple of weeks would be informative and helpful for policy decision before the Council in the next few months. Media Presentation According to Cable Coordinator Reardon, if all goes well this weekend, the cable system will be operational at Tuesday's meeting. Todd Communications has finally received the equipment that has been on back order for over two months and, barring any further unforeseen circumstances, installation of the production equipment will be completed this weekend. Cable Coordinator Reardon would like to provide a demonstration of the media equipment at approximately 6:00 p.m. If for some reason the system will not be operational, the City Administrator will notify the City Council as a part of the Administrative Agenda on Monday or at the meeting on Tuesday. /S/ Thomas L. Hedges City Administrator Attachments TLH/vmd )11( MEMO _city of eagan TO: HONORABLE MAYOR & CITY COUNCILMEMBERS FROM: CITY ADMINISTRATOR HEDGES DATE: DECEMBER 9, 1992 SUBJECT: RECREATION FACILITY/ARENA At the Tuesday, December 8 work session, there was direction given to the City Administrator to revise the Part I CIP to retitle Ice Arena/Outdoor Swimming Pool to Recreational Facility/Arena. There was also direction that this project be identified in 1993 instead of 1994. These changes are being made as directed to Part I of the CIP document which is currently under consideration. On Friday, December 4, 1992, the City Administrator and Director of Finance, along with the City's Fiscal Consultant, Dave MacGillivray, met with John Freeman and Brad Schmidt at their request to discuss financing options for the ice arena phase of the recreational facility. The following are some notes, questions and a summary of the discussion at that meeting: • A key point continues to be to put the package together without any tax obligation! This includes both the capital and operations for a recreational facility. • Complete the research with the City Attorney whether the City can add fees to a building permit and/or utility accounts for the financing of a recreational facility. • There was discussion regarding design elements relative to an olympic size sheet of ice, which meets new standards for ice arenas or the traditional ice rink dimensions that are found in many of the existing and older ice facilities. • There was discussion regarding the completion of a demand analysis for the purpose of calculating operating expenses. In other words, can a demand analysis be performed that would provide assurance to the City that there will not be excess capacity for ice arenas? This analysis would probably be quite subjective and could add additional controversy and more time delay. 3 • There was a request by Mr. Freeman and Mr. Schmidt that the City contact ATRS Architects who designed the Centennial building and ask that firm, at a minimal cost, do an analysis of the City of Eagan's site according to its master plan and provide a cost estimate for the Centennial rink to be constructed on the City of Eagan's municipal center site located south of the City Hall/Law Enforcement building. • If a project is to proceed, should design build or the traditional use of an architectural firm be utilized? • Community education on a multi-purpose arena facility is paramount. The following is a list of the various policy decisions pertaining to the project: 1. Is the City interested in providing financing over and above the $1,350,000 which has generally been committed to the project? a. The original Hockey Association proposal for financing is based on the City raising a significant portion of the revenue stream to repay any debt necessary to construct the facility. While this is not an up front contribution, the City is responsible for instituting and collecting new fees. b. Alternatively, the City could finance the project internally with a loan agreement with the Hockey Association to repay the amount of cost over $1,350,000. This alternative, a result of the discussion last Friday, eliminates the cost of a bond transaction. There would be some risk in that the Association basically has no collateral to pledge against the loan. The larger the loan, the less likely they would have the resources for total repayment. Should the City Council promote pull tabs as a potential revenue source for the Hockey Association (not a City operation)? c. A careful understanding needs to be reached as to what happens if non-Hockey Association community support is achieved eg. does a corporate donation relieve the Association of some liability or does it enhance the project? This relates to the question of how much facility and equipment is included in the basic cost and agreement between the City and the Association? 2. The City Administrator has asked the City Attorney's office to provide a memo regarding the possibility of adding a fee to the building permit and/or utility connections/transfers for the financing of an ice arena. For a copy of that information and findings, refer to the attached memo. 3. Who should design the project and what approach should be used? a. Is the City interested in fixing a total dollar amount eg. $1,600,000 as suggested by Mr. Freeman and build whatever can be built. Perhaps, this could be the basis for agreement between the City and the Association. Potential incremental additions could be identified and subject to corporate solicitation. Everyone would need to realize that this could be a very bare bones facility. It could probably become operational in a shorter time frame. b. Would the City rather design a minimum facility and have it costed out? This approach would probably widen the gap between the City's $1,350,000 and total cost to the point where the project could not start without corporate contributions. This would probably result in a more complete facility, but would take more time because of the start being contingent on significant community donations (in addition to the amount agreed to by the Hockey Association). City Administrator Attachment TLH/vmd MEMORANDUM 1 DEC 9 TO: Tom Hedges, City Administrator FROM: Mike Dougherty, City Attorney DATE: December 8, 1992 RE: Ice Arena/Building Permit - Connection Fees Our File No. 206-9726 In discussions on Friday, December 4, 1992, you had requested information regarding the possibility of adding a fee to the building permit and/or utility connections for the financing of an ice arena. The answer to your inquiry as it relates to both items is no as explained below. Connection Fees The City's authority for collecting a fee from parties who connect to the City's water, sewer and drain services is found in Minnesota Statutes Chapter 444 . Therein, under Section 444 . 075, the Council is given authority to impose charges in an amount as fixed by reference to the portion of the cost of connection. That cost is based on the consideration of the costs of the establishment, operation, maintenance, depreciation and necessary replacements of the systems necessary to serve the City (including the principal and interest as they become due on obligations issued or to be issued) . Moreover, all charges when collected shall be placed in a separate fund and used to pay the normal, reasonable and current costs of operating and maintaining the facilities. In a earlier portion of Chapter 444, the facilities and services are defined and these definitions do not and cannot be interpreted to include an ice arena. Building Permit Fees With regard to building permit fees, Chapter 16.B of the Minnesota Statutes provide for the administration of building codes and standards to the State Commissioner of Administration. Pursuant to the Commissioner's authority, the Commissioner has promulgated rules regulating the Department of Administration Building Codes and Standards, Chapter 1305 and following. Chapter 1305. 0100 provides for the adoption of the 1988 edition of the Uniform Building Code and makes the same applicable to all cities within the State of Minnesota. Section 304 of the 1988 edition of the Uniform Building Code provides for the fees that may be assessed by the City in conjunction with the issuance of a building permit. These fees relate to permit fees, plan review fees and investigative fees. Each fee 6 being directly correlative to the construction of a building on a particular parcel of land. Minnesota Rule 1305. 0800 does modify the permit fee as allowed by the 1988 edition of the Uniform Building Code to establish that the fee charged for the permit shall not be in excess of the greater of $100. 00 or .005 times the value of the structure. Again, there is no provision within the statute or rules for the addition of any fee other than as prescribed in the legislation. I will further note, that the statute does provide for a surcharge which may be collected by a city to defray the cost of administering the State Building Code. While the surcharge is for the cost of administering the Code, it also is required that the City report the surcharge to the State of Minnesota and remit all but 2% of the surcharge as collected to the State. While the City does collect other fees at the time of the issuance of the building permit, the authorization for the City to collect those fees comes from other portions of the State statutes. Thus, while the City may collect the WAC and SAC charges at the time of building permit issuance, the authority for the City to collect those charges is found in Chapter 444 of the Minnesota Statutes. It is solely the determination by the City of administering that Chapter that requires that the fees be paid at the time of the building permit issuance. If you have any questions or concerns relating to the material contained herein, please be in contact with me. MGD/wkt 8 December 6 , 1992 Mr . Thomas Hedges City of Eagan 3830 Pilot Knob Road Eagan , MN 55122 Dear Tom, I am writing to thank you for arranging our meeting last Friday . We are especially grateful for you having asked Dave McGilevary to join us . Thanks to our discussion with Dave , Brad and I have a much better understanding of the kinds of issues which your consultants will raise about our project . We are confident that these issues can be resolved . More generally , we are convinced that the project not only is legal and financially responsible but that it is crucial to building the community spirit which Eagan needs . We agree with Dave that among the most important next steps is to settle on a building plan and , in turn , a pre- liminary cost estimate . To this end , I urge you to ask the firm which designed the Centennial arena (ATRS? ) to visit our site . I believe that ATRS will be willing to make a short trip to Eagan and to write a brief letter indicating what two versions of the Centennial building could be built here for [ a ] $1 . 6m and for [ b ] $1 . 8m. I do not think ATRS would charge the City for such a consultation , To invite this or any other firm to suggest an alternative design--in fact , to even involve another architectural firm-- will surely delay the project several months and cost the City tens of thousands of dollars (due to increased interest rates) . We are ready to meet with you and(or) Dave McGilevary at any time and place . Thanks again for your advice and time , Tom. Sincerely , C*1-‘%' John R . Freeman cc : Ken Vraa MEMORANDUM TO: CITY ADMINISTRATOR HEDGES FROM: ASSISTANT TO TEE CITY ADMINISTRATOR HOHENSTEIN DATE: NOVEMBER 3 1992 SUBJECT: PURCHASE OPTIONS FOR DISTRESSED PROPERTIES This memorandum is in response to the question raised at a recent • City Council work session regarding purchase options for municipal facilities. All available properties in the City in the appropriate size range were identified as a part of the original study. Since the original memo was prepared, listing agents and property owners were again contacted reagrding available properties. In each case, the option of purchase was discussed. Where a purchase option is available, it is referenced in the attached report. Discussion In reviewing this concept with listing agents and professionals in the commercial real estate area, several issues and trends were identified. The most significant is there current trend toward the use of existing capital in both the public and private sectors. This is because overbuilding, a soft economy and the savings and loan situation have resulted in a number of underutilized and discounted properties being available on the market. Where the right building can be found which would require a minimum of new construction and/or remodeling, this option is the most attractive. Where conversion costs are higher, however, new construction remains the most cost effective. In fact, the relative general costs of facilities in descending order are: 1. Long-Term Lease 2 . New Construction at a New Site 3 . Short-Term Lease 4 . Purchase of Existing - High Conversion Cost 5. New Construction at Current Site 6. Purchase of Existing - Low Conversion Cost In sum, to be the most cost efficient alternative, it is necessary to find both an appropriate facility and an attractive price. To date, it staff's research has found that few if any buildings in Eagan are sufficiently distressed to result in significant price discounts. Unlike the situation in older or central cities, Eagan property owners are not disposing of commercial properties or permitting them to go tax forfeit. In addition, the properties most frequently referenced for potential purchase (i.e. Blackhawk Plaza and vacant areas around Cedarvale) are not large enough to meet current space needs and/or require substantial renovation to be remotely serviceable as municipal facilities. These areas would not accomodate any growth without additional construction. Comparable Situation The most comparable example of a city which has utilized leased space and is considering a building purchase is Eden Prairie. As a result of several failed referenda and a decision to remodel their municipal building space for police use, the city has been leasing a facility for five and one-half years. Eden Prairie currently leases a 23,000 square foot portion of an office- warehouse space to house their City Manager, Human Resources, _ Finance and City Clerk, Assessing, Inspections, Buildings Maintenance, Engineering, Planning and Parks and Recreation Administration and Planning functions. Their 1993 rate for this space is estimated at $295,000 or $12.83 per foot. This is near the average for comparable space in Eagan. Eden Prairie has been attempting to purchase the former CPT Headquarters building. The proposed terms of purchase are $5.95 million for 240, 000 square feet, of which the city would use approximately 60, 000 to 65, 000 square feet for all city functions including police and recreational programming (roughly equivalent to the Eagan space needs analysis total) . Two other users will take up to 140, 000 square feet of ,the remainder. The purchase price does not include remodeling costs necessary to convert the office building to the specialized uses necessary for the city or any of its tenants. The closest corollary in Eagan would be the Dunn and Bradstreet building at 180, 000 square feet which will be vacant on January 1. Dunn and Bradstreet is currently in negotiations with a single large user for this facility. It may be possible that other smaller buildings could be purchased, but none of the Eagan facilities identified to date are being offered at significantly discounted prices and remodeling costs would be prohibitive in all cases. While the purchase of a building with more space than the City's current needs could provide for expansion in the future, it would be necessary to carry the costs of the excess capital or to enter the tenant market and lease out the remainder in the meantime. Summary In short, despite concerns about soft office markets and high vacancies, no buildings in Eagan of the appropriate size and general configuration are being offered for discounted sale in Eagan. Even the most often cited examples of vacant spaces in Cedarvale and Blackhawk Plaza are quoting market rate lease and purchase prices. In addition to cost, only one of the facilities in these two areas is sufficiently sized and none are configured to accomodate the City's Administrative space needs either now or in the near future. In general , strip commercial layouts are highly inefficient and not conducive to the interaction necessary for an effective municipal organization. To be an effective adjunct to the redevelopment of /D any distressed area within the City, it is likely that it would be necessary to raze existing buildings and make higher quality capital investments, since no existing facilities are adequate to meet a municipal operation's needs. In summary, no buildings within the City fit the current and future City space needs closely enough to preclude the need for expensive remodeling and/or expansion. It appears that the total costs for acquisition and conversion of existing space within the City would equal or exceed the cost of building on the currently owned municipal center site. If you have any questions, please let me know. A istant to the City Administrator // • MEMORANDUM TO: CITY ADMINISTRATOR SEDGES FROM: ASSISTANT TO THE CITY ADMINISTRATOR HOHENSTEIN DATE: NOVEMBER 4, 1992 SUBJECT: MUNICIPAL OFFICE PURCHASE OPTIONS Staff inventoried the available space within the City which could feasibly meet its administrative office needs. An estimate of 25, 000 to 31, 000 square feet was used, based on fifty percent and one hundred percent of the difference between the current 20,000 square feet of administrative and common space and the year 2000 projection from the BRW Space Needs Study. This range takes into account the current overcrowded condition of the existing space and the service and employment growth which is anticipated to be necessary to meet expanding demand in our growing community. This methodology also assumes a continued commitment to the centralization of City administrative functions for efficiency and administrative oversight reasons. Listing agents were contacted and asked if they had or knew of existing properties in this size range. The results of the inventory is outlined below. Relatively few existing properties within the City fall in or near this size range, and none can meet the projected need without substantial remodeling or additional construction. Properties are compared on a purchase and improvement cost basis below. ,SUFFICIENT SPACE Blackhawk Plaza - Diffley & I-35E Rob Taylor - 868-5579 Facility Size: 30, 000 s. f. with existing tenants for 9,000 s. f. Price: $1, 820,000 including two outlots Remodeling: $800, 000 to $1, 000, 000 Police Remodeling: $500, 000 INSUFFICIENT SPACE Country Club Market - Cedarvale Phil Kluesner - Welsh Companies - 829-3409 Facility Size: 20,000 (Warehouse Space) Price: $640, 000 Remodeling and Addition: $1,700,000 to $3, 100, 000 Police Remodeling: $500,000 Firstar Office Building - 3900 Sibley Memorial Highway Neilsen and Associates - 636-2812 Facility Size: 13 ,900 s. f. Price: $650, 000 Dakota County Western Service Center - Cliff Road and Rahn Way Facility Size: 14,000 s. f. Price: $450,000 (potentially sold) The only other adequately sized spaces which are for sale within the City appear to be pure warehouse facilities with small office components. These include the Lull Engineering, LaHass Manufacturing and Expert Disposal properties on Highway 13. In addition, all three are oversized for the City's use. Analysis The Building Inspections staff reviewed the two properties closest to the City's size needs and analyzed the necessary cost of conversion. In the case of Blackhawk Plaza, a general estimate of $800,000 to $1, 000, 000 was developed. The assets of this facility are a generally central location, adequate parking and expansion space. The principal disadvantage is that the linear strip center layout is not conducive to City functions. Substantial remodeling to not only finish the space but also to establish internal circulation patterns would be necessary. The improvement estimate also does not include higher quality finishes for such areas as the public space and City Council Chamber. In the case of the Cedarvale Country Club site, a range of $1.7 million to $3 . 1 million was developed. The assets of this site are the potential to directly revitalize the Cedarvale area and the lowest purchase price of property in the general size range. In this case, it would be necessary not only to remodel but to expand the facility as well. Due to existing parking constraints, any addition would like need to be a second floor. If the existing footings and walls can support a second floor, the improvement cost is lower. This is doubtful, however, since the original builder would have had no reason to invest in such overbuilding. If it is necessary to re-engineer the space, construction would cost at least as much as it would at the Municipal Center site, plus the purchase price of the property. In both cases, it would still be necessary to remodel the existing facility for police department use at a cost of approximately $500, 000. In reviewing this matter with realtors and brokers, the following comments were made: 1. There are not many buildings for sale in this size range. Most office users up to about 50,000 feet either build there own space or lease. 2. This is not a good size range for the market. Currently, there are many users in this size range competing for a limited amount of space. 3. There are not any true office or office warehouse spaces of this size for sale in Eagan. For users who have the luxury of shopping around the metropolitan area, there /3 • might be some opportunities but not here. 4. The Eagan market is too new to have a lot of differently sized alternatives available. Most of the growth was single user build to suit or larger multi-tenant buildings. ,Summary In summary, staff has conducted windshield surveys and has held ' discussions with real estate professionals active in the City. The results of those studies are reflected in the memo on leased space distributed with the September 28, 1992 Council packet and the information above. If Council members know of specific properties not mentioned by the realtors, please let me know and staff will look into them. As mentioned previously, it appears that the cost of leasing space would exceed new construction in five to seven years with no tangible asset remaining at the end of the lease. In addition, no directly suitable office or office warehouse spaces in Eagan are available for purchase at market or discount prices. The two spaces which were mentioned at the last Council meeting have been cost analyzed above and are estimated to cost between $2.84 and $4 .24 million dollars. The low estimate assumes that the subject building is engineered to support as second floor. This is probably not a good assumption. The high estimate assumes that it is not and would have to be razed for new construction. These estimates do not include the dislocation and operations costs associated with decentralizing City operations. The costs of purchasing and converting existing space is, therefore, comparable to and possibly more than the cost of new construction. If there were more older or comparably sized buildings in Eagan that fit the City's needs better, this may not have been the case. Under the current realities, however, it is. If you have any additional questions, please let me know. As st t to the City Administrator