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03/04/1997 - City Council Speciallwpr� '--R AGENDA SPECIAL CITY COUNCIL MEETING Tuesday March 4,1997 5:00 p.m. Municipal Center Community Room I. ROLL CALL & ADOPTION OF AGENDA II. VISITORS TO BE HEARD III. MIGHTY DUCKS GRANT CONSIDERATION FOR SECOND SHEET OF ICE IV. OTHER BUSINESS V. EXECUTIVE SESSION VI. ADJOURNMENT 41 city of eagan TO: HONORABLE MAYOR & CITY COUNCILMEMBERS FROM: CITY ADMINISTRATOR HEDGES DATE: FEBRUARY 28,1997 SUBJECT: SPECIAL CITY COUNCIL MEETING/MARCH 4,1997 MEMO MIGHTY DUCKS GRANT CONSIDERATION FOR SECOND SHEET OF ICE During late spring, 1996, the Eagan Hockey Association approached the City Council in regard to the construction of a second ice sheet to be attached to the existing civic arena. Funding for the arena expansion would come in part from a mighty ducks grant in the amount of $250,000. In order to prepare a grant application, it was necessary to prepare preliminary designs for a second ice sheet. With a donation of $7,500 from the hockey association, ACC Architects were hired to prepare preliminary designs for a second ice sheet. A preliminary cost estimate was completed based on this design and adjusted to reflect 1997 construction costs. Action was taken during the fall of 1997 to submit a grant application for mighty ducks funding based on the preliminary cost estimates completed by ACC and a financing plan that had been reviewed by the hockey association, the City's fiscal consultant, Springsted, and City staff. The City was notified in late November of a grant award in the amount of $125,000, one- half of the anticipated award. The policy question before the City Council is whether the City should continue to pursue the additional $125,000, if additional mighty ducks funding is approved in this legislative session. Mr. Bill Osbum, representing the Eagan Hockey Association, will be present at the meeting on Tuesday. If the City is successful in obtaining the additional $125,000 in grant funds, a possible funding scenario is as follows: Estimated Project Budget L2 -J90 500 Cost Reduction - Sales Tax Savings $ 60.000 Mighty Ducks Grant 250,000 Revenue Bond 1.350.000" Equipment Provided by Lease Purchase Hockey Association 400.000�z� Hockey Association ContributionlIn-Kind 130,550 Total Funding L2.190 550 (')Assumes an internally funded revenue bond with interest earnings on the bond reserve available for debt service. ("Estimated cash available from ten years of $50,000 annual debt service payments. Additional explanation of assumptions and options is included in the attached memo. For background information relative to the second ice sheet and mighty ducks grant, refer to a memo prepared by the Director of Parks & Recreation. Please note that this item will be placed on a future regular City Council agenda for official action by the City Council. OTHER BUSINESS There are no items for Other Business. EXECUTIVE SESSION If time permits between discussion of the mighty ducks grant consideration and the regular City- Council meeting, an executive session could be held to discuss the status of pending litigation against the Minnesota Moose for not fulfilling their contractual agreement to finance the additional locker room. /S/ Thomas L. Hedges City- Administrator MEMO city -of eagan TO: TOM HEDGES, CITY ADMINISTRATOR FROM: KEN VRAA, DIRECTOR OF PARKS AND RECREATION DATE: FEBRUARY 18, 1997 RE: SECOND ICE SHEET - MIGHTY DUCKS GRANT PURPOSE This memo has been prepared for the purpose of discussion by the City Council and for direction on how to proceed with a second ice sheet at the Civic Arena. ISSUE: The City has received notification of grant approval in the amount of $125,000 from the "Mighty Ducks" State Bonding bill. The City had sought $250,000. Staff is seeking direction on the issue of whether to seek additional funds from a proposed third round of Mighty Ducks Grant money and subsequent construction of a second ice sheet. BACKGROUND/HISTORY During calendar year 1996, the Eagan Hockey Association approached the Council in regards to the construction of a second building to be attached to the existing Civic Arena. The funding for the arena expansion was to come from a successful Mighty Ducks grant expected to provide $250,000, Revenue Bonds to be paid back through arena income expected to generate between $1.2 - 1.4 million in construction funds, and a contribution from the hockey association. With an immediate donation of $7,500 from the hockey association to pay for preliminary architectural costs, the Council authorized the preparation of a preliminary design for a second ice sheet. The Council will recall there were two meetings with the architect, A.C.C., and a preferred plan was designated. A preliminary cost estimate was completed based on this design and adjusted to reflect 1997 construction costs. A contingency of $90,000 was also included. A copy of that estimate is attached. At the Oct 1, 1996 Council meeting, the Council approved a resolution authorizing the submission of a grant application to the Minnesota Amateur Sports Commission (MASC) via the State Capitol Bonding Fund seeking the grant maximum of $250,000. In late November of 1996, MASC released information to the public that Eagan was to receive, along with six other communities in the Sixth Congressional District, $125,000 in grant funds. On January23,1997 Starr went tv a urant Keupienu wvnunvp 5PUMUFM Uy anu ulr State Attorney Generals office to formally receive draft documents and direction for completion of the necessary forms and agreements in order to obtain the grant funds. Two additional significant pieces of information were also learned. First, in addition to the grant funds, the State had agreed to waive the collection of sales tax on the purchase of materials used in the construction of the project. MASC staff predicted that this would save owners upwards of $75,000 to $80,000 dollars . A more conservative estimate for Eagan's project is $60,000. Second, Representative Milbert, who authored past Mighty Ducks legislation, stated that another round of Might Ducks would be introduced this session and was likely to succeed. In that case, the six communities in District Six (MASC reviewed grants and made awards by State Legislative Districts) who received only $125,000 would be considered for and would likely receive the remaining $125,000 in order to receive the entire amount previously applied for. The Council would have to authorize resubmission of the original grant to be considered for this next round of grant money. SECOND OPINION ON CONSTRUCTION COSTS Because the estimated cost of the second ice sheet was higher then was first anticipated and to provide more then just one opinion, staff asked the bidder from Lund Martin Construction, who built the existing Eagan Civic Arena to provide the City with a review of the A.C.C. estimate. The firm also constructed the Inver Grove Heights and City of Champlin facilities since the Eagan project. This individual indicated that the estimate might be somewhat high, but would, in his opinion give the City a good level of comfort and margin to bid the project. DEMAND FOR HOURS Demand for ice time in the "highly marketable" hours/season remains strong. This is the time period between late September and mid-March. The Eagan Hockey Association purchased approximately 750 hours at the Civic Arena during this period and about 600 hours at other arenas in the metro area during the same time period. The association still was not able to get all of the hours desired. A second ice sheet would provide about 1,050 hours of additional "prime time" during the late September to mid-March time period. This does not include additional hours prior to 5:00pm, some of which might be purchased by Eagan High School or other high schools looking for additional ice time. Nor does this include hours that could be purchased by opening earlier than late September and closing later. In addition to serving the local need for increased hours of ice time, expansion of other programs could also be accommodated. FUNDING ALTERNATIVES PART I The funding of a second ice sheet could have three distinct components. Assuming the second half of the Mighty Ducks State funds is approved, the City would have $250,000 available. These funds are awarded at project completion. In addition, the sales tax exemption would reduce the project cost by $50,000 to $60,000. The Mighty Ducks money might be identified as Part I of a three part package. PART 11 This component is that which is based on the expected net revenue production of the combined two sheet facility. An estimate of additional revenues and expenses associated with the operation of a second ice sheet was prepared. This work sheet reflects that the 2nd facility would generate an estimated $126,000 in proceeds over the operating costs based on current ice usage by the local association at facilities other then Eagan and the needs of Eagan High School. These proceeds could be used to pay the principle and interest on a revenue bond. The estimate of revenues does not take into consideration any potential dry floor events(thought to be minimal) nor does it include the potential for extending the season. It is also based on an hourly rate of $125. (Staff is expecting to recommend later this spring an increase to $130 per hour on selected prime time ice. Burnsville and Apple Valley have already announced this rate for the 1997-98 season.) The following chart reflects what the net proceeds from the second building could support with a revenue bond under different options. Column A reflects a 20 year bond and column B a 25 year bond with an Internally funded reserve. Column C and D reflect a bond funded reserve, again with 20 and 25 year pay backs. * Required reserve is funded Internally interest free. Investment earnings on the reserve are applied to reduce debit service. NOTE: This was prepared from information supplied by Springsted Inc. dated Oct.24, 1996 and assumes an issue date of 4/1/97 with the first interest payment 4/1/98. PART 111 The third component of the funding package is proposed to come from the Eagan Hockey Association in the form of a "lease". The EHA would lease some of the equipment for the building. This might include the dasher boards and glass, the compressors and other miscellaneous components of the building. The lease could be placed through a private lender or through the City. The net effect would be to spread out their payments over a ten year period. The EHA Board has gone on record as being willing to commit up to $50,000 a year. Combined, the three funding components approximate the cost of a new facility. OPTIONS, Part 11 of the funding component has some options for consideration which would provide A* B* C D Bond Issue 1,,415,000 1,515,000 1,415,000 1,515,000 Issuance costs (21,220) (21,220) (24,970) (23,765) Underwriters discount (25,470) (27,270) (25,470) (27,270) Capitalize Interest (64,088) (72,855) (64,088) (72,855) Debit Reserve 0 0 (141,500) (151,500) Net Proceeds 1,305,000 1,394,,000 1,163,000 1,242,000 Total Interest 1,188,000 1,734,000 1,188,000 1,734,000 Term 20years 25years 20years 25years Average Annual Debit Service 118,000 117,000 118,000 117,000 Column A reflects a 20 year bond and column B a 25 year bond with an Internally funded reserve. Column C and D reflect a bond funded reserve, again with 20 and 25 year pay backs. * Required reserve is funded Internally interest free. Investment earnings on the reserve are applied to reduce debit service. NOTE: This was prepared from information supplied by Springsted Inc. dated Oct.24, 1996 and assumes an issue date of 4/1/97 with the first interest payment 4/1/98. PART 111 The third component of the funding package is proposed to come from the Eagan Hockey Association in the form of a "lease". The EHA would lease some of the equipment for the building. This might include the dasher boards and glass, the compressors and other miscellaneous components of the building. The lease could be placed through a private lender or through the City. The net effect would be to spread out their payments over a ten year period. The EHA Board has gone on record as being willing to commit up to $50,000 a year. Combined, the three funding components approximate the cost of a new facility. OPTIONS, Part 11 of the funding component has some options for consideration which would provide increased funds without substantially increasing the risk to the City. This would include internally funding the second building thereby eliminating the bond issuance and underwriting discount. This would save approximately $56,000 as shown in column A. The Civic Arena Enterprise Fund would then make payments of principal and interest to the City annually to retire the debt. If both of these assumptions were to be considered, there would be $1,600,000 available, which includes the Mighty Ducks proceeds at full amount. This option makes the City a "conduit" for the funding but is different than the original Civic Arena project in which the City did Invest funds. The EHA would have to make up the difference between the amount available and the projected construction budget of $2.1 million. Another option would be to consider bond payout of 25 years vs 20 years. This would generate an additional $89,000 in construction proceeds, but increase total payments of principal and interest from $2,602,000 to $3,249,000. This assumes placement of the bonds externally. OTHER USES/LONG TERM PERSPECTIVE What is the potential for the facility to be used for something other then ice or the continuation of high usage and demand for ice beyond the present? It's likely that the second facility could be used for other events. Soccer players would require flooring material to make it suitable for their use (about $50,000) and they would want to be in such a facility earlier in the year; perhaps February 1. This generally conflicts with programmed ice usage. Other recreational uses include baseball and softball; both have made proposals to use the existing upstairs mezzanine at the civic arena for practice. The potential for other dry floor events remains, but as we have learned with the civic arena, there is a limited market in the summer for dry floor activities. The near term need and demand for ice is expected to continue to grow. The new Eastview High School is likely to spin off another hockey association. And, with a portion of Eagan included in this school's attendance area, it very likely there will be a request for ice time from this group. Girls hockey is just beginning to grow. The success that Eagan High School girls have had, in particular Natalie Darwitz , is likely to add continued interest in the program. Certainly, Eagan's youthful demographics would lead one to believe that the continued and growing need for ice is likely to get stronger in the years ahead. If the history and experience of other communities is repeated in Eagan, we can expect a near doubling of ice demand during the next five to seven years. The Civic Arena's Learn to Skate program is just now beginning to grow. This spring saw the introduction of Monday night classes along with the traditional Saturday and Wednesday classes. Given time, its very possible that this growing program could develop into a junior figure skating club or a full club. COUNCIL DIRECTION This memo was generated to initiate discussion by the Council on the issue of a 2nd facility. If it is the consensus of the Council to proceed ahead, the Council should direct staff to issue a letter to MASC to resubmit its application for additional Mighty Ducks Grant money. Alternatives on funding a portion of the construction from generated revenues should also be determined. The Council may also want to consider additional work to be done on advancing the construction documents. (The Council may recall that the Issue of additional parking was left unresolved.) If it is the consensus of the Council not to proceed, it would be appropriate for the Council to direct staff to prepare a formal communication to MASC to withdraw from the Mighty Ducks Grant program. CONSTRUCTION BUDGET A.C.0 has, based on the proposed design scheme, projected a budget for the facility assuming a January 1997 bid date. This budget also provides for all design, engineering and testing costs as well as a 5% contingency. The contingency at 5% Is standard at this stage of design work. The budget, as proposed follows: Earthwork $ 36,600 Site Utilities-sewer\water 16,500 Parking 40,000 Precast Concrete ez Plank Y57,000 Poured in place concrete-foodng\slub 215,000 & Masonry walls Beams 8z Lintels; Includes misc. steel, 24,200 Ice melt pit, overhead door jam Long span steel joist 174,600 Carpentry 29,800 Roofing 106,000 Caulking 5,400 Metal Door -Frames Hardware 22,000 Entrance 27,800 Overhead Door -Ice Resurfacer(electrical) 4,800 Painting 29,600 Toilets & Partition 81600 Protective Flooring 34,000 Dasher Boards -Netting & Glass 112,000 Refrigeration System 316,000 Plumbing; H.V.AC; Dehumidification 192,000 Fire Protection 34,200 Electrical 132,000 Sub Total X1.817,500 General Conditions 5% 90,900 Construction Management 3.5% 63,600 Design -Architecture -Engineering 6.25% 113,600 Reimbursables 5,000 Sub Total -Including Fees 12,089, 700 Sac & State Charges -Building Permit 90950 Contingency -5% 90,900 TOTAL