08/09/2008 - City Council Finance CommitteeAGENDA
FINANCE COMMITTEE
TUESDAY
AUGUST 19, 2008
CONFERENCE ROOM 2 A&B
4:30 P.M.
1. AGENDA ADOPTION
II. RECEIVE BROADBAND UPDATE BY ANDREW COHILL,
TECHNOLOGY CONSULTANT, AND PROVIDE
RECOMMENDATION TO COUNCIL ON NEXT STEPS
III. TIF DISTRICTS-FINANCIAL UPDATE
IV. OTHER BUSINESS
V. ADJOURNMENT
Agenda Information Memo -draft draft draft
August 19 2008, Finance Committee Meeting
II. RECEIVE BROADBAND UPDATE BY ANDREW COHILL,
TECHNOLOGY CONSULTANT, AND PROVIDE
DIRECTION ON PREPARATION OF FINAL REPORT AND
RECOMMENDATIONS TO COUNCIL ON NEXT STEPS
ACTION TO BE CONSIDERED:
Provide direction to Consultant on preparation of the final report, direct any desired next
steps, and provide direction on the process for bringing final recommendations back to
the full City Council.
FACTS:
• In February, 2007, the Eagan City Council passed, as part of its
2007/2008 goals, the following broadband goal:
"Pursue world class Internet speeds, connectivity, and access
to all Eagan residents and businesses, by developing a master
plan, including finance options and policies, for the
installation of high speed fiber optic broadband."
• On December 3, 2007, following months of study and review by the Eagan
Technology Working Group, the Finance Committee met to review the City
Council's broadband goal and discuss recommendations from the Tech Working
Group.
• At the December 10, 2007, Special City Council meeting the Eagan City Council
voted 5-0 to accept the Finance Committee recommendation to prepare and
distribute a request for proposals (RFP) for a specialized broadband consultant.
• In early 2008 interviews were held and on February 19, 2008 the City Council
approved the hiring of Design Nine from Blacksburg, Virginia.
• Since March the consultants have conducted dozens of interviews with small and
large businesses, community stakeholders, the Tech Working Group and with
staff.
• As their preliminary recommendations in pursuit of the Council's broadband goal
take shape, staff and the consultant seek direction on several public policy
questions and the proper approach the Committee desires to bring final
recommendations back before the full City Council.
• Among these public policy questions are:
1. Does the vision described meet the Council's expectations or merit
modification?
2. What are the desired next steps for the vendor evaluation?
3. Of the options presented, are there some options of more interest to the
Council or the Committee, or does the Council desire the full range of
options to come back before it?
4. How and when would the Committee like the final report to come back to
the full City Council?
ATTACHMENTS:
,7 6,
• Enclosed on pages is a copy of a DRAFT executive summary from
Design Nine.
A Broadband Vision for Eagan
The promised impacts of broadband on communities have yet to be fully
realized; widespread access to affordable, high performance broadband
services in communities has the potential to transform work life by
providing more flexibility and control over when and where work is done.
Broadband in every home can help equalize educational opportunities in
K12 schools. Giving workers the flexibility to work from home can
reduce commuting, relieve wear and tear on local roads, and help improve
the green quotient of communities. Studies in the nineties showed that
widespread availability of community information and activities (via an
information-rich community Web portal and community TV and radio) can
actually enhance community life and can encourage higher levels of participation in community activities.
A world class network in Eagan will provide local businesses with unlimited bandwidth at affordable
rates, enabling them to compete aggressively in the Global Knowledge Economy. Residents will have a
world of information and opportunities at their fingertips. The children of Eagan will be able to access a
wide variety of online, media-rich learning resources, and higher education students will be able to study
and earn college credit from home. Residents will be able to choose from a rich variety of music, search
the Web, and access massive archives of multimedia video and audio programming. Eagan, as a
multimedia-rich community of the future, will be able to offer:
• A future-proof network infrastructure that offers abundant, affordable bandwidth
• Massive connections to the rest of the world
• A transformational public access and community media program
• A knowledgeable and engaged citizenry
• Rich local content from a multitude of sources
• Interoperability and support for a wide variety of information devices, including tablet and laptop
computers, HD videoconferencing systems, converged home and business media systems, and
support for wireless phones and next generation mobile devices.
In addition to serving the large employment base already in the city, Eagan will be attractive to an
emerging new group of businesspeople that typically are well-educated, own their own businesses, and
are making choices about where they live based on family needs and interests and the availability of
affordable, high performance broadband. This new breed of entrepreneurs place a high value on the kinds
of amenities that are being designed for Eagan--traditional neighborhoods, ecologically rich greenspaces,
walkable destinations for personal and business needs, good schools, and a sense of place.
Businesspeople and their families make decisions to stay in a community or to relocate based on quality
of life and the availability of abundant and affordable broadband, because broadband is the enabler of
these new Knowledge Economy businesses. Many of these enterprises are located in homes, and so
Eagan's neighborhoods must have business class network services. Broadband is reshaping our
communities in positive ways--less commuting, less need for high capacity transportation systems, more
focus on community and civic life, and more emphasis on personal relationships.
By 2010, Eagan will be attracting significant numbers of new businesses to the city and creating jobs,
because a high performance, affordable broadband infrastructure lowers the cost of doing business.
By 2010, Eagan city staff and departments will have access to a high performance wireless and fiber
network that enables effective and efficient delivery of government services to citizens and businesses,
supports the data and communications needs of first responder public safety, fire, and rescue needs,
and distributes a wide variety of community information and community media content to citizens and
businesses.
City of Eagan Telecommunications Executive Summary DRAFT ONLY Page I. of 6
2
By 2012, every business in Eagan will have affordable access to a broadband infrastructure with as
much bandwidth as needed to successfully compete with any other business located anywhere in the
global economy.
By 2012, every residence in Eagan will have affordable access to a broadband infrastructure with as
much bandwidth as they need to manage their personal affairs, obtain access to world class tele-health
and tele-medicine services, keep their homes safe, and have the same level and quality of access to
online goods and services as any other community anywhere in the world.
By 2012, Eagan will have a workforce that is able to work full time or part time from home, using the
city broadband infrastructure to be connected to their corporate business systems. Students and
workers will be able to study and train from home using the advanced broadband infrastructure to
attend classes, learn new skills, and reduce commuting time.
During our interviews and meetings with large and small businesses, schools, and community
organizations, we heard a consistent and clear frustration with the current kinds of services, which were
described as overpriced and inadequate with respect to capacity. Eagan's businesses and residents will
face a substantial gap in network capacity and performance over the next five years. While other
countries already are seeing congestion in 100 megabit fiber networks to the home and to businesses, the
average bandwidth available to most businesses and homes in the U.S. is still hovering around 1 megabit.
Numerous data-based analyses have shown a consistent doubling of bandwidth every two years, which
means the average home and business in Eagan will want a minimum of 50 megabit connections by 2013.
Only fiber to the home and to the business can provide this, and the legacy copper-based networks have
reached their limits and are already saturated-calls for network neutrality and "Internet toll gates" reflect
a growing inability of current providers to meet demand.
Next 2-4 years Next decade Twenty years
Small business needs (1-9 10-25 megabits of 100 megabits of Gigabit+ bandwidth
employees) bandwidth bandwidth
Medium-sized business 50-100 megabits of Gigabit bandwidth Multiple gigabit circuits and
needs (10-100 employees) bandwidth lightpaths
Large business needs Gigabit+ bandwidth Multiple gigabit Multiple gigabit circuits and
(100-1000+ employees) connections lightpaths
Residential needs 25-50 megabits to the 100 megabits of Multiple gigabit circuits and
household (not to the bandwidth lightpaths
neighborhood)
City of Eagan Telecommunications Executive Summary DRAFT ONLY
Page 2 of 6
Over the next thirty years, the businesses, residents, and institutions of Eagan will spend, very conservatively,
more than $3.5 billion on telecommunications services (voice, video, and data). This estimate (see the table
below) is based on current average expenditures, and does not consider what is expected to be rapid growth in
new kinds of services (e.g., tele-medicine, tele-health, IP-based security applications, video on demand, online
games, and many other emerging business applications and services). If these future services were included as
part of the financial projection, the total spent on telecommunications in the Eagan area would probably exceed $5
billion (over 30 years).
The very conservative estimates of expenditures included in table below indicate that there are substantial funds
available for investment in a world class, high performance broadband network (the expenditures are not adjusted
for inflation or for typical price increases). It would take just 7% of those expenditures to build the world's best
network connecting every home and business in Eagan, and much of that cost would be financed by revenue
derived from the users of the network.
City of Eagan 30 Year Telecom Expenditure Analysis
Low to Middle Income
Households Middle to Upper Income
Households Households with no
Internet
Total households 69,720
Total businesses 2,338
Percentage of households 30% 65% 5%
Number of households 20,916 45,318 3,486
Average monthly telecom
expenditures Local phone: $25
Long distance: $25
Cable/satellite TV: $45
Dial up Internet: $20 Local phone: $25
Long distance: $25
Cable/satellite TV: $60
Broadband Internet: $40 Local phone: $25
Long distance: $25
Cable/satellite TV: $45
Annual telecom cost/household $1,380 $1,800 $1,140
30 year telecom expenditure $865,922,400 $2,447,172,000 $119,221,200
Total residential expenditures $3,432,315,600
Total telecom expenditures 1 $3,947,162,940
Business, schools, institutions, and government costs estimated conservatively at 15% of residential expenditures
City of Eagan Telecommunications Executive Summary DRAFT ONLY Page 3 of 6
J
World Class Network Requirements
Unlimited Bandwidth
.... .................................. . ... . . . . . . . . . . . . . . . . . . . . . . . . ............ . . . . . . . . . . . . . . . . . . . .. ................. . . . . . . . . . . . . . . . . . ......... . . . . . . . . . . . . ........... . . . . . . . . . . . . . . . . . . . . .... .......... . . . . . . . . . . . . . . . . . . ............. . . . . . . . . . . . . . . . . . . . . . .
Within the City
Businesses in Eagan should have as much bandwidth as they need to do whatever it is they need to compete
globally. Fiber to every premise is needed to support the business class services being requested by the
commercial and retail businesses in Eagan. Unlike roads, water, and sewer systems, fiber capacity can be
increased incrementally as needed without incurring additional construction costs, making it a reliable and secure
investment. Steady increases in work from home opportunities and home-based businesses require fiber in
residential areas, not just commercial and retail areas of the city. Wireless access in Eagan will be used primarily
for mobile access to the Internet and access to business information while away from the office.
To Minneapolis and Beyond
Eagan needs more and better fiber routes in and out of the City, especially to support the business activities of
large enterprises like Northwest, Thomson-Reuters, Blue Cross, and the many other larger businesses in Eagan.
Many businesses large and small in Eagan are conducting business operations on a global scale, meaning they
cannot afford to lose network connectivity for even a few moments. One firm indicated that the cost of loss of
network connectivity was one million dollars per minute. Redundant fiber cable paths are extremely valuable to
Eagan from an economic development perspective; many relocating businesses place a high value on prospective
locations with cable path redundancy.
Symmetric Bandwidth
. . . ......... ... .............................. . ... . . . . . . . . . . . . . . . . . . ............. . . . . . . . . . . . . . . . . . . . . . .. . ............ . ... . . . . . . . . . . . . . . . .......... . . . . . . . . . . . . ... ......... . . .. . . . . . . . . . . . . . . . ................ . . . . . . . . . . . . . . . . ......... .. . . . . . . . . . . . . . . . . . . .
Upstream and downstream data capacity of the broadband network should be equal. Most current broadband
systems restrict upstream data capacity to a fraction of the downstream capacity--upstream capacity is often only
10% of downstream capacity. These limits restrict economic development, entrepreneurial activities, and work
from home opportunities. Interviews with both large and small Eagan businesses indicated that symmetric
bandwidth was considered a business requirement. Companies as diverse as Blue Cross and small one person
start ups both cited symmetric bandwidth as essential to support business activities from the home, including
casual nights and weekend access, full time work from home employee situations, and home-based businesses.
Widespread Availability
High performance network connections should be available at every business and residential premise in the city.
Work from home programs like those being planned by Blue Cross (as much as 20% of the workforce working
full time from home) and the diversity of other business access from the home indicates that if a desired outcome
of City broadband investments is economic development, then universal access is extremely important, since it
will not be possible to predict with any certainty in what area of the City new business activity will take place.
Retail areas, office buildings, and residential areas of the City will all eventually need the same kind access to
bandwidth and services.
Affordability
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ............. . . . . . . . . . . . . . . . . . . .............. . . . . . . . . . . . . . . . . . . . . . . . . . . .......... . . . . . . . . . . . . . .. ......... . . . . . . . . . . . . . . . . . . . . . . . .. .............. .. . . . . . . . . . . . . . . . . . . . .. ........... .. .. . . . . . . . . . . . . . . . . . .
Interviews with Eagan businesses indicated that the high cost of existing business class services was a deterrent to
growth and to business innovation. It is more efficient from both network and financial perspectives to build a
single, shared, very high performance network than to have several competing legacy, copper-based networks that
are each maintained at significant cost. City investments in basic infrastructure allow service providers to offer
services at lower cost because their capital expenses have been reduced substantially while increasing their access
to a much larger, aggregated market.
City of Eagan Telecommunications Executive Summary DRAFT ONLY Page 4 of 6
C.
Support for a Wide Range of Services Beyond "Triple Play"
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . ............... . . . . . . . . . . . . . . . . .......... .. .. . . . . . . . . . . . . . . . . . . . . .. ... ........ . . . . . . . . . . . . . . ........ .. . . . . . . . . . . . .... .......... . . . . . . . . . . . . . . . . . . ... ... ....... . . . . . . . . . . . . . . . .. . ... .......... ... . . . . . . . . . . . . . .
Telecommunications services has undergone a massive transformation in the past fifteen years, and that change
will continue for at least an additional ten years as all services formerly delivered over narrow bandwidth analog
networks (i.e. the traditional "triple play" of Internet, TV and telephone) are delivered over wide band digital
networks. Many new services (e.g. YouTube, iTunes Music Store, VoIP phone services) were not anticipated or
predicted by most industry pundits just ten years ago. Newly emerging high bandwidth services include a wide
range of telemedicine and telehealth services, new kinds of online entertainment options, and many more kinds of
business and ecommerce services. Any telecom infrastructure investments undertaken by Eagan must be capable
of supporting a wide range of future services that are going to emerge but cannot be predicted precisely.
Competitive Marketplace
A world class broadband infrastructure will lower costs for service providers offering services on the network and
will increase competition among providers. This will increase the kind and type of service offerings while
keeping prices lower than those in communities without a competitive marketplace for telecom and broadband
services. This will make Eagan more competitive from an economic development perspective and help to retain
existing businesses and jobs and also help to attract new jobs and businesses to the City.
State of the Art Community Media Center
The traditional public and community access TV systems have always been constrained by the limits of the cable
TV system over which just one or a few channels are typically available for community use. An opportunity
exists for Eagan to be the first community in the country to make a complete transition to a fully digital, fully IP-
based community media system with vast amounts of content available instantly, on demand, at any time,
anywhere in the city. Current structural changes in the community media infrastructure can be leveraged to
achieve a breakthrough, best of class system.
Limited Government Involvement
. . .. . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . .. ........... .. . . . . . . . . . . . . . . .. .. .............. .. . . . . . . . . . . . . . . . . . . . .......... . . . . . . . . . . . .......... . . . . . . . . . . . . . . . . .. ................ . . . . . . . . . . . . . . . . . ............ . . . . . . . . . . . . . . . . . . . . . .. ............ .
The City government should limit its involvement to providing basic infrastructure; services provided to
businesses and residents should be offered by private sector service providers. Incumbent providers as well as
other interested firms should all be invited to use this "open access" City infrastructure to sell current services and
new, innovative services both to existing customers in Eagan and new customers. This approach will keep City
elected and appointed officials out of the business of providing telecom services directly to the public.
Communities where the local government has chosen a "municipal retail" approach, where residents and
businesses buy telecom services (e.g. telephone, Internet, TV) directly from the local government have often been
sued by incumbent providers on the grounds that public funds should not be used to compete directly with the
private sector.
While these communities have often won in court, such cases often take years to resolve at great legal expense.
Financially, these network projects then face difficulties because the local government then must market the new
network directly against the incumbent providers, who usually cut prices and engage in a price war with the local
government. The open access approach avoids these difficulties by creating a market environment where service
providers compete against each other instead of competing against the City.
City of Eagan Telecommunications Executive Summary DRAFT ONLY Page 5 of 6
7
Strategy Description Discussion
Do nothing Local government The advantage of this effort is that the City does not have to spend time
continues to leave all or money on building and managing telecom infrastructure. The
telecom investments to the disadvantages include:
private sector and to the
regional fiber effort. • Lack of control over the area's economic future because infrastructure
capacity is determined entirely by third parties not vested in the area's
future.
• Fewer work from home opportunities because of inconsistent home
access to wired broadband services.
• Higher costs for business broadband and inconsistent or no access to
competitively-priced business broadband services.
Passive The City of Eagan makes In this approach, the City must invest some staff time and area resources
infrastructure carefully targeted to build and support the passive infrastructure. However, the
investments in passive infrastructure investments are not as expensive or as complex as current
infrastructure (duct, dark government-owned water and sewer systems. Some revenue would be
fiber, colocation facility, received from leasing these facilities, and that revenue would be used to
wireless sites and towers). offset both the initial cost and the ongoing costs of maintenance and
These facilities are leased repairs.
out on a first come, first
serve basis to service A passive-only investment strategy minimizes the technical complexity
providers who pay based of construction and maintenance while ensuring that over a period of
on a share of revenue from several years, most homes and businesses would have competitive
the use of the access to broadband services. A passive only approach may not attract
infrastructure. enough service providers to ensure a wide range of services and
competitive pricing for services.
Full network The City invests in a This approach would maximize the potential financial benefit to the city
complete network, and its businesses and residents over time. It would require a substantial
including both passive and commitment from City leaders and City staff to plan and execute. This
active infrastructure (the approach, with careful attention to how people will use the network to
electronics, software, and transform work and community life, would make Eagan the first
wireless/fiber equipment community in the nation to fully explore the potential of the network to
needed to operate the positively impact the community.
network).
Financing would be accomplished ideally by using a combination of
primarily non-tax funds, including revenue bonds, new market tax
credits, CDBG grants, monetized purchase commitments, local bank
loans, and a small amount of existing budget funds.
Public Safety The area limits This approach would ensure that area services have the infrastructure
investments to those support needed to deliver essential services to businesses and homes.
required to support current However, this does not address economic development or workforce
and future public safety development needs for the community.
needs (fire, police, rescue,
public works) for voice
communications and data
services.
City of Eagan Telecommunications Executive Summary DRAFT ONLY Page 6 of 6
Agenda Information Memo
City Council Finance Committee
August 19, 2008
III. TIF DISTRICTS-FINANCIAL UPDATE
DIRECTION REQUESTED:
To define questions and issues for additional analysis and Committee background on the City's TIF
Districts.
BACKGROUND:
A review of the current status of the City's TIF districts has been referred to the Finance Committee
by the City Council. This is in keeping with previous Council referrals, when the Finance
Committee has reviewed and given recommendations to the full Council and EDA on
redevelopment financing in the past.
The intent of this background and discussion is to provide a brief overview of all districts, but to
focus on an introduction to the status and issues at Cedar Grove. Given the time available, the
information is at a very high and general level, with the intended outcome to be to respond to
Committee questions, identify additional questions to be addressed and direction for a future
Committee meeting.
General Overview of Active Districts
Northeast Eagan - Purpose - To provide financing and other assistance to improve several areas
along one of the Gateways to Eagan by relocating older generation industrial uses, removing
substandard structures, rationalizing land use and transportation patterns and encouraging newer
Office Park uses in a more efficient development pattern.
• Active Districts are 2-3, 2-4 and 2-5.
• All are set up to be internally self financing - percentage of TIF generated by project to a
maximum amount of assistance to the development.
• The expansion of the "Development District" during approval of 2-5 permits pooling of up
to 25% of increment from these TIF districts to other TIF districts, but the intention is to
direct pooled TIF resources to the Cedar Grove District.
• More detail is available and can be provided at a future meeting.
Southeast Eagan - Purpose - To provide financing assistance within a specific neighborhood
commercial development area by underwriting the extraordinary costs associated with the
acquisition and removal of older, "countryside" industrial properties and their assembly into a retail
center master plan.
• This is a post February 2006 district and, as such, eminent domain is not available to assist
in property assembly.
• The developer has not been able to secure an anchor tenant and both the PD and the
Redevelopment District are not moving forward unless and until he does.
• The EDA deadline to submit a final development plan and move forward with either a PD
amendment or Final PD of the original plan and subdivision is August 20, 2008.
• At a future date, the Committee will want to consider a recommendation regarding this TIF
district if the August 20 deadline is not met. The City has not expended money for this
district. The developer has incurred costs purchasing one of the previously developed
parcels and demolishing the building on it, but there is no development agreement insuring
City payment for developer costs.
• More detail is available and can be provided at a future meeting.
Cedar Grove - Purpose - To provide financing and other assistance to improve a large contiguous
area along one of the Gateways to Eagan by relocating older generation retail and service uses,
removing substandard structures, rationalizing land use and transportation patterns and encouraging
newer mixed uses in a more efficient development pattern.
• Unlike Northeast Eagan, where private, unsubsidized investment was converting substantial
areas into newer generation, higher quality land uses and the redevelopment efforts could be
targeted to assist in specific areas where preexisting substandard and inconsistent uses were
scattered, the Cedarvale Shopping Area that forms the largest part of the Cedar Grove
District was in overall decline. Following the recommendations of the Cedar/13 Task Force,
the City determined to take a more comprehensive redevelopment approach to the Cedar
Grove area.
• More information regarding the redevelopment and a graphic comparison of sources and
uses of funds in the District will be distributed on Monday.
ATTACHMENTS:
• To be distributed with the Supplemental Information packet on Monday
City of Evan MeMo
TO: MAYOR MAGUIRE AND COUNCILMEMBER BAKKEN
FROM: CITY ADMINISTRATOR HEDGES
DATE: AUGUST 18, 2008
SUBJECT: ADDITIONAL INFO FOR 8-19 FINANCE COMMITTEE MEETING
As was noted in the Finance Committee packet that was distributed on Friday, enclosed on pages
through _ is additional information for the August 19 Finance Committee meeting
regarding the Cedar Grove redevelopment area and a graphic comparison of sources and uses of
funds in the TIF District.
/s/ Thomas L. Hedges
City Administrator
A City of Eagan In
TO: TOM HEDGES, CITY ADMINISTRATOR
FROM: JON HOHENSTEIN, COMMUNITY DEVELOPMENT DIRECTOR
DATE: AUGUST 15, 2008
SUBJECT: CEDAR GROVE TIF DISTRICT UPDATE
Cedar Grove Status and Issues
The situation in the Cedar Grove Redevelopment District is not unlike that being
experienced by other cities with other redevelopments or publicly assisted
development projects. While that does not diminish the challenge faced to
implement the City's vision for a high quality redevelopment, it does mean that our
redevelopment situation is not unique.
The unique challenge for TIF financing in Eagan is that the City has worked hard to
maintain an extremely low tax rate, which combined with the low County tax rate,
results in smaller incremental tax differentials than are experienced in cities and
counties with higher tax rates.
Property Acquisition - After attempts to encourage private sector developers to
acquire and assemble subparts of the property directly, the City shifted its approach
during its relationship with Schafer Richardson as master developer and, by the
time it selected Doran Pratt to replace Schafer, the City had chosen to take the lead
in property acquisition and assembly. To date, the City has internally financed all
acquisitions, improvements and related costs.
• At the present time, the City controls 96% of the property planned for
redevelopment. As a result of the acquisitions and the Hwy 13-Silver Bell-
Cedar Grove Parkway public improvement, the City has made most of the
upfront investments, but has only achieved limited redevelopment to date.
Some costs of acquisition, demolition and relocation remain, additional
public improvements will need to occur and core area development has yet
to begin.
• The termination of Schafer Richardson and the selection of Doran Pratt
corresponded with the substantial downturn in all types of development,
presenting particular challenges for mixed use development and for
redevelopments, due to the special risks and financing needs associated
with such projects.
r
Core Area Financing - Because of the extraordinary costs of acquisition,
demolition and relocation around the old Cedarvale Mall site, the Core Area of
the Cedar Grove Redevelopment District was never expected to cash flow by
itself. Net revenue from other parts of the Cedar Grove District (Keystone,
Nicols Ridge and the United Properties Office) was expected to support the
costs in the core area.
• Keystone was completed and is creating net increment. Nicols Ridge is
incomplete and settlement discussions with US Home are in process.
United Properties has determined that it cannot develop the Class A office
project intended on the north side of Hwy 13 nor can it pay for the acquisition
of the Brad Ragan Tire site and is proposing a scaled back office-showroom-
warehouse project on property owned by United and by the City.
• Other properties that did not require public financing assistance have been
completed in the area and are generating net tax revenue as well
(McDonalds, Opus Office Showroom, Schwann's, Shoppes at Cedar Grove
and River Ridge Condos).
• The City also intends to recoup a portion of the acquisition costs through
resale of property to the developer. The current development and financing
environments appear to require that the land sale prices for certain of the
development alternatives be written down substantially and, in some cases,
to zero to permit projects to cash flow at a level of return that will incent the
development partners to proceed.
• All project financing plans change over time, but the changing realities within
the Cedar Grove District will require the updated financing plan to draw on a
range of sources, including pooling from other redevelopment districts,
CDBG allocations and other CDA sponsored funds, assessments for
additional public improvement projects, allocations from the Major Street
Fund, possible grants and possible waivers of certain City fees.
• Beyond those sources over which the City and its partners may have a level
of control, there is also the potential to pursue special legislation to extend
the term of the TIF district to attempt to match the revenue capture period
with the actual development. This effort would have challenges of its own
and past examples have focused primarily on the portions of districts that
have not begun to redevelop. There may be an option to negotiate with the
County for a lower base value from which increment would be calculated,
but that has not been tested in Dakota County to our knowledge. A last
option, if a financing gap remains, would be to establish a levy for the EDA
and commit proceeds to the repayment of the costs of the district.
Timing of Core Area Construction - While the project was never expected to be
fully developed in the first several years of the District, projected revenues are also
being affected by the passage of six of the 26 years of the District's term prior to
Core Area development, assuming that a first phase can be started in 2009.
• The City had previously hoped to achieve an overall development and
financing plan that balanced all expenditures and revenues at the outset.
• The combination of the time necessary to complete property acquisition and
assembly has forced a late start and the downturn in the development
market and the lack of market support for the highest density and value
development products that had been anticipated in the district means that it
is not possible to project one possible scenario that will close the gap before
the project begins.
• Waiting longer for the ultimate solution will make the gap bigger. The
developer has indicated a willingness to proceed with a first phase made up
of a specific combination of uses that are market supportable in the near
term and that those uses can be concentrated at the east end of the project,
so that the maximum flexibility for alternated development scenarios is
retained for the portion of the Core Area between the first phase and the
Cedar Grove Transit Station, which is scheduled to open in September of
2009.
Potential Principles for Project
• Proceed with a market supportable Phase I to create momentum, attract
additional interest in the area and generate TIF revenues.
• Waiting any longer for a full, comprehensive development plan will make the
gap between costs and revenue sources grow.
• While it is impossible to predict when the development and credit
environments will improve, proceeding with a Phase I in 2009 will position
the City to go at whatever pace the recovery will permit.
• Developing a Phase I on the east end of the Core Area and the Transit
Station on the west end, will create the greatest potential for a higher
intensity-higher value development scenario in between.
• In order to implement as many of the priorities of its vision for Cedar Grove
as possible (transit orientation, pedestrian orientation, higher density
development, etc.) in the current economic environment, the City will support
a horizontal mixed use development pattern
• A range of revenue sources will need to be applied to close the gap between
the amount of TIF revenue the Core Area can generate and the total costs
necessary to complete land acquisition and implement remaining public
improvements. A tax levy, while feasible and controllable locally, is
considered to be a last resort.
• Others to be added by the Committee and Council.
A graphic comparison of the costs to date and projected costs to known revenue
sources and potential revenue sources is provided in the attached bar charts.