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10/06/2009 - City Council Finance CommitteeAGENDA FINANCE COMMITTEE MEETING TUESDAY, OCTOBER 6, 2009 1 PM EAGAN ROOM I. AGENDA ADOPTION 12 1 II. FUTURE FUNDING OPTIONS FOR PARK DEVELOPMENT FUND AND PARKS AND REC CIP P. 11.1' III. FIRE SAFETY CENTER FINANCING Rite IV. DIRECTION ON FUTURE REVIEW OF ALL CITY FUNDS f? a (eV. CEDAR GROVE FINANCING I3 VI. CO -LOCATION FACILITY UPDATE VII. OTHER BUSINESS VIII. ADJOURNMENT Agenda Information Memo October 6, 2009, Finance Committee Meeting II. FUTURE FUNDING OPTIONS FOR PARK DEVELOPMENT FUND AND PARKS AND RECREATION CIP ACTION TO BE CONSIDERED: To provide feedback and direction for future funding options for park development fund and Parks and Recreation CIP projects. FACTS: • Funding for parkland acquisition and development as well as ongoing CIP projects comes from the Park Site Acquisition & Development Fund (PSA&D), whose primary source of funding is fees collected from developments at the time of platting in lieu of land dedication. • Each year the APrC provides the City Council with a review of projects for consideration for the next year as well as a blueprint of potential projects for the following 4 years. This blueprint helps to strategically plan for expenditures that will impact the PSA&D Fund. • During 2002 and 2003 the APrC engaged in a comprehensive review of options and opportunities for alternative funding that might supplement or replace land dedication fees when the major development cycle ended in the City. • The alternative funding report was first reviewed with the City Council on March 3, 2003 at which time they directed changes to include information on volunteerism, lottery grants and potential partnership opportunities. Those additions were incorporated into a revised report. • During 2004 and 2005 the APrC, in partnership with a consultant, worked to develop the 20/20 Vision which was designed to update the park system plan and look at alternative funding opportunities. That final report incorporated most of the options originally defined by the APrC along with other future considerations. • On September 8, 2009 the City Council reviewed the 2010-2014 proposed CIP projects and reiterated their concern for the sustainability of the PSA&D Fund as the City nears build out. / • Noting that the Council and APrC annually share the concern for funding sustainability, the City Council directed further review of potential funding alternatives to the Finance Committee. ATTACHMENTS: • Enclosed on pages cQ through 1 is a copy of the funding alternatives as presented in the 20/20 Vision document. • Enclosed on pages O through / is a copy of a list of 2010- 2014 projects as recently reviewed in the CIP process. • Enclosed on page 43 is a copy of potential CIP projects not included in the 2010 — 2014 CIP. 9 Recommendations 9-53 Category H. Funding Alternatives Discussion: The key funding strategy is to utilize this plan and its recommendations as a guide to feed the Capital Improvement Planning (CIP) process. This means that each year the Parks and recreation Department Staff and the APrC will prepare projects they consider the priority and submit them to the City for action. The plan addresses funding only in a generic manner. This avoids the problems of dollar amounts that either appear inflated to the 2005 reviewer or undervalued to the 2015 reviewer. The funding that is implied from these recommendations can be divided into the three categories discussed previously. These categories include: 1. Fiduciary 2. Public Benefit 3. Quality of life Enhancements Note: There is actually a fourth category that addresses operational costs. Many of these recommendations have an operational cost in terms of services and maintenance and may require additional staff, equipment and other resources. Issue Hl: Fiduciary Recommendations Discussion: Since these recommendations relate to protecting the existing investment in the parklands and facilities the City should anticipate funding these activities through the tax base unless grants and donations can be found. Activities such as the systematic replacement of playgrounds and providing enhancements to Cascade Bay Water Park are included in the fiduciary category. Some of these activities will be funded through the capital portion of the operating budget while other more expensive items will be funded through CIP monies. The cost in 2005 for these activities is currently about $400,000.00 a year or roughly $6.0 Million over the next 15 years. Note that for the past few years the funding for capital projects (not including the ECC) has been about $800,000.00 per year. CEHP Inc. City of Eagan, MN Park System Plan 9 Recommendations 9-54 Recommendation H.1 Fiduciary Recommendation Funding The City should seek grants, donations and partnerships where possible to address the fiduciary responsibilities, but they should plan for tax funding of these actions. Issue H2: Public Benefit Recommendations Discussion: The Public Benefit Recommendations make up those actions that involve completing the park system and providing basic program and service delivery for all. Recommendations such as the trails system, the cultural arts program and facilities and the completion of the Holz Farm Park Master plan are included in this category. The estimates for Public Benefit actions are difficult because there are so many different approaches that are possible. The consultants estimate that the Public Benefit recommendations will cost approximately $6.0 Million over the 15 -year period. The strategy for Public Benefit Actions is for the City to seek at least a 25 percent match for projects from grants, donations, partnerships and fees. This would mean that the City's investment would not exceed $4.5 Million for the Public Benefit projects. Recommendation 11.2 Public Benefit Recommendation Funding The City should seek grants, donations, partnerships and fees in an amount of at least 25 percent of the project costs for the Public Benefit actions. CEHP Inc. City of Eagan, MN Park System Plan 9 Recommendations 9-55 Issue H3: Quality of Life Enhancement Recommendations Discussion: Field Lighting, dog parks, synthetic turf fields under a bubble are all nice features to have and the City would benefit from their development. Their use, however, is for a very specific group of residents, and as such it is not unreasonable for the City to expect a significant contribution to their development and perhaps to the operations. Feasibility is generally a big question regarding the viability of some of these projects. The City should proceed cautiously on the development of any of these projects and ensure that there are no entrepreneurs that are willing to shoulder the burden of building and operating the facilities. In the event a decision is made to move forward with any of these projects the City should obtain at least a 50 percent match on the development of the project. The Consultants estimate that the Quality of Life Enhancements could cost about $8.0 Million. This might mean the City would contribute $4.0 Million to the Quality of Life Enhancements. Recommendation H.3 Quality of Life Enhancement Recommendation Funding The City should work with partners to seek grants, donations, and fees in an amount of at least 50 percent of the project costs for the Quality of Life Enhancement actions. In addition: t. The City should not initiate these projects without evidence of considerable public or user group support. 2. The first step in any of these projects should be an independent feasibility study to determine the viability, development and operational costs for the proposed facility. CEHP Inc. City of Eagan, MN Park System Plan 9 Recommendations 9-56 Issue H.4: Sources of Funding Discussion: For certain projects there are obvious sources of funds. Public Park and Recreation funding at the federal, state, regional and local levels has been inconsistent in recent years and what has been provided has had many competitors for each dollar. In specific areas such as trails, health and wellness, environmental mitigation, service to older adults, and some youth programs there are more dollars available. This not to say that it is not worthwhile seeking these funds. It does however provide the underlying reason for very specific targeting of projects on the basis of their ability to obtain local support. Most jurisdictions have come to the realization that bond issue, revenue and taxes coupled with traditional federal and state funds are no longer sufficient to get results. In response the jurisdictions have sought to define their unique characteristics and market strengths to optimize alternative sources of income. Some examples include: • Selling naming rights for facilities or programs • Seeking outright sponsorship • Creating PubliclPrivate or Public/nonprofit partnerships • Advertising • Developing Park Foundations • Creating Private Land Trusts • Accessing non-traditional tax sources such as hotel and restaurant taxes. Key Funding Sources 1. Park Foundation — The City of Eagan has a great number of resources in the form of corporate and retail citizens. The goal is not to ask them for contributions but to enlist their assistance in developing strategies for raising funds. The Park Foundation is the best tool for this effort. The foundation can solicit donations in the form of lands, securities, conservation easements, and even PDR's as well as pursue grants and gifts that might not otherwise be available to the City. They can also work with City Partners and run campaigns to obtain funding for specific projects. CEHP Inc. City of Eagan, MN Park System Pian 9 Recommendations 9-57 Recommendation H. 4. A Create a Foundation The City should support the creation of an Eagan Park Foundation as set forth in Recommendation A.4 2. Partnerships — The City of Eagan also has a number of potential public partners in the form of the school districts, the county park systems, other adjacent jurisdictions, and regional and state governments. In addition there are a number of active users such as the athletic associations that are well organized and capable of performing a meaningful role in a partnership. Recommendation A. 4. B Partnerships The City should proactively engage other public and private organizations in discussions about potential partnership opportunities. 3. Bond Referenda — The City in order to leverage the potential outside sources of funding needs to have some means of participating on its own. The public input provided by residents during the course of developing this plan gave no indication that they would support the recommended initiatives if the City were to bear the entire cost burden. They were much more supportive of efforts that would utilize some outside funding. Recommendation H. 4. C Bond Referenda The City should consider approving a bond referendum as the supply of capital funds runs low in order to be in position to take advantage of desirable park development opportunities. Referendum characteristics might include: • A relatively low amount of funds around $3.0 Million per referendum • Specify the projects to be allocated funding • Indicate what alternative funds will be committed from outside sources • Relate to projects that have wide support in the community CEHP Inc. City of Eagan, MN Park System Plan 9 Recommendations 9-58 Notes and Comments CEHP Inc. City of Eagan, MN Park System Plan E4 Wa w AW z. 00 p" zL a � aw E1 0 2010 - 2014 EST. BALANCES BALANCE - Jan. 1, 2010 = $1,623,000 (-) $ 395,000 = $1,228,000 Estimated 2010 Revenues (+) $ 75,000 Estimated Balance 1/2011 = $1,303,000 FUNDING CA O• a a a cA a PSF/P/G A ri 0 44 C.) g 0 o 0 (-4' fze3 0 0 0 Q (NI 000`0£$ 0 O $395,000 (without acq) PROJECT DESCRIPTION Construct Ellipse Service Building • Toilets • Shelter • Storage Playground Installation Park Signage System, Phase IV Small Projects Acquisition Opportunities LOCATION Central Park Proposed • Trapp Farm East/West TBD City Wide Numerous Q H rn 71 0 E' 21 g &) G:\Budget\P&Rec Pot Dev\Pot Proj BY YEAR 2010-2014 — Rev. 7/29/2009 2010 - 2014 EST. BALANCES BALANCE - Jan. 1, 2011 = $1,303,000 (-) $ 450,000 = $ 853,000 Estimated 2011 Revenues (+) $ 75,000 Estimated Balance 1/2012 = $ 928,000 FUNDING PSF/P O• a a O.( a. PSF/P/G W F� C% W 0 o O O O pp 69 o O O 69 0 o M O 00 Cr) 69 O M o O b 6g $450,000 (without acq) PROJECT DESCRIPTION New Park Development Ellipse and Field Irrigation Playground Installation Sun Shelter Small Projects Acquisition Opportunities LOCATION Cedar Grove Central Park Proposed • Bur Oaks N/S • Wescott Commons Captain Dodd Park Numerous H Sub -Totals G:\Budget\P&Rec Pot Dev\Pot Proj BY YEAR 2010-2014 — Rev. 7/29/2009 2010 - 2014 EST. BALANCES BALANCE - Jan. 1, 2012 = $ 928,000 (-) $ 395,000 = $ 533,000 Estimated 2012 Revenues (+) $ 100,000 Estimated Balance 1/2013 = $ 633,000 A za w PSF/P w a w a w a PSF/P 4. a ESTIMATED COST 0 71- EA 0 o EA 0 kri EA 0 c> EA 000`S£$ Z 00� 000`0£$ %00 `0S9$) $395,000 (without acq) PROJECT DESCRIPTION Master Plan Phase IV • Removal of Deerwood House • Access Improvements Tennis Court Improvements • Surface • Lighting Skate Park Improvements Field Lighting Upgrade Playground Installation Small Projects Acquisition Opportunities LOCATION Patrick Eagan Park Northview Park Lexington/Diffley Park Big Goat Ball Field atl H Numerous Q H Sub -Totals 0 G:\Budget\P&Rec Pot Dev\Pot Proj BY YEAR 2010-2014 — Rev. 7/29/2009 2010 - 2014 EST. BALANCES BALANCE - Jan. 1, 2013 = $ 633,000 (-) $ 395,000 = $ 298,000 Estimated 2013 Revenues (+) $ 100,000 Estimated Balance 1/2014 = $ 398,000 FUNDING PSF/P PL. a r a 4-4 a C.7 V„ a ESTIMATED COST $ 235,000 $ 75,000 0 0 NEf? 000`0£$ 0 0 0 b $395,000 (without acq) PROJECT DESCRIPTION Athletic Field Lighting Playground Upgrade Master Plan Trail Signage System Small Projects Acquisition Opportunities LOCATION I� Blackhawk Park Section 16 Q 1-4 Numerous til V) 3 © .Lfil ll G:\Budget\P&Rec Pot Dev\Pot Proj BY YEAR 2010-2014 — Rev. 7/29/2009 r E1 E• "l • 0 w a -tt• z AW z� O 0 1-1.et A<t ZU 1-4 aw E-+ a 2010 - 2014 EST. BALANCES BALANCE - Jan. 1, 2014 = $ 398,000 (-) $ 498,000 = (-) $ 100,000 Estimated 2014 Revenues (+) $ 100,000 Estimated Balance 1/2015 = $ - 0 - FUNDING PSF/G w a a a C.7 v) a w d IPI Z69 z O WU o o o CA 000`051$ gS 0 o� N_ 64 0 0 M o 0 N 69 0 0 o $498,000 (without acq) PROJECT DESCRIPTION Park Development Phase II Park Development Phase II Playground Installation Small Projects Acquisition Opportunities z 0 H 0 .a Holz Farm Park Cedar Grove act H Numerous = H Sub -Totals G:\Budget\P&Rec Pot Dev\Pot Proj BY YEAR 2010-2014 — Rev. 7/29/2009 PARKS AND RECREATION DEPARTMENT POTENTIAL CAPITAL IMPROVEMENT PROJECTS Category/ Location Estimated Cost Potential Funding Park Development 1. Moonshine Park $200,000 PS/LS 2. Section 16 - Federal Drive $200,000 PS/LS 3. Section 11 - Thresher South $200,000 PS/LS 4. Rahn South $150,000 PS/LS 5. Holz Farm Park Phase III 150 000 PS/LS Sub -Total $900,000 Park Improvements 1. Wandering Walk Trail $100,000 PS 2. Bur Oaks Trail Paving $90,000 PS 3. Thomas Lake Trail Lighting $100,000 PS 4. Rahn Court Construction $120,000 PS 5. Goat and Bridle Bldg. Expansion $200,000 PS 6. Cedarvale Enhancement Phase III $100,000 PS/P Sub -Total $710,000 Lighting 1. Lexington/Diffley Fields (6 new) $500,000 PS 2. Ohman Soccer Fields $150,000 PS 3. Northview Fields 6-8 (3 new) $180,000 PS 4. Thresher Fields ',00,1222, PS Sub -Total $930,000 Master Plans 1. Rahn Park South $30,000 PS Sub -Total $30,000 TOTAL $2,570,000 Misc 1. School Site Partnerships TBD PS/P/G 2. Acquisition Opportunities TBD PS/P/G 3. Grant Opportunity Match TBD PS/P/G 4. Fiduciary Responsibilities TBD PS/P/G r3 g:\Park Rec Poten Dev\Potential CIP Proj 8 5 99 Agenda Information Memo October 6, 2009, Finance Committee Meeting III. FIRE SAFETY CENTER FINANCING ACTION TO BE CONSIDERED: To provide direction to staff regarding the fire safety center financing and related public policy questions. FACTS: • At its meeting on January 16, 2009 the Finance Committee reviewed general financing options associated with the possible relocation of Fire Station #2. The Committee concluded that the project should continue to go forward and recommended to the City Council that it be funded through the sale of existing City properties and the sale of Capital Improvement Bonds. However, it was noted that the project is contingent upon the sale of the two City properties. • Since that meeting, the final scope of the project for the Fire Safety Center has been determined and cost estimates are being refined. • The following is a preliminary Sources and Uses scenario for the project based in part on previous discussions and direction: Preliminary Fire Safety Center Sources and Uses October 1, 2009 Sources: Capital Improvement Bonds $ 5,875,000 Community Investment Fund 450,000 Sale of City Property (8-1-2009 Estimated Value): Fire Station 2 490,000 Fire Administration Building 2,000,000 Franchise Fees 86,000 Total $ 8,901,000 Uses: Building / Site (Current Estimate) $ 8,365,000 Land 450,000 Fiber Connection 86,000 Total $ 8,901,000 • No potential outside funding assistance is included in this preliminary Sources and Uses estimate. • The following are general public policy issues that should be addressed by the City Council and/or Finance Committee as the project continues to move along: 1. How should the potential sale of the two City facilities be undertaken as to timing and should efforts be made to consider leasing the buildings until the commercial real estate market improves? 2. Should contingency financing plans be developed to address the possibility that the buildings cannot be sold or leased in a reasonable time frame or at the estimated amounts? 3. There are some dollars in the building/site cost estimate for a building telephone system. The City is also considering replacement of its entire telephone system in early 2010 so, should those costs be removed from this project and combined with the City wide telephone system replacement? 4. The cost for the fiber connection does not include any redundancy. If this site is to serve as an EOC, a redundant fiber route is probably necessary at some point. The estimated cost for a redundant fiber connection is $73,500. 5. Fire administrative and Police storage costs are probably not eligible to be financed by Capital Improvement Bonds so those bonds cannot backfill the complete shortage caused by not selling the other two buildings. • Using very preliminary debt service information and based on estimated 2010 payable tax calculations for the average market value house of $256,958, the annual tax impact is estimated to be approximately $2.35 for each $1,000,000 borrowed. That calculates to an annual cost of approximately $14.10, if $6,000,000 of bonds are sold and $18.80, if $8,000,000 of bonds are sold. Calculations of annual debt service resulting from a change to the project scope or through the addition of capitalized interest, interest rate adjustments, and bond sale timing, may result in a significant margin of error on these estimates. These estimates include 21 levy years. • While federal regulations provide specific parameters as to how long after expenditures are made that reimbursement bonds may be issued, the actual bond sale can be delayed until such time as all potential funding sources are known and a more precise principal amount can be determined. Delaying of the bond sale will require internal financing of acquisition and construction costs not covered by other City funds. ATTACHMENTS: (None) ra Agenda Information Memo October 6, 2009, Finance Committee Meeting IV. DIRECTION ON FUTURE REVIEW OF ALL CITY FUNDS ACTION TO BE CONSIDERED: To provide direction to staff regarding additional review of all City funds. FACTS: • In the context of the challenging General Fund budgeting situation and the City Council direction to review additional/new funding options for the Parks Capital Improvement Program, the Finance Committee was asked to review the status of all City funds. • As the City continues to move from rapid development and related new infrastructure construction to a more mature community with renewal and replacement needs, certain development related revenue sources are reduced or eliminated entirely. It becomes difficult to balance current operating needs with current and future infrastructure renewal and replacement needs while determining the proper allocation of ongoing tax levies and the appropriate and best use of existing reserves. • The attached memo provides a great deal of financial information regarding the status of the City's various funds at December 31, 2008. This is the same type of information that was reviewed by both the City Council and Finance Committee in 2007 for the year ended December 31, 2006. The memo is included in this packet to introduce the Finance Committee to the information that is currently available. • It is staff's understanding that in the limited amount of time available at this meeting, the Finance Committee will provide direction on how the material should be used and what additional information should be prepared by staff to facilitate the desired review of all City funds at a future date. ATTACHMENTS: • Enclosed on pages /7 through 45- is a copy of the memo from Director of Administrative Services VanOverbeke providing information regarding the financial status of the various City funds as of December 31, 2008. 411,11/ City of Evan Rano TO: City Administrator Hedges FROM: Director of Administrative Services VanOverbeke DATE: September 30, 2009 SUBJECT: Fund Status At your request, I am providing this background information regarding the financial status of the various City funds along with general information about the source of those funds and any restrictions on the use of the funds. The memo is arranged in the following three sections: Section I. Included is a brief description of each City fund with fund purpose and information about sources and uses of resources. The description is a combination of accounting/legal requirements and information and specific application to Eagan's circumstances. The December 31, 2008 Financial Report includes 40 separate City Funds with each fund considered a separate accounting entity. Certain debt service and capital projects funds are combined in this memo because of their similarities. Section II. Included in Section II is a table listing the various funds or fund combinations with fund balance and investment amounts. The narrative in advance of the table and the footnotes provide general information regarding the table and circumstances unique to the individual funds. Section III. Section III identifies some public policy considerations that should perhaps be considered in discussions regarding appropriate uses of fund and/or investment balances. Section I. GENERAL FUND (1 Fund) Purpose/Sources & Uses of Resources The General Fund is established to account for the revenues and expenditures to carry out basic governmental activities of the City such as general government, public safety, public works, and parks and recreation. Revenue is recorded by source; i.e. taxes, licenses and permits, fines and forfeits, service charges, etc. General Fund expenditures are made primarily for current day-to-day operations and operating equipment and are recorded by major functional classifications and by operating departments. This fund accounts for all financial transactions not properly accounted for in another fund. SPECIAL REVENUE FUNDS (7 Funds) Special Revenue Funds are used to account for revenues derived from specific taxes or other earmarked revenue sources. They are usually required by statute or local ordinance to finance particular functions or activities of government. Housing Fund Purpose/Sources & Uses of Resources This fund accounts for the proceeds of an annual fee equal to 1/8 of 1% of the outstanding principal balance of certain revenue bonds or obligations issued to finance multifamily housing developments in accordance with the City's housing program and housing plan. It also accounts for the activities of the Housing and Redevelopment Authority in and for the City. The fund will be used to finance future housing -related developments within the City as determined by the City Council. Cable TV Franchise Fees Fund Purpose/Sources & Uses of Resources This fund was established to account for franchise fees paid to the City from the area cable television provider. The money is restricted for cable -related and communications activities. Through this fund, the City provided funding for Burnsville/Eagan Cable Communications Commission and Burnsville/Eagan Community Television (BECT) until they were dissolved in 2008. Police Forfeiture Fund Purpose/Sources & Uses of Resources This fund was established to account for the proceeds from court-ordered drug forfeitures. The money is restricted for police related activities by court order and/or State statute. Recycling Fund Purpose/Sources & Uses of Resources This fund was established to account for the implementation and on-going operation of the City's recycling program. Funding is provided primarily from Dakota County grants and is restricted to recycling activities. Cedarvale Special Services Fund Purpose/Sources & Uses of Resources This fund was established to account for the Cedarvale area special services district. This designation allows property owners in the area to pay for and receive special services beyond those provided to the remainder of the community. E -TV Fund Purpose/Sources & Uses of Resources This fund accounts for Public/Education/Government (PEG) fees from the cable provider as well as the local cable TV programming activities of Eagan Television (E -TV), which was established in 2008 after BECT was dissolved. DWI Forfeiture Fund Purpose/Sources & Uses of Resources This fund was established in 2006 to account for money received from the court system related to DWI forfeitures. The money accounted for in this fund is restricted for DWI education and enforcement activities. /d' DEBT SERVICE FUNDS (8 Funds) Debt Service Funds are established to finance and account for the payment of interest and principal on all general obligation debt, including debt payable from special assessments but excluding debt issued for and serviced by a governmental enterprise. Provisions are made in the City's general property tax levy for money sufficient to meet the general obligation debt. Special assessment levies are sufficient to meet the debt service obligation of the special assessment improvement debt issues. Assessments on City Property Fund Purpose/Sources & Uses of Resources This fund is financed from tax levies as necessary and is used to pay the City's share of special assessments on benefiting property that the City owns. Special Assessment Improvement Bond Funds (Combination of 6 Funds) Purpose/Sources & Uses of Resources In general, balances in debt service funds are pledged to repayment of the bonds and cannot be appropriated until the bonds have been retired. By City Council policy, these balances are allocated to the Community Investment Fund after all other Special Assessment Improvement Bond Funds have been determined to be financially sound. CAPITAL PROJECTS FUNDS (16 Funds) Capital Projects Funds are established to account for the resources expended to acquire assets of a relatively permanent nature. (Special revenue and enterprise fund resources are not included in this category.) These funds evolve from the need for special accounting for bond proceeds, grants, and contributions for the acquisition of capital assets. Capital Projects Funds provide a formal mechanism that enables administrators to ensure that revenues designated for certain purposes are properly used. Capital Projects Funds further enhance reporting and verification that requirements regarding the use of revenue were fully satisfied. The City's Capital Projects Funds are as follows: Park Site Acquisition & Development Fund Purpose/Sources & Uses of Resources This fund is a combination of the Park Site Fund, which accounted for park dedication fees from developers for the purpose of obtaining and developing parklands, and the Park Acquisition and Development Grants Fund, which accounted for parks -related grant proceeds and corresponding expenditures. The budget for this fund is approved by way of the five-year Capital Improvement Program adopted by the City Council. Community Investment Fund Purpose/Sources & Uses of Resources This fund is financed primarily from special assessment collections remaining after all debt service obligations are met in special assessment debt service funds. The fund is used to pay capital costs and City Council designated start-up operational costs of projects of general benefit to the City. /j Tax Increment Funds (Combination of 5 Funds) Purpose/Sources & Uses of Resources These funds are each set up to account for the revenues and expenditures related to the individual tax increment districts approved in the City. The City's Tax Increment Funds are as follows: • Hwy 55/149 Tax Increment (2-3) Fund • Hwy 55/Grand Oaks Tax Increment (2-4) Fund • Cedar Grove/Hwy 13 Tax Increment Fund • Hwy 55/Blue Gentian Tax Increment (2-5) Fund • Southeast Eagan Tax Increment Fund Equipment Revolving Fund Purpose/Sources & Uses of Resources In 1989, the City implemented the Equipment Revolving fund with the long-range objective of funding capital equipment purchases with a dedicated portion of the operating levy, eliminating the need to borrow via equipment certificates. The City has been successful in this effort; 1997 was the last year equipment certificates were issued to provide financing in the Equipment Revolving Fund. A secondary objective was to remove operating budget fluctuations from the General Fund departments caused by Targe capital purchases. The use of this fund better facilitates overall planning for these large expenditures. General Facilities Renewal Fund Purpose/Sources & Uses of Resources This fund was created to account for the tax levy collected for providing resources to allow for major repairs for the City's general facilities. Cedar Bluffs Housing Improvement District Fund Purpose/Sources & Uses of Resources This fund was created to account for the internally financed loan to the Cedar Bluffs Townhome development and the collection of assessments to repay the loan. Fire Apparatus Revolving Fund Purpose/Sources & Uses of Resources This fund was created to account for activities related to the renewal and replacement of the City's fire apparatus. Funding is through a tax levy and through use of equipment certificates. The fund separates the purchase of fire apparatus from the Equipment Revolving Fund. Revolving Improvement Construction Fund Purpose/Sources & Uses of Resources This fund is used to account for all construction costs for public improvement projects that will be permanently financed by bond sales with debt service payments made from special assessment collections. Utility Trunk Funds Purpose/Sources & Uses of Resources The City's utility trunk funds are used to account for the collection and expenditure of money used to provide over sizing for utilities. The revenues come primarily from area assessment charges and from connection charges. The primary purpose of each trunk fund is to complete construction of the required utility infrastructure across the entire community necessary for full development. Available resources after completion of the original construction are generally earmarked for renewal and replacement of those systems. The following trunk funds are in place and fund titles describe activities accounted for within each fund. Storm Sewer Construction Fund Water Trunk Construction Fund Sanitary Sewer Trunk Construction Fund Major Street Construction Fund Purpose/Sources & Uses of Resources This fund operates similarly to the utility trunk funds; however, streets cannot be classified as utilities. Financing derives from the tax levy, Municipal State Aid, and interest earnings. Expenditures are used to pay the City's share of collector streets, county roads, certain trails, signal lights, etc. INTERNAL SERVICE FUNDS (3 Funds) Internal service funds are established to account for the financing of goods or services provided by one department or agency to other departments or agencies of the governmental unit, or to other governmental units, on a cost -reimbursement basis. Records are maintained on the accrual basis. Benefit Accrual Fund Purpose/Sources & Uses of Resources This fund's revenues are derived from direct labor charges to other City funds. All benefits are accrued and paid by the Benefit Accrual Fund. Risk Management Fund Purpose/Sources & Uses of Resources This fund's revenues are derived from general insurance premium charges to other City funds. This fund purchases general insurance with certain deductibles and pays all uninsured claims. Workers' Compensation Self -Insurance Fund Purpose/Sources & Uses of Resources This fund's revenues are derived from charges to other City funds. Workers' compensation claims are paid directly from this fund. Premiums for workers' compensation reinsurance coverage required by state statute are paid by this fund as well. ENTERPRISE FUNDS (5 Funds) Enterprise Funds are established to account for the financing of self-supporting activities of governmental units which render services to the general public on a user charge basis. Records are maintained on the accrual basis of accounting. The reports of the Enterprise Funds are similar to comparable private enterprise reports and are self-contained. Creditors, legislators, or the general public can evaluate the performance of the municipal enterprise on the same basis as they can the performance of investor-owned enterprises. Public Utilities Funds Purpose/Sources & Uses of Resources The operations of the water, sanitary sewer, street lighting, storm drainage, and water quality utilities provided by the City are accounted for in this fund. Civic Arena Fund Purpose/Sources & Uses of Resources The City's Civic Arena contains two sheets of ice that are in use about eleven months of the year for ice skating and hockey games. All arena operations including dry floor activities are accounted for in this fund. Aquatic Facility Fund Purpose/Sources & Uses of Resources Cascade Bay, an outdoor recreational pool with slides a "lazy river," and miniature golf course operates during the summer months. Its operations are accounted for in this fund. Community Center Fund Purpose/Sources & Uses of Resources This fund accounts for all activity related to the Community Center with its variety of programs and uses. The outstanding bonds used to finance the construction of the Community Center, although supported by a tax levy, are accounted for in this fund. Fiber Conduit Ring Purpose/Sources & Uses of Resources This fund was established to account for the City costs related to construction of the 11.5 -mile conduit ring installed in conjunction with the Independent School District 196 fiber project. Section II. In reviewing the available balances included in the table, the following general parameters should be noted: (1) In certain funds, there is little difference between investments and fund balance while in others there are Targe differences. The differences relate primarily to how many receivables and payables exist and how the receivables are accounted for in the particular fund. (2) Certain of the designations between reserved/designated and unreserved/undesignated are accounting requirements, others are in place by City Council action meaning the City Council could change them, and others are there by State Statute. Per accounting standards, deficit fund balances all become undesignated because there is nothing to designate; however, when assets become available the fund balances will be designated for the purpose of the specific fund. (3) The size of the balances should be kept in perspective relative to the assets in the particular funds. For example, the Public Utilities Enterprise funds include capital assets with a historical value of over $253 million. (4) The appropriate level of cash and/or fund balance will vary by fund depending upon working capital requirements, future fund obligations, and circumstances unique to particular funds. GOVERNMENTAL ACTIVITIES Fund Name Fund Balance Reserved/ Designated Unreserved/ Undesignated Total Cash & Investments General (1) Special Revenue Funds: Housing (2) Cable TV Franchise Fees Police Forfeiture Recycling Cedarvale Special Services Eagan TV DWI Forfeiture 27,239 10,402,629 10,429,868 11,067,483 2,213,373 2,560,163 424 12,843 1,008 64,844 16,793 2,213,373 2,560,163 424 12,843 1,008 64,844 16,793 1,902,012 2,544,100 420 12,710 999 (189,692) 17,733 Subtotal Special Revenue Funds 4,869,448 4,869,448 4,288,282 Debt Service Funds: (3) Assessments on City Property Special Assess Imp Bonds (4) MSA Bonds Subtotal Debt Service Funds 18,286 3,642,615 4,506 3,665,407 (2,205,288) (2,205,288) 18,286 1,437,327 4,506 1,460,119 18,107 1,430,236 4,458 1,452,801 Capital Projects Funds: Park Site Acquisition & Devel Community Investment (5) Tax Increment (6) Equipment Revolving General Facilities R & R Revolving Imp Construct (7) Cedar Bluffs Housing Imp District Fire Apparatus Revolving Utility Trunk Funds: Storm Sewer Water Sanitary Sewer Major Street Construction Subtotal Capital Projects Funds Internal Service Funds: Benefit Accrual (8) Risk Management (9) Workers' Compensation Self -Ins Subtotal Internal Service Funds 1,909,753 1,343,834 1,241,692 460,285 7,728,736 4,595,456 7,879,106 19,034,320 44,193,182 1,81 1,071 (39,826,179) (8,613,859) (562,991) (1,454) 1,909,753 3,154,905 (39,826,179) 1,241,692 460,285 (8,613,859) (562,991) (1,454) (47,193,412) 5,820,530 2,614,258 4,096,491 12,531,279 7,728,736 4,595,456 7,879,106 19,034,320 (3,000,230) 1,895,308 1,872,682 (39,332,109) 1,424,461 455,353 (9,316,503) (559,290) (570,655) 7,656,650 4,546,310 7,795,172 21,414,920 (2,717,701) 5,820,530 2,614,258 4,096,491 12,531,279 8,663,849 2,591,326 4,082,833 15,338,008 Total Governmental Activities BUSINESS -TYPE ACTIVITIES Fund Name 52,755,276 (26,464,792) 26,290,484 29,428,873 Retained Earnings Reserved/ Designated Unreserved/ Undesignated Total Cash & Investments Enterprise Funds: Public Utilities Civic Arena Aquatic Facility Community Center Fiber Conduit Ring Subtotal Enterprise Funds 28,616,465 422,656 675,864 745,568 30,460,553 49,685,846 78,302,311 843,653 1,266,309 3,017,790 3,693,654 3,950,375 4,695,943 (48,268) (48,268) 57,449,396 87,909,949 40,561,708 505,527 577,348 2,970,688 (347,241) 44,268,030 Total Business -Type Activities Grand Total City Fiduciary Dollars --Drug Task Force Grand Total Investments 30,460,553 83,215,829 57,449,396 87,909,949 30,984,604 114,200,433 44,268,030 73,696,903 516,808 (Ties to total investments -page 133 financial report) 74,213,711 Fund Table Notes: (1) The General Fund cash balance includes $647,991 held by the City in escrow deposits to provide reimbursement for City costs related to development. The money does not technically belong to the City. (2) The Housing Fund is owed $730,000 by Cascade Bay as of 12-31-08. The loan is being repaid in annual installments with the last installment due in 2018. The original loan amount was $1,200,000 and the first payment was made in 1999. (3) The General Obligation Recreational Facilities Bonds sold to finance the Community Center, although supported by a tax levy, are accounted for in the Community Center Enterprise Fund. (4) The deficit position in the unreserved/undesignated fund balance reflects costs that have been incurred by the City but not permanently financed through a bond sale. (5) Advances/loans to other funds total $1,214,784 and the fund includes a reserve of $129,050 for debt service on the Ice Arena Bonds. Although not reflected in either the cash or fund balance positions, the fund includes $1.36 million in special assessment receivables at 12-31-08. Approximately $1.28 million is in green acres status and will be collected only upon certain conditions (primarily sale or development); of that amount nearly $1.1 million relates to the McCarthy property. (6) The Cedar Grove Tax Increment Fund includes an asset of $14,163,925 for property being held by the City. The City has historically financed most TIF activity internally with the resulting internal borrowing repaid through tax increment generated by the development. Some of the TIF costs could also be financed through bonding with subsequent tax increment used to pay the external bondholders. (7) The deficit position in the Revolving Improvement Construction Fund results from the City's practice of financing the construction internally and bonding later. That process allows the City to reduce bonding amounts because assessment prepayments can be used to pay for initial construction rather than for debt service. (8) Subsequent to year end, $3,800,000 from this fund was invested in the trust for payment of post retirement health care benefits and is not available to the City. (9) Subsequent to year end, $1,000,000 from this fund was invested in the trust for payment of post retirement health care benefits and is not available to the City. Section III. PUBLIC POLICY General public policy issues regarding the use of balances and appropriate levels of balances in the various funds include the following: Fund Integrity The City's past practice has been to place a high priority on fund integrity meaning that money raised for and being accounted for in a particular fund would be used for the purpose for which it was raised and not made available for other purposes as general revenue. For example, the City's Cable TV Franchise Fees Fund has not been used to provide general government services but has been restricted to Cable TV and communications special purposes. The primary exception to that process involves funds where the original purpose has been met and there are remaining assets. The City Council has the discretion in most cases to appropriate the residual assets of that fund to any other authorized public purpose. The creation of the Community Investment Fund formalized the method for dealing with remaining assets in the Special Assessment Debt Service Funds. Highest Priority Funding Items As assets become available, the City is typically faced with the issue of allocating them now or saving them for later in an attempt to get the best long-term return on the resources. Today's project may not be the highest priority over a period of time and it is necessary to strike a balance between short and Tong -term perspectives. Credit Ratings In spite of very rapid growth and tremendous infrastructure demands, the City has been able to maintain and increase its credit ratings from the bond rating agencies over the years. There are a number of rating factors that have been favorable for the City and have resulted in this very positive outcome. One of the most obvious and clearly noted in the rating reviews has been the City's conservative financial operations resulting in favorable reserves. The agencies have consistently noted a strong trend of prudent management. Please advise, if you want to discuss this information or if you would like anything else. Direcof Administrative Services cc: Chief Financial Officer Pepper Agenda Information Memo Eagan City Council Finance Committee October 6, 2009 V. CEDAR GROVE FINANCING — NICOLS RIDGE CONCEPT REVISION AND FINANCIAL SETTLEMENT DIRECTION TO BE CONSIDERED: To recommend to the EDA and City Council to: 1. Approve the proposed financial settlement with Lennar regarding the Nicols Ridge TIF Development Agreement. Or 2. Declare a default for the incomplete phases of Nicols Ridge and pursue related legal remedies. FACTS: • As outlined in the attached information, Lennar Corporation technically entered a default status under the Nicols Ridge TIF Development Agreement at the end of 2006. • In late 2006, Lennar approached the City requesting a concept review for a modified redevelopment scenario for the Nicols Ridge project and a modification of the TIF development agreement terms to resolve the default status. • The request was heard by the Council at its February, 2007 workshop, the Council expressed a willingness to consider a revision of the development plan to be based on a modified site plan and a more market supportable townhouse product. The matter of the financial settlement was referred to the Finance Committee for review. • In March, 2007, the Finance Committee indicated that it recognized the change in the condominium market and that it was primarily interested in maintaining unit counts and valuation for the area. Staff was given direction to continue to meet with Lennar officials to solicit more information and to work out potential mutually beneficial solutions. • Through the course of those discussions, it became apparent that Lennar was not prepared to develop a housing type, unit value or density that would achieve the specific direction of the Committee. Lennar had identified a potential option under which it would complete the eastern portion of the site with a townhouse development and sell the western portion of the site to a third party for separate development. • In order to maximize the potential for the City to attract a higher density, higher value product for the remainder of the development area to offset the lower number and value of units in Lennar's townhouse proposal, a solution was proposed under which Lennar would transfer the Gonyea parcel to the City so that the western portion of the site could be marketed to and completed by another development partner. The western portion of the property, if the Gonyea parcel were assembled with the City owned property, would total 8 acres. • A term sheet outlining a potential settlement was negotiated with Lennar October, 2007 and it appeared that a resolution on that basis was in order for consideration by the EDA in early 2008. Unfortunately, the company began to contract in response to the housing market, resulting in the replacement of the City's principle contact. Since that time, staff has engaged in negotiations with a succession of Lennar representatives who have left the company under various circumstances and, in each case, new company representatives have needed to be brought up to date on the options and negotiations to that point. • Over the same period, the company has exceeded the deadlines in the TIF Development Agreement for all phases of the development and, in the event of a default, Lennar could face liquidated damages for all phases/units not completed. In addition, if the City were to pursue specific performance of the current development agreement, the Company would need to complete the purchase of City owned properties and trail improvement commitments at a substantial additional cost. While this is an option, it is likely to involve costs associated with legal challenges, it would not provide the opportunity for the higher value development of the western portion of the site in the near term and it would extend the timeframe for development of that area rather than accelerate it. • In recent months, company representatives have responded more constructively to the City's previous settlement proposal. In light of the potentially greater costs to the company if default were pursued, staff pursued an improvement in terms for the City over the term sheet exchanged in 2007. A tentative agreement on settlement terms has been reached and is in order for Committee review at this time. The tentative settlement distills the prior discussions to: • The developer will propose and the City will consider approval of the completion of the eastern portion of the development site as a 59 unit townhouse development (62 units built to date plus 59 for 121 units total). • The City discontinues TIF payment of cash parks dedication as required by the current development agreement and the developer takes on that obligation at current rates ($3,458/unit) for the 59 units proposed to be built. • The developer and the City enter into an assessment agreement for the costs of the Cedar Grove Parkway pedestrian trail ($130,800) and the outstanding trunk utility cost for a portion of the developed site ($50,522). • The developer will transfer the Gonyea parcel in the western portion of the project area to the City in exchange for the City releasing the developer from the accumulated liquidated damages and the City will assume the development's remaining assessments for projects 800R and 759R (59 units at $4,486 for $264,674). • The settlement will be contingent upon the Council's approval of the revised development proposal through the usual development review process. • All obligations created by any new development approvals will be secured by a letter of credit. • Lennar representatives contacted City staff on October 1 and indicated that Lennar Corporate had approved the settlement terms, pending approval by the City. If the Committee recommends approval, staff would have the City Attorney finalize a settlement agreement for execution by Lennar and formal consideration of the agreement would be placed on the EDA agenda for October 20. ATTACHMENTS: • September, 2009 Prospective Settlement Term Sheet on page • Site plan illustrating proposed settlement development alternative on page aq • Original development site plan on page • ummary of potential costs to Lennar in the event of formal default action on page March, 2007 Finance Committee Cover Sheet on pages, tlxouu h3Y- • • Excerpt from March, 2007 Finance Coittee Minutes on age • October, 2007 Term Sheet on pages,'�n through Lennar — Nicols Ridge Development Cost Summary - For settlement purposes only. Tentative Settlement Points — Discussed by the parties on September 23 and Summarized by the City on September 28, 2009 Assumptions — If the revised build out plan is approved by the City Council, Lennar would complete 59 units on property already owned by the company and dedicate the Cedar Grove Parkway trail easement adjacent to the Nicols Ridge project to the City at no cost. The City would acquire the Gonyea parcel. Any amounts financed by the City to carry 6% interest and be secured by a letter of credit. Cash Park Dedication - $3,458/unit (Current rate as opposed to previous rates) $204,022 Cash Trail Dedication — Waived in consideration of CG Parkway Trail and Easement 0 To be paid with building permits $204,022 Cedar Grove Parkway Trail — Project #888 $130,800 Repayment of Trunk Utility Assessment 50,522 To be financed on terms acceptable to the parties (Assessment Agreement 5 yr term) $181,322 Gonyea property to be transferred to the City in exchange for which the City would assume the remaining assessments for Projects 800R and 759R and release Lennar from liquidated damages and obligation to acquire additional parcels in western portion of site. Lennar to provide net/net settlement agreement language for this exchange to occur for each party's usual and customary closing costs. Final settlement and closing to be contingent on Lennar applying for and the City Council approving a 59 unit development plan, such plan to include a ghost plat of the western portion of the site to assemble the Gonyea parcel and remaining City parcels. Issues involving a western access point to the site, permitted finish materials and other details to be addressed through the development application review. d > 47, to c L Q 4.0 a) E a) Z 'a) u) a) ii U) 0 ci 2 -a a) u) O O. O L o. c ca a.. L U) co 2 a) 0 L 0_ 0. Q a) a) Na u) 0 0 Z co c a) .L 0 0 o➢ Ga w 0 0 44 03 0 L Q d.+ c 0 E a. 0 TD 0 N�0 LL 0 O L 0 L as 0 0 Liquidated Damages: Phase I Phase II Phase III Parcel Purchases: 42 x 6,926 = $290,892 50 x 5,758 = 287,900 76 x 6,675 = 507,300 $1,086,092 $305,000 95,000 600,000 500,000 $1,500,000 — plus carrying costs Construction of Trail: $494,000 — if City Project Additional costs of Lennar does — to move Xcel (approx. $100,000) 3) FINANCE COMMITTEE March 29, 2007 III. NICOLS RIDGE CONCEPT REVISION ISSUE: Lennar Corporation, the developer of the Nicols Ridge project in the Cedar Grove Redevelopment District, has completed the townhouse units anticipated in Phase I of the three phase project and has constructed the first sixteen of the townhomes in Phase II. However, in response to the downturn in the condominium market, the developer chose not to continue with its condo product after the first of four buildings was completed in Phase I. The completion date for Phase I passed at the end of 2006 and the developer is technically in default at this time. Lennar approached the City in late 2006 requesting a concept review for a modified redevelopment scenario for the Nicols Ridge that would replace the remaining condominiums with additional townhouses, resulting in a net decrease in total units from 230 to 175. In addition, the developer is requesting that the City consider waiving TIF liquidated damages in the development agreement for the default circumstance and consider selling the City acquired properties to the developer at a reduced price to permit them to cover costs and achieve a return. Due to competing agenda items and the holidays, the request was heard by the Council at its February workshop and the matter was referred to the Finance Committee. Within the past week, Lennar has contacted staff proposing to discuss an alternative that would introduce a development partner that may take over some portion of the condominium obligations for the project. Nonetheless, the project is technically in default at this time and the developer indicates that it will still be proposing a reduced number of condominiums for the project, so staff will want to provide an overview of the situation to the Finance Committee and receive direction with respect to the next steps to be taken with the developer. BACKGROUND: The TIF development agreement with Lennar called for the company to construct the 230 housing units in three phases over a specified period, in exchange for the City to use TIF proceeds to pay for the special assessments for the public improvements serving the site and to pay for the cash parks and trails dedication for the units. Failure by the company to meet the unit counts by the phase completion dates results in financial liquidated damages on a per unit basis. The Council response to the presentation of the Lennar request was that the alternative townhouse product the company proposes for the remainder of the project appears consistent with the product that has been constructed to date and would be a reasonable alternative to the previously proposed townhome units, provided they continue to meet the finish material standards set for the redevelopment area and the project. Councilmembers indicated, however, that the City is not obligated to insure a profit for a developer and that financial considerations would need to be reviewed in more detail to determine whether to require performance under the development agreement, negotiate a revised agreement, declare the project in default or take other action relative to the project. To date, Lennar has constructed 62 units, including 46 of the 88 units called for in Phase I and 16 of the 66 units called for in Phase II. The company has presented two base scenarios. In the first, they would propose to eliminate the remaining condo buildings and replace them with an additional 57 townhome units to be constructed on property the company owns, which represents the remainder of the Phase I property and the Phase I1 property. This would result in a total of 119 Lennar units in roughly the area that had been planned for 154 units. Under this scenario, Lennar would dispose of the one property on the western portion of the site that it currently owns (former Gonyea parcel), presumably by sale. Because of that property's shape, it can only be developed effectively in combination with the four City owned parcels on that end of the project area. The company analysis indicates that none of these scenarios generates a profit, even if the full price of the price of the Gonyea parcel ($563,000) is recovered. Under the second scenario, Lennar would prose to complete development of the site through the construction of 113 additional townhomes for the reduced total or 175 housing units instead of 230. The company represents that it only sees scenario #9, in which it would achieve a 4% return, as financially viable, which assumes that the City would sell its parcels to the company at 20% of the price agreed upon in the development agreement and waive the TIF liquidated damages in the agreement for failure to construct the total number of units required and failing to construct a requisite number of units by the phase deadlines. The Lennar profit of $1 million would depend on the City donating an additional $1.14 million in land value to the project and provide the TIF benefits as if all 230 units were built in the timeframe originally agreed to. In either the 57 unit or 113 unit scenario, the reduction of the number of units and the delay in their construction will result in reduced TIF proceeds available to support the TIF assistance to the project and the additional proceeds that were expected to support activities in the Core Area of the redevelopment. Staff and the City consultants have reviewed the financial information presented to date, starting instead with the scenarios under which the company would be obligated to pay the liquidated damages in the agreement and/or truncate its development by transferring the Gonyea parcel to the City in consideration for a renegotiation of the development agreement. While the financial impacts of the alternatives will shift under the revised proposal the developer is expected to present with the new condominium partner, the current analysis suggests the following: • The shortfall of 42 condominium units at the end of Phase I translates to a TIF penalty of $290,915 today. Depending upon the terms of a renegotiated development agreement, it is likely that the developer would not complete enough units by the end of 2007 to meet the Phase II unit count and ultimately they would not meet the overall unit count. Therefore, in any alternative scenario, the issue of additional liquidated damages or reduced City assistance would need to be defined. • The developer is postponing the completion of each of the phases by one year, which would result in TIF liquidated damages for all phases unless the agreement is renegotiated. • The valuation assumptions in the developer's scenario comparison appear very low. Most significantly, the analysis is based on am average home price of $220,000, when the townhome units constructed to date have averaged between $280,000 and $290,000. To the extent that the proposed alternative townhome product is intended to address marketing challenges associated with the original product (living space on entry level rather than split entry), it is unlikely that it would sell at a 25% discount compared to the original units. Even if the units were to sell for that amount, the $17,600/unit pretax income appears to be low for a production builder. Staff has asked for a clarification of the difference. • The use of pretax comparisons does not provide a clear picture of the developer's financial position. The Council has appropriately indicated that the City is not to be expected to cover developer risk. To the extent that the developer is making representations regarding perceived returns as part of its decision making process, staff has also asked that the pretax analysis be supplemented with an after tax comparison of the scenarios, since tax benefits are one of the considerations in property development. Between the presentation of only pretax calculations, the low comparative selling price of the units and the apparent pretax return per unit used in the calculations, the gain/loss calculations cannot be confirmed. Staff has asked for after tax comparisons of the scenarios. Pending the presentation of the alternative proposal with the condominium partner, staff has identified the following alternative directions: • Negotiate the completion of the site on the basis of the original unit types and counts with Lennar and its condominium partner. • Negotiate the completion of the development of the eastern portion of the site with Lennar under terms favorable to the City, including the transfer of the Gonyea parcel to the City for completion by an alternative development partner. • Negotiate the completion of the entire site development with Lennar for the reduced unit count under terms favorable to the City. • Declare the developer in default and negotiate the transfer of all remaining undeveloped property to the City for development by an alternative development partner. • Other alternatives to be identified through the discussion. ATTACHMENTS: • Original project site plan. • Lennar request for revised concept plan. • Proposed project site plan. • Property ownership map. • Table illustrating current unit count and TIF liquidated damages. • Lennar comparison of project scenario. COMMITTEE RECOMMENDATION OPTIONS: 1. Provide preliminary direction relative to negotiations with Lennar regarding the Nicols Ridge TIF Development Agreement. 2. Other: Excerpt from March 29, 2009 Finance Committee Notes III. Update on Nicols Ridge Concept Revision Proposal Director of Community Development Hohenstein presented background information regarding inquiries from Lennar (USHomes) about the possibility of requesting modifications to the approved development agreement for construction of housing units in the Cedar Grove Redevelopment TIF District. The Finance Committee is interested primarily in maintaining total unit counts and valuation for the area. Staff was given direction to continue to meet with Lennar officials to solicit more information and to work out potential mutually beneficial solutions. Members reiterated that there is a housing construction correction taking place, but the overall market is not that bad and the City has no obligation to guarantee developer profits. Director Hohenstein noted that the deadline for responses to the Cedar Grove Redevelopment RFP has been extended to April 30, 2007 to allow respondents to take advantage of the information to be provided in the market study that is underway and due to the City on April 10. ac PROPOSAL FOR MODIFICATION OF DEVELOPMENT PLAN REVISED VERSION #1 RE: Nicols Ridge Redevelopment Project City of Eagan, Minnesota This proposal is "For Settlement Purposes Only" and is subject to approval by the Eagan EDA and City Council. BACKGROUND U.S. Home Corporation ("U.S. Home") and the City of Eagan ("City") are parties to the Amended and Restated Development Agreement Dated April 1, 2004 Relating to Tax Increment Financing District No. 1 ("TIF Agreement") relating to a redevelopment project known as Nicols Ridge. Phase 1 of the Development consisted of 88 units, of which U.S. Home has completed 46 units. The TIF Agreement contemplated that Phase II would include 66 units. U.S. Home subsequently obtained approval for and constructed 16 units in Phase II. Phase III was to contain 76 units. U.S. Home does not own the land needed for Phase III and has completed no units for Phase III. The TIF Agreement imposes certain penalties against U.S. Home for the failure to complete the required units. U.S. Home and the Eagan Economic Development Authority ("EDA") previously entered into a Repurchase Agreement dated February 14, 2005 by which the EDA had the right to repurchase a portion of the Development under certain conditions. The EDA did not exercise its right to repurchase a portion of the land within the time period contemplated by the Repurchase Agreement. The residential real estate market has changed dramatically since commencement of the Development. U.S. Home, the City and the EDA have discussed various options in connection with the future viability of the Development. This term sheet is intended to outline the terms and conditions by which U.S. Home, the City and the EDA will move forward with a modification of the TIF Agreement and any related development agreements and transfer of a portion of the Development from U.S. Home to the City. TERMS 1. U.S. Home Proposal — The parties will enter into an amendment to the existing TIF Agreement, related development agreements and the Planned Development. The new Planned Development will allow U.S. Home to build out the remaining land East of the Hansen/Metcalf property (old Eagan Pet Clinic) using combination of back-to-back and ROW -style product 56 total units meeting the materials standards approved for the existing Development (the "Revised Development Plan"). 1 3!0 City Response — The City agrees with this term, with the following qualifications. The parties will agree to undertake the amendments noted through the ordinary development application and review process. The "Revised Development Plan" should be marked with a date to serve as a more specific exhibit to a settlement agreement. As noted on the "Revised Development Plan", the development will continue to maintain the tree preservation area defined on previous plans. 2. U.S. Home Proposal — The amendment to the TIF Agreement will provide to U.S. Home a subsidy for the units within the Revised Development Plan by payment reimbursement or release from the amount of the City Assessments and City Fees matching the subsidy provided in Section 3.3 of the TIF Agreement. City Response — The original TIF subsidy was predicated on the assumption that in return for U.S. Home constructing 230 units at an assumed value, there would be sufficient TIF revenue to support both the redevelopment needs of the City for the Cedar Grove area and a per unit subsidy to U.S. Home. By virtue of the fact that the revised plan would reduce the number of units and the assumed value of the homes to be built in that portion of the site, the revenues from the revised plan are no longer sufficient to support a subsidy for the remaining development. In consideration of a settlement of this matter and in lieu of the City attempting to recover liquidated damages for assistance provided to the development for units constructed to date, the City will agree to release U.S. Home from reimbursement of previously paid subsidies provided under Section 3.3 of the TIF Agreement for units already built, provided that U.S. Home completes the remainder of the project as an unsubsidized development by paying the parks and trail dedication fees in force at the time of the issuance of building permits for the proposed 56 units in the amount of $6,508 per unit to be paid at the time of building permit issuance. In addition, that the company pays a proportionate share of the assessments for Project #888 for the portion of the overall development site contemplated to be developed under the revised plans. The City has calculated that cost to be $306,300. 3. U.S. Home Proposal — U.S. Home will sell to the City the former Gonyea property. The purchase price will be equal to U.S. Home's acquisition cost for the parcel, which is estimated to be $ ($559,232.00 plus closing costs). Closing on the sale of the Gonyea parcel will occur on or before November 10, 2007. Conveyance to be by limited warranty deed. The City will accept the property in as is, where is condition. City Response — U.S. Home will provide evidence of the acquisition price of the parcel for the City's review and, if it is found to be in order, the City agrees to the purchase price. The closing date will be modified in consideration of the date of the parties' consent to these terms. The parties will follow a traditional closing. Specifically, U.S. Home will provide evidence of title (updated title commitment); that the closing costs will be split as is customary between buyer and seller; that U.S. Home will be responsible for state deed tax (approx $1,900.00); that real estate taxes are prorated, etc.. U.S. Home will also provide evidence of any and all environmental testing that has been done on the Gonyea parcel, other than the Phase I environmental assessment prepared for the developer and the City by Braun, dated November 11, 2003. 4. U.S. Home Proposal — The City and EDA shall release any claim or interest to the former Lachenmeyer parcel. City Response — The City will agree to this term if all other conditions are mutually accepted. 5. U.S. Home Proposal — The Revised Development Plan shall allow for future street and utility connections and easements from and over the Development as necessary to facilitate the future development of the properties to the West of the Lachenmeyer parcel. City Response — The City will agree to this term and, further, U.S. Home shall provide for the necessary trail easement and rights of entry to implement Project #888 as part of the Revised Development Plan and related development agreements. 6. U.S. Home Proposal — Upon the successful completion of the additional 56 units in accordance with the Revised Development Plan, U.S. Home would be released from any penalties of liquidated damagers arising in connection with the Development. City Response — The City will agree to this term if all other conditions are mutually accepted. This Proposal is non-binding, but states the general terms of agreement(s) to be drafted, which the parties would agree to negotiate expeditiously and in good faith. 3 City of Eagan Mc�o TO: TOM HEDGES, CITY ADMINISTRATOR FROM: JON HOHENSTEIN, COMMUNITY DEVELOPMENT DIRECTOR DATE: OCTOBER 12, 2009 SUBJECT: FINANCE COMMITTEE FOLLOW UP — NICOLS RIDGE SETTLEMENT In follow up to the questions and requests for additional information raised by the Council Finance Committee regarding the potential resolution of the Nicols Ridge project, the following information has been compiled. • Through the end of the district, the proposed Nicols Ridge settlement project would generate a present value of $794k in TIF (See Attachment A). This is separate from and in addition to the TIF stream currently being generated by the units that have been built to date. • We were asked to compare that amount to a "no build" situation. The proposal would generate the full $794k above a true no build situation, but we also asked Ehlers to run a surrogate comparison, which would be the TIF stream if the same project were built after a four year delay, it would generate a present value of $523k or $260k less than the proposed settlement (See Attachment B). • In addition, if the settlement were to make the western portion of the site available to a third party developer to pursue a rental apartment project (this run assumed 109 units, which essentially adds the total number of units not built in the east end to the original number of units projected for the west end), it would generate a present value of an additional $1,040,000 in TIF (See Attachment C), A 109 unit building would equate to 14 units/acre. A project with a higher unit count would generate a higher base value and TIF revenues. • A general observation was made that the City would enforce a default by cashing the project's letter of credit. This would require legal action and would be contested by Lennar. While the outcome of the action could be that the City would secure the entire amount, there is also the potential that it would receive something Tess than that. The City/EDA does retain a LOC in the amount of $611,000 versus the liquidated damage total of $1,086,000. The reason for the difference is that the LOC was calculated at the outset on the Phase I improvement costs and not the potential for some or all of all phases to become delinquent. This is in the context of the original purchase price of the Gonyea parcel was $559,000. As staff and the City Attorney have worked on this settlement, we have been aware that this is not a full recovery of all possible revenues that may have come from the original project. It is a compromise intended to get a version of the Lennar project going again and to free up the western portion of the site for an intensity of development that Lennar would not deliver, if a settlement is not achieved. Please share this information with the Finance Committee and we can follow up from there to determine whether it is in order to move forward with a consideration of the matter at Tuesday's EDA meeting or not. Cc: Gene VanOverbeke, Director of Administrative Services Agenda Memo Finance Committee Meeting October 6, 2009 VI. CO -LOCATION FACILITY UPDATE ACTION TO BE CONSIDERED: Following update(s), provide direction to staff on efforts to proceed with the City Council's "infostructure" goal. FACTS: • There are three brief items to update the Committee about and to receive its direction upon: o Latest information on Phase II Broadband Stimulus deadlines and whether Eagan would qualify for any federal funding for a possible co -location facility; o Closure to initial consultant's report on broadband options and direction on appropriate reporting out of the results; o Potential Eagan provider and interest in learning more. ATTACHMENTS: • None 661 MEETING NOTES FINANCE COMMITTEE MEETING TUESDAY, OCTOBER 6, 2009 1:00 P.M. EAGAN ROOM Committee members present: Mayor Maguire and Councilmember Bakken. City staff present: City Administrator Hedges, Assistant to the City Administrator Miller, Director of Administrative Services VanOverbeke, Community Development Director Hohenstein, Communications Director Garrison, Parks and Recreation Director Seydell-Johnson, Administrative Intern Gelke, Fire Chief Scott and Police Chief McDonald. Members of the public present: Phil Belfiori, APrC Chair. I. AGENDA ADOPTION The Mayor called the meeting to order. II. FUTURE FUNDING OPTIONS FOR PARK DEVELOPMENT FUND AND PARKS AND REC CIP Director of Administrative Services VanOverbeke summarized information from the 20/20 Vision document which identified potential funding sources for the Park Development Fund and presented the following chart: Categories: Fiduciary, Public benefit, Quality of life enhancements Funding Sources: Grants, Donations, Partnerships, Fees Alternative Revenue Sources: Naming Rights, Sponsorships, Public/private and Public/Non- profit partnerships, Advertising, Park Foundation, Private land trust, and Non-traditional taxes Traditional Taxes: Bond referendum, Revised allocation of existing levy, New levy The Committee discussed the financial status of the Parks Site Acquisition and Development Fund (PSA&D). The Committee discussed the possibility of the City levying approximately $400,000 to $500,000 per year to address the projects that fall into the categories of Fiduciary and Public Benefit recommendations. The Committee suggested alternative financing for project recommendations that fall under the quality of life category as described in the 20/20 Parks and Recreation Plan. In discussing the potential acquisition of open space, it was suggested that a referendum would likely be needed to acquire any future open space within the community. The Committee discussed the potential impact of an increase levy on an average Eagan taxpayer. At the meeting, Director of Administrative Services VanOverbeke estimated that the impact would be approximately $2.35 on an average home; however, upon further review after the meeting, it was learned that a new levy of $400,000 would result in an impact of approximately $12.56 on the average market value house or $3.14 per $100,000 of levy. The Committee discussed the issue of levy limits being implemented by the state. It was noted that current levy limits are anticipated to sunset in 2012; however, it is likely these levy limits could be extended by the state. The Committee raised a question as to whether the City could assess a fee on building permits as a possible revenue source for Parks CIP funding. Upon further discussion, the Committee recommended to the City Council that they consider authorizing an additional levy of approximately $400,000 to $500,000 per year to be dedicated to the PSA&D or to a Parks Foundation if such money could assist a foundation in leveraging additional funds. The Committee requested that staff prepare scenarios of when such a levy could begin, and the tax impact through 2020. The Committee suggested that such a levy could begin in 2012, with potential internal funding shifts needed in the first year. The .Committee also suggested that the Parks and Recreation CIP balance/reserves could be used sooner than currently projected; however, the Committee suggested not to begin front -loading projects until a solution is firmly in place. There was Committee consensus to retain at least one -year's worth of funding in reserves for necessary Parks and Recreation capital projects. III. FIRE SAFETY CENTER FINANCING Director of Administrative Services provided an overview on the proposed building costs for the new Fire Safety Center, as well as potential sources of funding to pay for both the land purchase and building construction. VanOverbeke noted that the projections do not include any federal appropriations that could be received for such a project. He also added that $5.875 million in Capital Improvement Bonds are proposed as a funding source. The Committee discussed the funding for the Fire Safety Center and there was consensus to recommend that the City partner with a broker in a consulting relationship to advise on pricing, marketing, etc. for the sale of Fire Station #2 and the Fire Administration Building. The Committee also requested that staff visit with the City Attorney's office and CDA to inquire as to the City's capability of serving as a broker for the sale of the two building. The Committee provided responses to the following public policy questions: 1. How should the potential sale of the two City facilities be undertaken as to timing and should efforts be made to consider leasing the building until the commercial real estate market improves? Committee recommendation: The Committee would prefer a sale, but recommended considering a sale or lease of the two buildings. 2. Should contingency financing plans be developed to address the possibility that the buildings cannot be sold or leased in a reasonable time frame or at the estimated amounts? Committee recommendation: The Committee recommended to proceed with contingency financing plans. 3. There are some dollars in the building/site cost estimate for a building telephone system. The City is also considering replacement of its entire telephone system in early 2010. Therefore, should those costs be removed from this project and combined with the City-wide telephone system replacement? Committee recommendation: The telephone system for the Fire Safety Campus should be combined with the City-wide telephone system replacement. 4. The cost for the fiber connection does not include any redundancy. If this site is to serve as an EOC, a redundant fiber route is probably necessary at some point. The estimated cost for a redundant fiber connection is $73,500. Committee recommendation: Research whether the City could stub in the redundant line. 5. Fire Administration and Police storage costs are probably not eligible to be financed by Capital Improvement Bonds so those bonds cannot backfill the complete shortage caused by not selling the other two buildings. Committee recommendation: Consider options later in the process depending on specific costs for those components and all available funding sources. The committee discussed the requests of Police and Fire Departments for considering the remodel of Fire Station #3 and the use of the old dispatch office space for sergeants and clerical support staff work stations. It was the recommendation of the Committee to bid these projects as alternatives and, should bids be favorable as an alternative bid, these projects could proceed with an identified separate funding source or could be included if the bid is under the limit set for the total project cost. IV. DIRECTION ON FUTURE REVIEW OF ALL CITY FUNDS Committee member Bakken raised the question as to whether any City funds are showing historical trends that could result in lack of funding such as what has occurred in the Park Site Fund. Director of Administrative Services VanOverbeke noted that he does not anticipate any of the funds being potentially depleted such as the Parks Fund. The Committee provided direction that no further work is needed on this item at this time. The Committee briefly discussed the Open Space Preservation Fund and made a recommendation that at some time in the near future, the funds in the Open Space Preservation Fund could be allocated back to the Park Site Fund. Note: Per Council action on August 14, 2007, $60, 000 of the fund balance in the Community Investment Fund was designated for "open space preservation ". No separate accounting entity (fund) was created. V. CEDAR GROVE FINANCING — NICOLS RIDGE CONCEPT REVISION AND FINANCIAL SETTLEMENT Community Development Director Hohenstein introduced the item and summarized the tentative settlement reached with Lennar regarding the Nicols Ridge TIF Development Agreement. It was the Committee's recommendation that the proposed settlement with Lennar be scheduled at an upcoming Closed Session if allowed by the City Attorney. Otherwise, the Committee recommended that the item be included on the October 20 EDA agenda for formal consideration. VI. CO -LOCATION FACILITY UPDATE Upon discussion, the Committee concurred with the recommendation of the City's Technology Consultant, Mr. Cohill, to cease efforts to attract stimulus funding for the Co -Location Facility. The Committee also suggested that a summary of the Phase I Study be presented to the public without getting into too many details that would "tip" the City's hand. Director Garrison summarized an additional technology opportunity currently available in Florida, and the Committee requested a memo highlighting what the opportunity entails (the Committee would like the memo before any reference to the opportunity is included in the final report). The Committee also requested additional information regarding Velocity's interest in the community. There was no other business. VII. OTHER BUSINESS VIII. ADJOURNMENT The Committee adjourned at 2:40 p.m.