Loading...
07-14-16 CC Special Mtg MinCITY OF SHOREWOOD CITY COUNCIL SPECIAL MEETING THURSDAY, JULY 14, 2016 MINUTES 1. CONVENE SPECIAL CITY COUNCIL MEETING Mayor Zerby called the meeting to order at 7:15 P.M. A. Roll Call 5755 COUNTRY CLUB ROAD COUNCIL CHAMBERS 7:00 P.M. Present: Mayor Zerby; Councilmembers Labadie, Siakel, and Woodruff; City Administrator Joynes; Attorney Keane; City Clerk Panchyshyn; and, Finance Director DeJong Absent: Councilmember Sundberg B. Review Agenda Labadie moved, Woodruff approved, approving the agenda as presented. Motion passed 4/0. 2. PUBLIC HEARING ON TAX INCREMENT FINANCING - OPPIDAN Mayor Zerby opened the Public Hearing at 7:16 P.M. Administrator Joynes explained the purpose of this meeting is to consider the transmittal of the recommendation from the Shorewood Economic Development Authority (EDA) regarding a TIF Plan, the establishment of a TIF District and the redevelopment project for the Oppidan Investment Shorewood Senior Living project. The Public Hearing is required on the Tax Increment Financing (TIF) Plan. TIF law is a legislatively enabled process where there is a joint partnership between a public and a private entity. It occurs when there is a proposed project that could not go forward under normal circumstances because of extraordinary costs. It could be because of things like soil conditions, assembly of a number of land parcels, and infrastructure needed to support the project. The original TIF Plan indicated the TIF Project Area will be the entire City and that would allow the use some of the tax increment money anywhere in the City. The TIF District will be the Oppidan project site where construction will occur. One commercial and two residential lots are being combined for this project. The Oppidan project as proposed includes a senior housing facility consisting of independent living (28 units), assisted living (52 units) and memory care living (25 units) for a total of 105 units. Construction will start late 2016 and be fully complete in December 2017. The facility will be about 3 — 3.5 stories high. The Planning Commission recommended approval of the proposed project's land use and Council approved it. The current value of the three parcels for tax purposes is $985,000 and the value after the project is complete is projected to be $17,194,320. The current tax collected for all jurisdictions on the existing three parcels is $21,955 and the amount of taxes collected after the project is complete is projected to be $214,929. Throughout the life of the TIF District, which is scheduled out 25 years but anticipated to be less than that, the $21,955 currently generated for the various taxing jurisdictions will continue to go to those jurisdictions. When it is done the jurisdictions' tax draws will increase. The intent of the TIF law is to allow jurisdictions to maintain their tax level while allowing a project to be done that would not be CITY OF SHOREWOOD SPECIAL MEETING July 14, 2016 Page 2 of 7 done without TIF assistance. During the course of the 25 years that is legally allowed the City captures the TIF proceeds and uses it to support the project and the infrastructure around it. The Minnetonka School District currently receives $3,218 in total taxes from the three parcels and at the conclusion of the TIF District it will collect approximately $63,084. Shorewood currently receives $4,383 in total taxes from the three parcels and at the conclusion of the TIF District it will collect approximately $83,315. Hennepin County currently receives $6,578 in total taxes from the three parcels and at the conclusion of the TIF District it will collect approximately $125,016. That increase to the jurisdictions will occur no later than in 25 years and maybe a few years earlier. There are variables that could impact those numbers. There is a Minimum Assessment Agreement that guarantees no less than those amounts. A copy of the draft TIF Plan was sent 30 days ago to the Minnetonka School District and Hennepin County for comment as required by state law. To date no comments have been received. The Superintendent of the Minnetonka School District had no issues with this. Under Minnesota Statutes 469.174 — 469.1974 Tax Increment Financing Act the project is considered a Redevelopment Project with a maximum duration of 25 years. That is because the City is taking blighted property as defined by State Statute and making it into a higher use property. The TIF District may conclude in less than 25 years; maybe in about 20 years. Director DeJong clarified that would be in the 20`t' year the City receives tax increment. The tax increment generated by the project pays for: soil correction on the project site in excess of a normal condition; public infrastructure improvements desired by the City on the site; and extension of Shorewood municipal water to the site. The City's portion of getting water to the site is about $1 million. Council gave preliminary approval to finance the watermain extension though cost sharing. Oppidan will contribute $400,000; $300,000 will be used from the Water Fund; and, water hookups should occur along the new line and bring in approximately $300,000.Oppidan originally proposed contributing $200,000. A benefit realized from extending the Shorewood watermain to the south side of Highway 7 includes creating the eventual potential for 90 new hookups south of Highway 7 for properties currently severed by private wells. Another benefit is the potential for 47 new hookups on the north side of Highway; 22 of the properties are currently on the Excelsior water system and 25 are served by private wells. Staff is fairly sure that in the future the State of Minnesota is going to require people to get off of private wells. TIF project benefits to the City include things like installing a stormwater pipe to replace the stormwater ditch. That allows power lines to be buried. As a result the landscaping setbacks can be increased and the height limitations for new trees would be eliminated. There will be funding available for some local traffic improvements which are yet to be determined. The highest possible cost for those was included. The improvements could be things like the closing the exit at Highway 7 and Chaska Road or some changes at the intersection of Highway 41 and Chaska Road. Joynes noted that during this special meeting Council is being asked to adopt a resolution approving the Redevelopment Plan for Redevelopment Project No. 2 and a Tax Increment Financing Plan for Tax Increment Financing District No. 2, and, authorizing an interfund loan. He also noted that Council is required to take public testimony during the Public Hearing. CITY OF SHOREWOOD SPECIAL MEETING July 14, 2016 Page 3 of 7 Councilmember Woodruff asked what the amount of the interfund loan will be. Director DeJong explained it would be for $1,015,044. Woodruff noted that is called City Principal (19 years) in the table at the top of page 4 in the Springsted memo dated July 14, 2016. Councilmember Siakel asked where the interfund loan comes from. Administrator Joynes explained the tax increment will pay it back. The City will upfront the money and the City will get $400,000 for it. Siakel stated based on that the City will upfront $600,000. Based on earlier discussions $300,000 will come from the Water Fund. She asked where the other $300,000 comes from. Joynes explained that will come from eventual hookups to the Shorewood extended watermain. Siakel stated that has to be paid upfront. Joynes confirmed that. Director DeJong stated the balance in the Water Fund is $3 million and the amount necessary to cash flow the Fund is approximately $500,000. Therefore, there is more than enough money in that Fund to allow the City to upfront the cost to extend the watermain and then get repaid over the life of the TIF District. Siakel stated there is an upfront cost to the City. DeJong confirmed that and noted the City will be repaid with 4 percent interest. That interest rate is well above anything the City could currently earn on investments. He stated currently the City is limited to investments that top out in a five -year timeframe at about 1.5 percent. Mayor Zerby opened the Public Testimony portion of the Public Hearing at 7:32 P.M. George Greenfield, 24715 Yellowstone Trail, stated the questions he is going to ask are based on the minutes from the June 13, 2016, City Council meetings. He considered that to be the only information available to the public about the proposed TIF for the proposed Oppidan project until about two days ago. He thought it was about two days ago when Council got the necessary information and he found that to be irregular given the magnitude and importance of this matter. He did not think that would be enough time to study the matter. It leaves him with the impression that this Public Hearing is just a formality and that the matter has already been decided. Mr. Greenfield noted he has three questions that were prompted by the June 13 meeting minutes which he attended. He clarified the questions were not prompted by any problem with the minutes. He thought the minutes were a faithful and accurate summary of the discussion during that meeting. His questions are prompted by what he thought was a sort of hasty and cursory nature of the presentation. Mr. Greenfield asked his first general question. Is the City is giving $1,015,044 for the project or is it more than that? Director DeJong noted that is the total amount the City will be financing. Mr. Greenfield asked how that is broken down. For example, soil remediation is one category. How many categories are there and how much money toward each category? DeJong explained the soil remediation and other things are going to be paid for by the developer. The City is financing the extension of its municipal water system and the repair of sewer manholes and streets that will be impacted by the extension of watermain. Mr. Greenfield asked to whom the money will be paid. Is it being paid to Oppidan, to Ebenezer, to Fiarview? DeJong stated it is being paid to a development group that Oppidan assembled called KTJ 285, LLC (the legal name of the entity). Mr. Greenfield asked if it is correct that Oppidan is doing the work for Ebenezer which is intern owned by Fairview. DeJong responded that is not accurate and explained it is his understanding based on what was presented to the Planning Commission that Oppidan intends to continue to own the property and that it will be managed by Ebenezer. Mayor Zerby stated Ebenezer will be the operator of the facility but it will not own it. Councilmember Siakel stated Ebenezer will provide the service. Mr. Greenfield asked his second general question. How are the annual property tax increases over the life of the program calculated? He stated that on page 7 of the June 13 minutes in bullet 4 at the top it seems to imply to him that the taxes this year are $4,383 and the taxes in year 19 will be $83,315. He asked if CITY OF SHOREWOOD SPECIAL MEETING July 14, 2016 Page 4 of 7 that meant $4,383 should be subtracted from $83,315 and the difference divided by 19 and that result would be the amount the taxes would go up for each of the 19 years. Director DeJong responded no. Director DeJong explained that the tax increment is based on increase in tax capacity. The Projected Tax Increment Report indicates there is a net tax capacity of $12,313 for the period ending December 31, 2016. With the first year of captured increment it is projected to become $202,617. Mr. Greenfield chose to simplify question. He stated for discussion purposes say $1.015 million is point zero; that is the point the City is at now. The City goes $1 million plus in the hole as soon as the project is started. He asked how many years of taxes it will take to get the City back to point zero. Director DeJong explained it will take the City 20 years of increment payments. Mr. Greenfield stated that means the City will not get back to where it is now for 20 years. DeJong explained with TIF no taxing jurisdiction will have their tax capacity from those three parcels taken away. The City, County and School District all retain the existing taxes currently being generated by the properties. Mr. Greenfield noted he understood that. Mr. Greenfield asked how many years it will take to generate $1.015 via property taxes paid to Shorewood. He asked if his question was clear. Councilmember Woodruff explained the City is going to collect an amount of money above what it currently collects in taxes for those three parcels every year starting after the development is complete and during the life of the TIF District based on a guaranteed value of the project. In 20 years the amount of taxes collected will equal $1.015 million plus interest. The money the City is going to put forward is drawing minimal interest in the open market sitting in a reserve account; interest of about 1.25 percent on the high side. The City is going to earn 4 percent for those 19 years. The City is investing over $1 million at 4 percent interest for 19 years. Mr. Greenfield stated the City won't get its principal back until after 19 years. Woodruff noted that is the case with any investment and stated if the City bought a 20 -year bond it would not get the principal back for 20 years. Mr. Greenfield stated the City will have given the project $1 million plus and the property tax increment will generate $1 million plus and there will be interest earned. From his perspective that is not the same as buying a bond. Woodruff disagreed and cited an example of the City buying a $1 million bond from Goldman Sachs at 4 percent interest for 19 years that is the same type of transaction. Councilmember Siakel clarified that of the $1 million Oppidan has agreed to pay $400,000. Therefore, the City is investing close to $600,000. It is a $1 million investment to get municipal water to the project site. The City will borrow $600,000 from the Water Fund and over time that gets paid back to the City. Mr. Greenfield stated if that is the case he asked why $1.015 million is being put out there as the City's contribution. Siakel stated that Oppidan is going to contribute $400,000 toward that. Councilmember Labadie stated that in addition to earning 4 percent interest there is a large benefit to the City by getting a needed housing project to serve seniors. Mr. Greenfield stated that is debatable. Labadie stated there will be housing project in the City to serve seniors that currently does not exist. Whether it is needed or wanted is a personal perspective. Councilmember Siakel stated there are a number of residents that ask for that type of housing. Mr. Greenfield asked his third general question. An article published in a newspaper on July 10, 2016, indicated the combined size of the three parcels is 3.77 acres in size. He asked if that is correct. Director DeJong stated he thought it was 3.87 acres; just under 4 acres. Councilmember Woodruff stated the documents provided to Council this evening indicate 4 acres. Mr. Greenfield stated if that is the case he asked what explains the discrepancy that the three properties combined are currently assessed at $985,000 or close $250,000 per acre. The Minnetonka Country Club (MCC) property (which is 118 acres CITY OF SHOREWOOD SPECIAL MEETING July 14, 2016 Page 5 of 7 in size) was sold for $16 million; that comes out to about $135,000 per acre. If the Oppidan site is such distressed property he asked why its assessment value is almost twice that of the MCC property. Mayor Zerby stated one of the three parcels was a commercial property. Councilmember Woodruff stated the MCC property only had a club house on it. The project site has an office building and houses on it and that is part of the value. He noted Mr. Greenfield is comparing land value to developed property value and that is not a valid comparison. Mr. Greenfield stated the buildings on the project site must not be very valuable because they are going to be torn down. Woodruff noted they are still on the County's tax rolls with an assessed value. Mr. Greenfield indicated he thought that was a large discrepancy. Mr. Greenfield noted that he had some specific questions generated by the meeting minutes for the June 13 Council meeting. Mr. Greenfield noted that on page 7 the third bullet states "The current tax collected for all of jurisdictions on the existing three parcels is $21,955 and the amount after the project is complete is projected to be $214,929." He asked if the word complete in that sentence means when the building is completed or at the end of the 19 years. Director DeJong responded when the building is completed. Mr. Greenfield stated the fourth bullet states "In nineteen years the tax revenue received by Shorewood from those three parcels will increase from $4,383 to approximately $83,315." He asked if the $4,383 is a 2016 figure and the $83,315 a 2035 figure. DeJong explained the $4,383 figure is the 2016 taxes and the $83,315 is an estimated figure at the end of the life of the TIF District which is going to be in 2040. Mr. Greenfield stated to him that means it is going to take quite a long time to generate the $1.015 million through the property tax increments. Mr. Greenfield stated the minutes refer to a pay -as- you -go TIF Plan. He thought that characterization is extremely misleading. From his perspective pay -as- you -go is when a person has the cash on hand, for example, to go and purchase tires and then they save up more money and go back some time later to replace the carburetor. He does not consider putting $1 million in the hands of Oppidan and then getting repaid over 19 years as pay -as- you -go. Mr. Greenfield then stated that towards the top page 9 paragraph 1 in the minutes it states "... it provides housing diversity." He objected to the audacity for that phrase given the fact that the City squandered its best opportunity it would ever have to have diversity in housing. He does not consider it appropriate to use that phrase to justify the Oppidan project which he considers just another enclave for wealthy people. It will cost about $8,000 a month for memory care and about $4,500 a month for assisted living. He does not think that represents diversity in housing other than the fact it would be somewhat like an apartment building and there is only one in Shorewood now. He asked that the phrase "diversity in housing" not be used to justify this project. Mr. Greenfield went on to state that on page 9 in paragraph 3 of the minutes it states that "... the City will collect more in taxes in one year than it would have collected over the 19 years the District was in place." He explained $4,383 (the current tax collected by the City on the three parcels) multiplied by 19 years equals $83,227. Year 20 taxes are $83,315. That is essentially a wash. That does not take into account that normally the property taxes on that site would go up annually and therefore the property taxes collected over the years would exceed what would be collected in year 19. He considered that a misrepresentation. Mr. Greenfield also stated the City is going to fund the project with a surplus that it has at the moment. He suggested three things the City could do with that money that would be more valuable than the Oppidan project. First, there is still an unpaved road in Shorewood. Second, he questioned when the City staff last received a significant raise. He asked if any analysis has been done from 1980 and 2016 to CITY OF SHOREWOOD SPECIAL MEETING July 14, 2016 Page 6 of 7 determine if their real income has decreased. He does not think the City wants to be part of what he considers to be a horrible national trend of declining wages. That could be a use of that money. Councilmember Siakel disagreed with Mr. Greenfield on his point about salaries. She clarified that Council has taken very proactive action to ensure that staff is compensated fairly. Mr. Greenfield stated he just asked the question and noted he did not say it was a fact. Mr. Greenfield stated a third use of the funds could have been used to subsidize the lost profit on 10 houses in the Mattamy MCC development so they could be priced at $250,000 rather than $800,000. He commented that he thought the City forfeited all of its leverage with Mattamy from the very beginning. Mayor Zerby asked Mr. Greenfield to wrap up his comments. Mr. Greenfield stated he expected to be extended the same privilege as Mr. Packer, with Mattamy Homes, had received for over a year during meetings. Mr. Greenfield stated Fairview is the ultimate beneficiary of the project and to think it does not have enough money to finance its own project is from his perspective ridiculous. Mr. Greenfield concluded his remarks by explaining he views the City to be transferring public funds that belong to the citizens of Shorewood to a private corporation for a return that is not, from his perspective, all that it is made out to be. The implication to him is that the only purpose of city government is to continually thirst after new tax revenues. That should not be the sole purpose of city government. He thought the project would be on a bad location. He reiterated he thought it would be another enclave for the wealthy. He thought it is a bad idea and that it sets a bad precedent. Mayor Zerby closed the Public Testimony portion of the Public Hearing at 7:53 P.M. Councilmember Woodruff stated he has had all of his questions answered and the final document including insurance requirements no longer includes the option for self - insurance. It requires the developer to secure outside insurance. Mayor Zerby noted he supports the Oppidan project. He clarified the money from the City is not going into the developer's pocket. It is essentially going into the "ground" to extend watermain to provide safe water to the facility as well as to potentially 90 properties south of Highway 7. He stated he thought the project is needed. Councilmembers hear from residents frequently asking where they can live being they have grown older and are no longer interested in maintaining a larger home. Council has heard from the developer that market studies have shown that the market could support about 260 units. The Oppidan facility will help satisfy part of that demand. Zerby moved, Siakel seconded, adopting RESOLUTION NO. 16 -052, "A Resolution Approving the Redevelopment Plan for Redevelopment Project No. 2 and a Tax Increment Financing Plan for Tax Increment Financing District No. 2, and, Authorizing an Interfund Loan." Motion passed 4/0. Administrator Joynes apologized for the intensity of the project as it moved along. He stated staff has been driven by timelines that have been challenging to meet. He thanked Attorney Keane and Director DeJong who worked all day long and part of last week putting documents together. The terms that came together earlier in the day are very advantageous to the City. CITY OF SHOREWOOD SPECIAL MEETING July 14, 2016 Page 7 of 7 3. ADJOURN Woodruff moved, Zerby seconded, Adjourning the City Council Special Meeting of July 14, 2016, at 7:57 P.M. Motion passed 4/0. RESPECTFULLY SUBMITTED, Christine Freeman, Recorder tt Zerby, favor ATTEST: o Je ► Panchyshyn, City Clerk