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HRA 11/06/2003 - 29525CITY OF FRIDLEY �� HOUSING AND REDEVELOPMENT AUTHORITY MEETING NOVEMBER 6, 2003 ,,"� CALL TO ORDER: Chairperson Commers called the November 6, 2003, Housing and Redevelopment Authority meeting to order at 7:30 p.m. ROLL CALL: Members Present: Larry Commers, John Meyer, Pat Gabel, Bill Holm Members Absent: Virginia Schnabel Others Present: Grant Ferneliius, Assistant HRA Director Scott Hickok, Community development Director Paul Eisenmenger, HRA Accountant lone Alaspa, 5925 3`� Street NE Connie Olson, 5917 3'� Street NE APPROVAL THE OCTOBER 2. 2003, HOUSING AND REDEVELOPMENT AUTHORITY MEETING MINUTES: MOTION by Ms. Gabel, seconded by Mr. Meyer, to approve the October 2, 2003, HRA minutes. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED UNANIMOUSLY AND THE MINUTES APPROVED AS WRITTEN. CONSENT ITEMS: 1. CLAIMS AND EXPENSES MOTION by Mr. Meyer, seconded by Mr. Holm, to approve the Consent Agenda. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED UNANIMOUSLY. ACTION ITEMS: 2. RECONSIDER RESOLUTION DECLARING SUBSTANDARD PROPERTY (RESOLUTION HRA 5 — 2003� Mr. Fernelius stated this item was tabled at the October meeting, as there were a number of questions the HRA had about the resolution, which would have declared the properties in the proposed Gateway West project as substandard. He would like to answer some of those questions; however, stafPs recommendation is to leave this item on the table until the December meeting. Mr. Fernelius stated the first question was regarding demolition: Can the homes be moved, or %� do they have to be demolished if the resolution is adopted? The answer is, no, the homes do not have to be demolished. There is no legal requirement that if the homes are declared substandard, they have to be torn down. They could be moved. Some practical and economic HOUSING & REDEVELOPMENT AUTHORITY MEETING, NOVEMBER 6, 2003 PAGE 2 considerations will dictate what happens to those properties. As part of staff s negotiations with the sellers, staff has agreed to allow the sellers to take certain fixtures from the properties ,r—�, (salvage rights), as well as some exterior items such as landscaping, etc. What is actually removed from the property will determine whether or not there is anything of value left in terms of moving the home. Once the sellers are through the moving process, staff will have to assess that issue. Staff will consult with a moving contractor before making a recommendation to the HRA. Mr. Fernelius stated the second question concerned the definition of "substandard". The resolution refers to state statute, which isn't real helpful. Included in the agenda is the actual statutory language, which gives a more thorough definition of "substandard" in the context of redevelopment. The definition is fairly broad; it does define things beyond physical decay or things that are conventionally thought of as substandard or blighted. It includes things like inadequate light or ventilation, fire protection, inadequate layout or design, or deficiencies that would require either substantial renovation and/or clearance. Mr. Fernelius stated he would like to point out that not every property has to be substandard in order to create a tax increment district. The statutory requirement is that at least 51 % of the properties in a proposed district would meet this definition. Mr. Femelius stated the last question concemed the background findings or the documentation on file that that the underlying properties are, in fact, substandard. They do have fairly comprehensive records on each property that includes both an appraisal and observations about the physical conditions, including photographs, etc. However, the files do not include a comprehensive inspection report that documents all property conditions. The appraisal is a different tool that looks at the value of the component pieces, rather than the physical condition � or deficiencies. A thorough inspection should be done before anything is removed from the property. This information will be available before the HRA adopts the resolution at the December meeting. Mr. Meyer asked if staff has the right to gain access to the property for this purpose. Several years ago, they had major discussions about how to gain access to a properly if the owner chooses not to allow anyone on the properly. Mr. Femelius stated the resolution proposed for adoption only includes the properties the HRA is currently in the process of acquiring. So, it is in the best interest of the seller to cooperate with staff. He did not see any problems. MOTION by Ms. Gabel, seconded by Mr. Meyer, that consideration of Resolution HRA 5-2003 Declaring Substandard Property remain on the table until the December meeting. UPON A VOICE VOTE, ALL VOTING AYE, CHA�RPERSON COMMERS DECLARED THE MOTION CARRIED UNANIMOUSLY. 2. CONSIDER REVISED PURCHASE AGREEMENT FOR 5925 3RD STREET: Mr. Femelius stated this item was originally approved at the September HRA meeting. Subsequent to that approval, Mr. & Mrs. Alaspa withdrew from negotiations citing dissatisfaction with the offer from the HRA. The Alaspas brought forward some extraordinary circumstances that made the HRA's offer unacceptable. Since that time, staff has had a number of discussions with the Alaspa's about their concems. He believed they have reached a solution that preserves ^ the integrity of what the HRA has negotiated, not only with the Alaspa's, but also with the other property owners. HOUSING & REDEVELOPMENT AUTHORITY MEETING, NOVEMBER 6, 2003 PAGE 3 Mr. Femelius stated the first issue concerned handicap accessibility. The Alaspa's home is ,--� already handicap accessible. The comparable properties were not handicapped accessible. So, the sites were truly not comparable and therefore represent an extraordinary expense the Alaspa's would have to face in looking for another property. Mr. Femelius stated the second issue concerns the forgiveness of a lien that is filed against the Alaspa's property. In 2002, the Alaspa's received a grant for $3,300 to make some modifications to their home. He believed some of that money was used for handicap improvements. That grant contained some forgiveness provisions, which stipulated that 10°/a of the grant amount would be forgiven each year for the first five years, and the balance would be repaid whenever the property was sold in the future. The Alaspa's are now in the second year of that amortization schedule, meaning that 10% of the grant has already been forgiven. If the Alaspa's remained in the property, this process would continue through 2007, at which time half of the grant would be forgiven and half would have to be repaid. The Alaspa's have asked for help in paying off the portion of the grant that would otherwise be forgiven, which amounts to $1,320. Mr. Fernelius stated staff's recommendation is to approve a revised purchase agreement. The purchase price remains the same at $157,000. The replacement housing payment remains the same at $20,900. The HRA is still providing moving costs. The additional items would include assistance up to $5,000 for handicap accessibility improvements. Those funds would be placed in escrow with the title company. The Alaspa's would provide the HRA with a list of improvements they plan to make; and when they provide proof that the improvements have been made, they would be reimbursed for those expenses. Mr. Femelius stated stafF's recommendation is for the HRA to pay up to $1,320 of the lien that � has been filed against the Alaspa's property, with the acknowledgement that the Alaspa's would be responsible for the other portion which is $1,620. Mr. Commers asked Mrs. Alaspa if staff's recommendation is agreeable to her. Mrs. Alaspa stated, yes, this is agreeable to her and her husband, and they have already signed the papers. MOTION by Mr. Meyer, seconded by Ms. Gabel, to approve the revised purchase agreement for 5925 3`� Street NE. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED UNANIMOUSLY. INFORMATION ITEMS: 4. UPDATE ON CDBG FUNDING: Mr. Fernelius stated that last week staff the County officially approved the re-appropriation of approximately $200,000 in CDBG funds. The funds will be used toward the Gateway West project costs. As background information, staff submitted an application to the County for 2003 CDBG funds. That application was tumed down, but in August 2003, the County contacted staff about the opportunity to use some funds they were going to be recaptured from other County projects that never materialized. The County is able to use funds that would otherwise be lost andlor affect their ability to get additional funding in the future. It is certainly a win/'win situation �-^� for both the City and the County. The exact amount of the grant was $199,720. HOUSING & REDEVELOPMENT AUTHORITY MEETING, NOVEMBER 6, 2003 PAGE 4 5. MONTHLY HOUSING REPORT Mr. Femelius stated the monthly housing report includes the Loan Origination Report for ,�. October. Two loans were made with a value of $38,811. Year-to-date loans are 15 with a value of $162,700. Mr. Femelius stated that total principal and interest payment receipts for the Loan Servicing Activity for September were $72,434. Net amount after some servicing costs was $71,872. Mr. Ferr�elius stated the Delinquency Report shows how many of the loans in the portfolio are delinquent. Currently, two loans are delinquent. Payments total roughly $3,600 with an outstanding principal of $2,600. Mr. Femelius stated the last report shows the appointments that have been made for the Remodeling Advi$or and Operation Insulation programs. The Center for Energy & Environment (CEE) put on a wo�kshop at the Fridley Community Center on Wednesday, October 29, 2003, addressing the Operatipn Insulation program and HRA loan programs. CEE plans to do that again some time this winter, and that will be publicized. Attendance at this workshop was a little disappointing. Mr. Meyer stated he would be interested in knowing what types of improvements people are doing with their Iqan monies. Mr. Fernelius stated that maybe in future reports, staff can provide some type of summary that would show the types of improvements that are being made. Again, they must be very careful of the data privacy issue. ^ 6. REVIEW 2004 HRA DRAFT BUDGET: Mr. Femelius stated the purpose of stafPs presentation is to provide an overview of projected revenues and expenses, briefly discuss fund balances, highlight some of the emerging issues that will affect the 2004 budget, and answer the HRA's questions. Formal action will be scheduled for the December meeting. Mr. Femelius stated the HRA members received budget books. The HRA's accounting and budget structure are set up into three categories—general fund (administrative & operating expenses), two special revenue funds, and capital outlay funds (all tax increment financing districts, redevelopment projects, as well as the housing replacement program). The budget boQk provides summaries for each of these fund groups. Within each fund group is a summary that includes projected revenues and expenses for next year, as well as comparative information from prior years, as well as cash and fund balance information. Mr. Femelius stated projected revenues for 2004 are $4.7 million. Some additional information has been received from Anoka County, and the tax increment projections are going to be higher in 2004 than what was identified in the budget. These revisions will be made for the final budget. The amount is around $116,000. The increase in terms of revenues from 2003 to 2004 is about 26%. Much of that is due to the Medtronic project. In 2004, that project will be fully valued for tax purposes, so they will start to see the full effect of that valuation in the tax increment coming on line. Mr. Femelius stated the other significant issue is the tax levy, which is going to increase about � 10%. This is due to an overall increase in market value. Additional increment will be generated as a result of State legislation that addresses the method by which tax increment is calculated. The County now uses a new method for calculating increment in some of the older districts, HOUSING & REDEVELOPMENT AUTHORITY MEETING, NOVEMBER 6, 2003 PAGE 5 which means they will be generating more increment going forward. They are anticipating that ^ the change will generate around $100,000-140,000 per year. That is in addition to the $116,000, so things are looking up from a tax increment perspective. The balance in the increase in revenue is due to increased market values on some of the commercial and industrial projects. Mr. Femelius stated they are looking at expenses of roughly $5.2 million. This is a$640,000 increase or about 13% over 2003. Capital outlays and debt service account for the largest portion of the expenses. In looking at the expense categories, capital outlays account for almost $3 million of the expenses, debt service is $1.8 million, personnel services are $264,000, other services and charges are $256,000, and supplies round out the balance for a total of $5,268,000. Mr. Femelius stated that in terms of significant capital outlays, they have the contractual obligation to help Medtronic cover some of its site costs and parking ramp costs. That payment will be $1.3 million. The Gateway West project will be roughly $180,000. They are programming in $325,000 for the housing replacement program. The largest ongoing revenue note obligations with developers are Shamrock Investments (the Onan-Murphy site) at $195,000, McGlynn's at $40,000, Linn development at $12,000, and Paschke development at $6,000. Mr. Femelius stated the total debt service obligations for 2004 is $1.7 million. Right now, all of the debt service is paid for from the tax increment receipts in Tax Increment Districts #1, #2, and #3. Center City District #1 will provide $1 million, the Moore Lake District will provide $133,000, and the North Area Industrial District will provide $600,000 toward the debt service obligations. � Mr. Fernelius stated that looking at the budget issues, the most significant one for next year is the Medtronic project. Last year tax increment was going up, but this year there is the real possibility that it could go down. Medtronic is in the process of petitioning its valuation. If Medtronic is successful in reducing its value that will obviously affect the City's tax increment. Mr. Fernelius stated that regarding the cash position, the general fund balance over time has been declining as they have done more and more redevelopment projects like Gateway East and now Gateway West, so they will need to carefully evaluate that as they go forward in looking at other redevelopment projects. Another issue that will have to be discussed with the HRA at a future meeting is what they want to do with their revolving Ioan fund. The revolving loan fund has a rather substantial cash reserve in that account which is good, but it perhaps is a little more than they need so staff will make a recommendation in terms of whether or not some of that should be transferred back to the general fund. Mr. Femelius stated they have debt service obligations that go out to 2012; yet, the tax increment districts they rely on for paying those bonds will begin to expire starting in 2007 through 2009. So, they will need to rely on the general fund and any other revenues they happen to accumulate over time to help meet those debt service obligations in those outlying years. Mr. Femelius stated that in looking into next year and beyond, they will have to continue to monitor the resources they have and evaluate projects very carefully to assess what opportunities exist, what resources are available, and not forget that it is important to leverage their resources with outside dollars. The CDBG funds would be one example, and there are other funds out there. i� Mr. Commers stated it is his understanding that this year, revenues are projected at $4,700,000 and expenses at about $5.2 million. He asked Mr. Femelius what they have in the way of capital outlays for new projects, or would that be in addition to the $5.2 million? HOUSING & REDEVELOPMENT AUTHORITY MEETING, NOVEMBER 6, 2003 PAGE 6 Mr. Femelius stated that in terms of new projects, the project related capital outlays would be � Gateway West, and that is factored into the $5.2 million. Mr. Commers stated that when Tax Increment Districts #1, #2, and #3 terminate in 2007, are they still going to have an ongoing obligation to pay out of the general fund? Mr. Eisenmenger stated that at the recommendation of Krass Monroe when they last did a cash flow analysis for the HRA, they suggested reserving $3 million in the fund balance. Mr. Commers stated that would then take care of the shortfall that they get as a result of losing Districts #1, #2, and #3 in 2007. So, at this point, they really have about $3 million to fund everything going forward. Mr. Eisenmenger stated that is correct. Mr. Commers asked that using the model they have today, how much of the HRA's budget will come out of the general fund the $3 million going forward. Mr. Fernelius state that going forward, things like personal services, other services, and charges will all come out of the general fund balance. Mr. Commers stated that if they have $3 million in their general fund going forward, what is their annual expense that is going to come out of that? Is it a half million dollars, $750,000? So, they know what they have for operations. Mr. Femelius stated that would need to be analyzed. Staff has not looked at the problem from � that perspective. If you took Gateway West out of capital outlays, all of capital outlays are basically covered through the tax increment program so there is no requirement they take any funds out of the general fund, but it is with projects like Gateway West. They are also taking monies out of the general fund for the housing replacement program. So, roughly $1.2-1.3 million will come out of the general fund for Gateway West and the housing replacement program. Mr. Commers stated that unless they can replenish the general fund by transferring monies out of the revolving fund, their cash position is limited for the future--roughly $1.2 million out of the $3 million. If they are using a half million in operating expenses every year, unless that gets replenished, it wpn't be long before it is gone. Mr. Femelius stated that is coRect and is why they will have to carefully evaluate what projects are out there. Obviously, they cannot do a very expensive project (like Gateway East and Gateway West), which would consume a large chunk of that general fund. The picture going forward is a little uncertain. The cash flow projections have not been updated in over a year. He believed Krass Monroe did that in March 20Q2. That analysis looks at the big picture 5-10 years out. That needs to be updated and provided to the HRA members. Mr. Femelius stated they will continue to collect land sale income from Medtronic. Mr. Eisenmenger stated that amount for 2004 is $150,000. That money will go into the general fund. That amount will fluctuate in accordance with how much tax increment the HRA receives based on Medtronic's market valuation. � Mr. Meyer asked what is the potential affect of the Medtronic valuation reduction on the HRA's budget picture. HOUSING & REDEVELOPMENT AUTHORITY MEETING, NOVEMBER 6, 2003 PAGE 7 � Mr. Femelius stated staff looked at that issue last year and asked Krass Monroe to analyze what would happen if Medtronic's value was dropped to �x" amount per square foot. He would have to look up that documentation. That should be updated as well to give the HRA a better sense of the impacts of a reduction in Medtronic's market valuation. Mr. Commers stated they should also talk to the County Attomey to find out what the numbers are that each side was proposing. By now, the County Attomey should know what Medtronic is suggesting as its fair market value versus what it is, and the HRA would be able to determine some sense of all this. Mr. Fernelius stated staff would follow up on that. Mr. Holm asked if the HRA will know the results of the Medtronic valuation by December when they approve the 2004 budget, or will that be a longer timeframe? Is there a certain date when the decision has to be made? Mr. Fernelius stated this has been ongoing since last year, and he did not know how that process works. Mr. Holm asked if it is correct that this does not include the CDBG funds. That would somewhat reduce their negative cash flow for 2004. Mr. Femelius stated that is correct. � Mr. Eisenmenger stated he wanted to emphasize that the increases in market value of their tax increment districts and the captured tax capacity values annually more than make up for any decreases they might see in mill rates. So, in essence, tax increment should go up every year. Mr. Commers stated the HRA owns individual lots that are not included in any of the tax increment districts like the lots along old Central Avenue. Where would the�r look to see what other lands they carry as assets and how those lands are valued right now? Mr. Fernelius asked Mr. Eisenmenger where real estate is reflected in the HRA's financial statement. Is it a balance sheet item? Mr. Eisenmenger stated that since they rarely hold on to properties once they purchase them, these properties are usually shown in the profit and loss statements. Revenues for land that they sell and expenses for any properties they purchase for the housing replacement program and properties they purchase for tax increment projects would show a capital outlay expense, typically under "land expense". Mr. Commers asked about the lands they have held for a couple of years. Mr. Eisenmenger asked if they have monies in escrow for these lots? Mr. Femelius stated, yes, there is some money in escrow related to environmental problems. He said staff could provide the HRA with an inventory of properties because they do have a number of real estate holdings—Frank's Used Cars, Wemer's Fumiture site, the two lots along Central Avenue, and a number of scattered site lots. Where they show up in the financial statement and ,^ how they are valued is another question they need to follow up on. Mr. Commers asked why there is money in escrow for those properties. The HRA has paid for the properties and are expecting them to generate some revenue when the properties are HOUSING & REDEVELOPMENT AUTHORITY MEETING, NOVEMBER 6, 2003 PAGE 8 developed or are sold to a developer. He believed the properties should be some kind of a positive asset. �"� Mr. Fernelius stated the two Central Avenue lots were purchased near the end of 2000. In those two instances, they agreed on a purchase price, paid that purchase price, but a portion was held in escrow to help cover soil corrections in the future if those sites are developed. That is the money that sits in escrow. But, there are individual scattered site lots the HRA has purchased previously. Those lots obviously have value. Where they show up and how they are accounted for are very good questions. And, he did not how they are reflected in the financial reporting. Those lots are definitely assets. Mr. Commers asked staff to research that and find out where these properties are located on the balance sheet. Mr. Commers asked about the status of the loan balance from the City. Mr. Eisenmenger stated the balance on the loan from the City is $599,000. Mr. Commers asked if they decide there is too much in the revolving loan funds, can they use that to pay off the loan to the City? Mr. Femelius stated yes, the HRA has that flexibility. The revolving loan fund along with the general fund, are unrestricted monies, and they have the flexibility to move monies back and forth. They can take the money from the revolving loan fund and use it to pay off the loan to the City if the HRA wants to do that. Staff has talked about that internally, but it doesn't seem to make that big of a difference. The practical thing to do is to continue the tax levy payment and �.� apply that toward that obligation. Mr. Eisenmenger stated there are eight years left on the loan, and the interest rate is 5%. Mr. Commers stated that if that money could be brought back to the HRA's general fund and they could pay off the City loan earlier, that might be helpful to the City with its current budget problems. Would that be a benefit to the City versus receiving the payments over the eight years? Mr. Hickok stated that is a good point and something to consider. Mr. Fernelius stated he believed it ultimately comes down to a policy question. Staff can evaluate it and give the HRA a sense of whether it harms them financially. Assuming, there is no negative effect, and then it becomes a question of whether or not the HRA just wants to pay the loan off early. Staff should probably outline what the impacts might be to the fund if that was done. Mr. Commers stated if they have the ability to pay the loan off and since they do not need all the money in the revolving fund and are going to transfer it back to the general fund anyway, they need to decide who can best benefit from that. It is something that should definitely be considered. Mr. Meyer, Mr. Holm, and Ms. Gabel stated they had no further questions regarding the budget. Mr. Commers complimented staff on putting a complex budget together and making it �, understandable. HOUSING & REDEVELOPMENT AUTHORITY MEETING, NOVEMBER 6. 2003 PAGE 9 Mr. Femelius stated he wanted to acknowledge Paul Eisenmenger for all the work he has put � into the budget. Mr. Commers thanked Mr. Eisenmenger. He stated the HRA really appreciates his work. Mr. Eisenmenger stated that for the next meeting, he could provide some information on the general fund's cash balance for the last five years and how it has fluctuated, and also what types of operating expenses, amounts, etc., the general fund has incurred. Mr. Commers stated that is a very good idea. Mr. Holm stated that as discussed earlier, it would be very helpful to get the updated cash flow projections. Mr. Eisenmenger stated Krass Monroe might want to wait on that until they find out the results of the court decision on Medtronic's valuation. Mr. Commers stated maybe staff could call the Assistant County Attomey and find out the status. It would be public information. ADJOURNMENT: MOTION made by Ms. Gabel, seconded by Mr. Meyer, to adjourn the meeting. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE ,.-� MOTION CARRIED AND THE NOVEMBER 6, 2003, HOUSING 8� REDEVELOPMENT � AUTHORITY MEETING ADJOURNED AT 8:55 P.M. RespectFully sub itted, Ly e Saba Recording Secretary ,�