01/30/1989 CONF MTG - 5379�
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FR1 DLEY
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CITY OF FRIDLEY
JOINT $RA/CITY COIINCIL CONFERENCE MEETING
JANIIARY 30, 1989
7:30 P.M.
HRA STATEMENT OF FINANCIAL POSITION FOR DECEMBER 31, 1988 AND
TEN YEAR PROJECTION
RETURN OF REFERENDUM LEVIES TO SCHOOL DISTRICTS
OTHER
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CITY OF FRIDLEY
M E M O R A N D II M
TO:
WILLIAM W. BURNS, CITY MANAGER ����� •
FROM: RICHARD D. PRIBYL, FINANCE DIRECTOR
3UBJECT: HRA STATEMENT OF FINANCIAL`POSITION FOR
DECEMBER 31, 1988 AND TEN YEAR PROJECTION
DATE: JANUARY 26, 1989
Attached you will find two separate statements. The first
statement is the HRA 5tatement of Financial Position for the year
ended 1988. This statement is made up of two separate sections.
One section is the actual HRA Financial System and the other is the
Source and Applications of Funds.
The notes that I have attached to the HRA Statement of Financial
Position are an integral part of the statement, and necessary to
gain sufficient understanding of the numbers that it contains.
The second statement is an HRA Ten Year Cash Flow Projection. One
should be keenly aware of the assumptions that are also attached
to that statement so that there is no misunderstanding of what that
statement portrays.
I am providing you this information for the discussion that will
take place on the evening of January 30, 1989. I am also giving
you a summary sheet of all the tax increment districts along with
pertinent information that relates to each district.
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�
ASSUMPTIONS USED IN THE CREATION OF THE HRA CASH PROJECTIONS
---------------------------------------------------------------------
1. The Tax Increment Projections are based on Anoka County's values.
2. The Tax Increment assessed values have been ad�usted for taxes Payable
88/89 ior the folloring projects:
a. Springbrook Apartnents - increase of 52,479.815.
b. Lake Pointe improvements - increase of 5472,477. Also due to
changes in taxable and nontaxable property.
c. W3niield Building on University - increase of 5422�303.
d. Shorerood - increase of 5125.689.
3. The Tax Incre�sent Projections are based on the Payable 1988 Mill
Rates ior each district.
4. No appreciation values are used.
5. Rental income is from the Fridley Liquor Store� Kiffe's Automotive,
and the parking lot at the Fridley Oifice Plaza.
6. Mortage income from the Fridley Oifice Plaza� Shorevood. and
University Apartments (Springbrook).
7. Interest earnings are based upon an average of 5X.
8. The projectians assume a bond crossover in 1990.
9. The projections assume a 1989 hase oi'5200,000 for ad�einistrative charges and .
a SX increase each year thereafter.
10. Delinquent taxes are not taken into account and actual increment ilavs �ay
diiier because oi these.
11. The projections assume a 5100.000 payment to school districts each year.
12. The interest income is based on the increasing cash belance, if balances
are spent every year no interest accures, and the halances are severely reduced.
23. The projections are projections onZy and to be used as a guide in
future planning. Projections beyond 3 years ere only esti�aates of
future activity and should not De relied upon as absolutes.
�
.
� NOTES ASSOCIATED WITH THE HRA STATEtiEHT OE' FINANCIAL POSITION
�
---------------------------------------------------------------------
1. The HRA has only tro types of funds, Capital Projects and Debt Service.
2. Al1 funds are shorn in summerized total by fund type, except for the Capital
project Revolving Fund
3. Historically all projects have been requfred to be self-supporting. thus
making each district self-supporting.
4. The calu�n labeled Unrestricted Funds are the dollars that have no
restrictions as to hor they are used.
5. The column labeled Restriated Tax Increment are the dollars collected
from the increment flov from property taxes and are restricted as to use
by State Statute.
6. The iigures shovn are unaudited at this time and are not iinal� these
numbers should not change materially rhen audited.
�
r � �
�
S
CITY OF FRIDLEY
M E M O R A N D II M
�'�` �
TO: WILLIAM W. BORNB, CITY MANAGERi�•
FROM: RICHARD D. PRIBYL, FINANCE DIRECTOR
SUBJECT: RETURN OF REFERENDUM LEVIES TO SCHOOL DISTRICTS
DATE: JANUARY 26, 1989
Since last we met with the City Council and the HRA, we were able
to meet with Mr. Jim Holmes, from Holmes and Graven. It was
interesting to get a perspective from an individual who actually
authored the original Tax Increment Law, and to find out what his
feelings were of the 1988 changes and how they impacted the
existing law.
Attached you will find a response from him regarding Subdivision
10 of the 1988 changes to the Tax Increment Act. He states on the
second page of the three page memorandum, "that the City could
enter into an agreement with the school district and return levies
based upon a mutual agreement." This opinion is different from
that of our Bond Council which I have also attached. It does
provide support for the comment that Mr. O'Meara made that
Subdivision 10 of the new tax law is confusing at best.
The last time we met with the HRA and the City Council, it was
mentioned that the last referendum levy School District No. 14
passed was complex in its composition. Since that time we have
reviewed with a number of people School District No. 14's
Referendum Levy. In the Tetter from Mr. Jim Holmes, he states, "It
seems clear that the authorization for such levy derives from the
1983 referendum and not the 1987 referendum." The referendum levy
that was passed in the fall of 1987 does not become effective until
the payable year of 1989. Because of this situation, it has
lowered the amount of increment attributable to the Fridley School
District. The attached worksheets provide the dollar amounts
associated with the return of referendum dollars for the years
1988, and approximations for the years 1989 and 1990.
Mr. James P. O'Meara has actually structured tentatively agreements
for the City tha� will allow return of the referendum levies stated
on the worksheets to the school districts.
m
� *
,
1
Mr. William W. Burns, City Manager
January 26, 1989
Page 2
The Council and the HRA should be aware of the agreement structure.
They are for a three year period only and if any future court might
judge the City to be in error regarding its interpretation of the
referendum levy, the school district would be responsible for
returning those dollars to the Fridley Housing and Redevelopment
Authority. �
If you have any additional questions regarding this matter, please
feel free to call.
�
�
�
�
�l r�
Attorneys at I�w
ROBERT A. ALSOP
JEFFREV R.BRAUCHLE
MARY J. BRENDEN
ROBERI' C. CARLSON
CHRISfINE M. CHALE
ROBERT L. DAViDSON
RoBEtCI' J. DEtKE
MARY G. DOBBINS
JE�eev ENc
STEFpME N. GALEY
DnV�n L. GRnvEn
dONN R. GREEN
REYNnUD L. HARP
January 26, 1989
HOLMES & GRAVEN
CHARTERED
470 Pfllsbury Centeq Minneapolis, Minnesata 55402
(612) 33x9300
Rspifax (612) 337-9310
Mr. ftichard D. Pribyl
Finance Director/Treasurer
City of Fridley
6431 University Avenue Northeast
Fridley, Minnesota 55432
Dear Mr. Pribyl:
WRITER'S DIREC'I' DIAL
(612) 337-9201
JAMES S. HOI.MES
DUANE G.JOHNSON
JUHN R. LARSON
WELLIN4TON H. LAW
JOHN M. LEFEVRE, JR.
ROBERT J. UNDALL
MARK A. LIND(:REN
LAURA K. MOLLET
DANIEL R. NEI tiON
BARBARA L. PORTWOOD
LARRY M. WERTHEIM
BONNIE L. WILKINS
As you know, the 1988 legislature made several changes in the Minnesota Tax
Increment Act (the "Act"), one of which dealt with the return of eertain ta�c
increment attributable to school referenda levies ("Levy Increment") to the
affected school district. Prior to 1988 it was unclear whether a city or
development authority could return tax increment to a school district, county or
municipality without declaring an "exeess", returning the excess to the county
auditor and permitting the auditor to redistribute it to all affected taxing
jurisdictions. At the same time, there was growing sentiment that if voters within
a school district approved an increase to the levy by referendum, it was unfair for
the benefit of the levy within a tax increment district to be deemed tax increment
rather than going to the sehool district.
The 1988 amendment contained in Minnesota Statutes, Section 469.177, Subd. 10
generally mandates that Levy Increment be returned to the school district when
there were no tax increment bonds outstanding on May 1, 1988 or on any
subsequent date when such a levy is approved. The subdivision ermits a return of
Levy Increment by agreement in those cases where there were bonds outstanding
on May 1, 1988, but where the levy was approved after the bond issue.
You have indieated that your downtown tax increment district was created prior to
August 1, 1979; had bonds outstanding on May 1, 1988; and was subjected to school
referenda levies approved after the outstanding bonds were issued. Your question
is whether Section 469.177, Subd. 10 permits you to enter into an agreement with
the school distriet to return Levy Increment. We believe this raises the following
three issues:
(1)
(2)
Whether Section 469.177, Subd. 10 applies to pre-1979 distriets; and
Whether clause (3) of Section 469.177, Subd. 10 applies to levies
approved before May 1, 1988; and
(3) Whether an agreement with the sc�iool district to return Levy
Increment would violate any pledge _ to existing bondholders and,
therefore, impair the security for the bonds.
�� �
Mr. ftichard D. Pribyl
January 26,1989
Page 2
Application of Section 469.177, Subd. (10)
to Pre-1979 Districts
When the Act was originally enacted in 1979, Section 469.179, Subd. 1 specifically
provided that it would not apply to any tax increment district for which
certification was requested prior to August 1, 1979. There were two relevant
exceptions to this general grandfather provision. First, provisions of the Aet would
apply if the Act expressly so stated. Secondly, the Act would apply "as an
authority elects to proceed with an existing district under the provisions of [ the
Actl ."
Section 469.177, Subd. 10 e�ressly states that it applies "to tax increment
districts and projects for which certification was requested before May 1, 1988
...TM. It does not add 'but not those certified before August 1, 1979." Nor does it
say, as the legislature has said in other parts of the Act, that the provision applies
"to tax increment districts for which certification was requested before or after
August 1, 1979." See, e.g., Section 469.175, Subd. 5. While a literal reading of the
Act cannot lead one to unequivocally conclude that Section 469.177, Subd. 10
applies to pre-1979 districts, in our opinion there appears to be as strong a legal
argument for it as against it.
The second exception to the grandfather of pre-1979 districts from the Act is "as
an authority elects to proceed with an existing district under the [ Act] ". This
raises the question of whether one can elect to proceed under certain parts of the
Act, without subjecting the district to all of the Act's provisions, e.g., the fiscal
disparities treatment of Section 469.177, Subd. 3. Literally, it is important that
the exception says "as the authority may eleet" and not "if the authority elects,"
suggesting that a partial election is permissible. Perhaps as importantly, it should
be borne in mind that the Aet placed new restrictions on the use of tax increment
financing and was certainly not viewed by the legislature or the industry as giving
new powers. Its provisions were intended to impose new limitations. Therefore, it
is reasonable to assume that an authorization to opt into parts of the Act would not
be seen as overly permissive at all.
We conclude that the City can take advantage of the authorization in Section
469.177, Subd. 10 to enter into an agreement with the school district to return
Levy Increment, even though the downtown district was created before August 1,
1979. This is not necessarily to conclude that you would kie mandated to do so if
bonds had not been outstanding on May 1, 1988.
Applicability of Clause 3 of 3ection 469.177, Subd. 10
to Pre-May 1, 1988 Levies
Clause (3) of Section 469.177, Subd. 10 provides that an agreement to return Levy
Increment to the school distriet is permitted "if the referendum inereasing the tax
capacity rate was approved after the most recent issue of bonds to which
increment from the distriet is pledged." This is such a strange way of authorizing
to enter into such agreements whenever a levy succeeds a bond issue that one must
.� �
Mr. Richard D. Pribyl
January 26,1989
Page 3
wonder whether more was intended. Since clause (1) of this subdivision deals with
what happens when no bonds were outstanding on May 1, 1988 and clause (2) deals
with the situation where bonds were outstanding on May 1, 1988 but were retired
by the time the levy was approved, logic would dictate clause (3) was intended to
deal with the remaining situation where the bonds were outstanding on May 1, 1988
and were not retired at the time of a subsequent levy approval, the implication
being that only levies approved after May 1, 1988 were the subject of this clause.
This appears to be the conclusion of the drafter of this language:
T'If there were bonds outstanding on ,May 1, 1988 and these bonds were
not paid off before the referenda was approved, then the city and
school district may agree that all or Qart of the increment generated
by the referendum will be paid` to the school district.'r
Tax Increment Financing Legislation, Joel Michael, Research
Department, Minnesota House of R.epresentatives, June 22, 1988.
This is not, however, what the statute literally says. It says that the City can
enter into an agreement to return the Levy Increment "if the referendum ... was
approved after the most recent issue of bonds to which increment from the district
is pledged." We conclude that if bonds were outstanding on May 1, 1988 in this
district, the City can agree to return Levy Increment to the extent the levy was
approved after the most recent tax increment bond issue for the district.
As for your specific question regarding the 1987 levy, it seems clear to us that the
authorization for such levy derives from the 1983 referendum and not the 1987
referendum. The school district's 1987 action did not purport to revoke, with
respect to the 198? levy, the authorization given in 1983.
Impairment of Existing Outstanding Bonds
We have not had an opportunity to review existing covenants which were created
between the City and purchasers of tax increment bonds issued for this district.
This must be done before establishing the priority of any claim to Levy Increment
by the school district under the contemplated agreement. To do otherwise would
be to risk violating such a covenant and/or impairing the security for existing
bonds.
Very truly yours,
�1 • .
mes S. Holmes �
JSH�f j�
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LE� ITT. PAL.tlSB. 80�4EN. BpT�SA,y � 58ABE
December 8, 1988
DELIVERY VIA MESSENGER
Rick Pribyl
Finance Director
City of Fridley
6431 University Avenue N.E.
Fridley, Minnesota 55432
Re: First Draft of Tax Increment/School
Referend� Levy Aqreements Between
the City of Fridley and Independent
School District Nos. 11, 13, 14, and
16, Respectivelv
Dear Rick:
This letter covers the first drafts of the above-referenced
aqreements.
Determininq what this new 1988 law (Minnesota Statutes,
Seetion 469.177, Subdivision 10) on the subject requires or
even allows is not a simple task, especially where you have
a number of districts, bond issues, and separate referendum
levies. In my experience so far in this area, school districts
have understandably assumed that the law simply entitles them
to receive the tax increment attributable to the their referendum
levies. That is not the case.
To do a proper analysis, it is necessary to take each tax
increment district, determine whether or mot there are bonds
outstanding against that district and when they were issued,
a�d then track through the statute for • each of the different
referendum levies involved. It is entirely possible, in fact
it is often the case, that one levy is eligible to be paid against
a district and a different levy will not be.
A point that is often missed is that this law applies only
to school referendum levies which were approved after the tax
arro Mx w� nnas cs�es aaoo naar x•nou�� ar.r� �cuotxo
i�� l�tZ. K�t�O't� �WI -' ��00 tDf ti7Rt!
. �� �.� . LIIR l�C3. I[D1!fStOT� 00101 � Y�qfi�/OY�. 1[aQfs=O'i� ab�0!
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Rick Pribyl
Pa ge Two
December 8, 1988
increment financing district was certified.
alone excludes f rom consideration a numiier of
levies we are dealing with, as reflected in
agreements.
�
That provision
the referendum
the enclosed
Even if you pass that initial hurdle, you then have to
track through the Subdivision to find out which of the three
scenarios fits (and it is possible that none of them applies,
leading to further exclusions). I have found that the only
way to analyze these scenarios is to prepare a scorecard which
lists the tax increment districts, their dates of certification,
the dates of approval of the various referendum levies, and
the dates of issuance of the bonds. You might want to make
some copies of the Exhibit A to these agreements and use that
as a basis for checking whether you agree with my conclusions.
I suspect that it may take the interested parties some
time to convince themselves that these conclusions are correct,
especially if they had more expansive expectations.
There is one other area of subtlety here that involves
the Fridley School District and only your TIF District No. 1.
That tax increment district is what we call a pre-1979 tax
increment district, meaning that it was certified prior to
August 1, 1979, which is the original effective date of the
Tax Increment Financing Act. That tax increment district was
not created or certified pursuant to the Tax Increment Financiag
Act but pursuant to old, no longer effective, provisions of
the HRA Statute. Unless specific actions are taken, these
pre-1979 tax increment districts are referred to as "existing
projects" under the Tax Increment Act and they are not�.� Prall`T
subiect t4 t e rovisions _of the__ Tax Increment_ Act, includinq.
th�s new school �eferendvm levy Subdivision. The _.,qrovision
of the Tax Increment Ac:��..whic�i qover`n���iese--�xistin
� ion 46.�1Z3_ and ._it._ . _._9.._Pr ects
sa�cs._�Ler� explicitl.y.. the . Tax Increment
Ac es nc�t _.apply to those _pre.-1979 tax increment districts
exceQt as-��p�e�sly pro�rided in the Tax �Increment � Act, unless
an authcrit 1 cts to roceed with the district under-�the Tax
Y g__e____
Increment Act`�r;� and thi's is �a new provision in 1988, if the
redevelopment activity is expanded after May 1, 1988 be ond
the scope of activity set forth in the redevelopment plan.
I am assuming, and the agreement foz the Fridley School District
�
m
�:
RRtGC:S ,.•rD �iURGA�
Rick Pribyl
Page Three
December 8, 1988
ref lects that assumption that you have not brought TIF District
No. 1 generally under the Tax Increment Act.
As you read this Subdivision 10 "you will see by its terms
that it applies to all tax increment financing districts "for
which certification was requested before May 1, 1988," and you
may assume from that language that your TIF District No. 1(which
was certified on May 11, 1979) was meant to be included. In
our opinion, that is not correct; that is not an "express"
provision which subjects pre-1979 tax increment districts to
this new Subdivision 10. Normally, and a case of this occurred
in the 1988 amendments to the Tax Increment Act as well, when
the Legislature wants to make certain that a provision of the
Tax Increment Act applies to pre-1979 districts, it will expressly
say something like "whether or not certified before or after
August 1, 1979." We interpret the date in Subdivision 10 to
simply be a demarcation between pre- and post-May 1, 1988, tax
increment districts which are otherwise subject to the Tax
Increment Act. Therefore, unless you have brought TIF District
No. 1 within the Tax Increment Financing Act (and this would
require the preparation of a financing plan now), it is simply
not subject to the provisions of this Subdivision or the payment
to any school district of referendum levies.
In preparinq the enclosed aqreements, I have followed the
information and direction you have given me in that you want
ta present to the HRA and to the City Council aqreements which
allow for the payment of tax increment to the school districts
to the extent. permitted by this law. In some cases payment
of increment from certain tax increment districts is mandatory.
The City could, if it chose, agree to give less than all of
the maximum allowable where the particular levy increment is
subject to agreement between the City and the Schoal District
under clause (3) of the Subdivision.
I have in addition added a necessary caveat that we have
a number of bond issues outstanding and have made a number of
promises respectinq the use of various tax increments to pay
the debt service on them. These promises: must be kept and to
the extent that abiding by the terms of any of these aqreements
would cause us not to be able to keep those promises, that portion
of the money otherwise payable to the school district would
�
C
�
�� � HRI�:GS �va �iORG �`
Rick Pribyl
Paqe Four � .�
December 8, 1988
be made to the bondholders instead. This has immediate
application for TIF District No. 6(Lake Pointe), qiven the
difficulties encountered on that project, and while the proposed
agreement with the applicable school district (ISD No. 13),
Columbia Heights, does qenerally provide for payment of the
increment attributable to its 1986 referendum levy, the provision
goes on to say that from a practical standpoint we don't expect
any increment to be available to pay to the school district
in the foreseeable future, especially after we first honor the
pledges we have made to use such increment first to pay the
Limited Revenue Note and the '1985 and 1986 G.O. Bonds,
respectively.
Please let me know if I can be of any further assistance
to you in this regard, by way of clarification, amendment, or
otherwise.
Yo s y truly,
� _ .
James P. O'Meara
JPO : cf
Enclosures
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LAW OFFICES
B13IGGS AND MOI-�GAN
PROFESSIONAI,ASSOCIATION
Sl200 FIEST NATIONAL BANS BIJILDIN(3
SAINT PAUL, MINNESOTA 66101
TEI.EPHONE (618) 291-1Q16
TELECOPIEB 1612) f222-4071
� INCLUDIN6 THE FOEMEB FIBDi OF
LEVITT, PAI.MEB, BOWEN, $OTMAN & SHABE
January 10, 1989
DELIVERY VIA
Rick Pribyl
City of Fridley
6431 University Avenue N.E.
Fridley, Minnesota 55432
Re: Tax Increment/Referendum School Levy Agreements
Dear Rick:
Please find enclosed revised agreements for ISD Nos. 11,
13, and 14, respectively. Recall that no agreement is necessary
with ISD No. 16 because no tax increment is payable to that
district under the new law.
The only change from the first drafts of the agreements
for ISD Nos . 11 and 13 is the addition of a new second paragraph
to the paragraph 6 of the previous agreement. This new paragraph
essentially states that the agreement is for a three year period,
that is, it covers the increment attributable to the payable
1988 through the payable 1990 real property taxes, respectively.
In regard to the agreement for the Fridley School District,
again, there is a new second paragraph to paragraph 6. It is
a slightly different new paragraph because there is one mandatory
payment situation here, so we can't limit that aspect to the
3 year period. In addition, I have expanded the introductory
material to paragraph 5 to make it clear that the 6.5 mill levy
that was approved in 1987 begins with the 1988 payable 1989
property taxes, and I have replaced the former paragraph 5(d)
with entirely new material which allows for the payment of these
increments to the school district with respect to the Center
City TIF District but which provides a caveat, as apparently
the Mayor has requested, that if the attorney general's office
or a court of competent jurisdiction concludes that these tax
increments are not payable under this law, then not only will �
all payments cease, but the school district would be required �
2Q00 FIBST 2iATIONAL BANB HIIILDINO � 8AO0 ID3 CSNTEB
CA1N'I PAIIL� 1�[IlfNESOSA 66101 � . 2[INNEAPOLIS� l[IIi]tE�OTA 6640Q
(e�sl aei-�e (et81 �e-oeei
.- � °�
BF?IGGS Axn MORGAN
Rick Pribyl
Page Two
January 10, 1989
to repay any amounts that had already been paid to them under
this provision.
I've already given you several comments on the spreadsheet
that you gave me at the City Council's December meeting. I
would add one comment, relating to TIF District No. 6 and the
Columbia Heights School District (No. 13). Note paragraph
5(a) of that agreement where we say in essence that we don't
anticipate that any increment will be available for payment
to the school district from Tax Increment Financing District
No. 6. You have indicated that in fact there are some tax
increments being generated by that TIF district but I question
whether any of that increment is available to be paid to the
school district, given the prior pledge of all of that increment
to, first, a portion of the two recent issues of general
obligation bonds and secondly and perhaps more importantly to
the payment of the Limited Revenue Note. I realize that the
project may well be in technical default at this point, but
I wonder whether the increment must be reserved for possible
workout solutions and a revival of the payment obligations under
that Limited Revenue Note. I do not have a copy of that Note
so I can't tell whether any of the payment dates have yet
occurred, but my recollection is that they probably have not.
Please let me know if you have any question or comment
on these agreements, and z will'attend the HRA's meeting this
Thursday evening beginning at 7:00 o'clock.
ou s v truly,
�
� �,�.�-
...r'"`�,°`.....�
ames P. 0'Meara
JPO: cf
Enclosures
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