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HRA 11/14/2002 - 00025119CITY OF FRIDLEY HOUSING & REDEVELOPMENT AUTHORITY MEETING NOVEMBER 14, 2002 CALL TO ORDER: Chairperson Commers called the November 14, 2002, Housing and Redevelopment Authority meeting to order at 7:29 p.m. ROLL CALL: Members Present: Larry Commers, Jay Bajwa, Virginia Schnabel, John Meyer Member Absent: Pat Gabel Others Present: Grant Fernelius, Assistant HRA Director Scott Hickok, Community Development Director Paul Eisenmenger, HRA Accountant APPROVAL OF MINUTES: Mr. Meyer pointed out that on page 3, paragraph 4, should read "The City's Building Inspector should not be expected... ." MOTION by Ms. Schnabel, seconded by Mr. Bajwa, to approve the October 3, 2002, Housing and Redevelopment Authority meeting minutes as amended. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED UNANIMOUSLY. CONSENTITEMS: 1. CLAIMS AND EXPENSES 2. APPROVAL OF MEETING DATES FOR 2003 MOTION by Mr. Bajwa, seconded by Ms. Schnabel, to approve the consent items as presented. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED UNANIMOUSLY. ACTION ITEMS CONSIDER MODIFICATION TO HRA LOAN SUBORDINATION POLICY Mr. Fernelius gave a short presentation on the City's loan subordination policy. In 1997, the HRA adopted a Loan Subordination Policy related to its home improvement loan program. That policy established a list of conditions under which the HRA would subordinate its mortgage lien to another mortgage. This situation typically occurs when a borrower wants to refinance their first mortgage in order to achieve a lower interest rate or shorten the loan term. In virtually all HOUSING & REDEVELOPMENT AUTHORITY MEETING. NOVEMBER 14. 2002 PAGE 2 cases, the mortgage lender wants to be in the first lien position. In order for this process to work, the HRA either has to agree to subordinate its lien. Up until recently, this policy worked quite well; however, within the last few months a number of requests have come from individuals who want to do what is called a"cash-out" refinance. Basically this means the homeowner would refinance his/her existing first mortgage and take equity out of his/her property for another purpose such as a debt consolidation loan, making more improvements to the property, etc. Because the HRA's current policy does not address this issue, staff has been unable to approve the subordination requests. Those individuals have had to seek another form of financing or pay off the HRA loan. Given the number of requests that the HRA has received, staff feels it is appropriate to revisit the policy. Mr. Fernelius handed out a modified resolution. He stated that is the correct version of the policy they are asking the HRA to approve at the meeting. Essentially, what they would be doing is allowing both rate-term finance and cash-out refinance transactions. Borrowers would need to comply with all of the basic program requirements, such as being current with their HRA loan payments, not in bankruptcy, foreclosure, or any other financial calamity. In addition, they would be required to provide an appraisal showing the value of the property. Mr. Fernelius stated that under the rate-term refinance provision, which currently is allowed, borrowers would be allowed to refinance their first mortgage, keep the HRA loan in place, and also include the closing costs incidental to the transaction. The important feature here is the combined loan-to-value ratio. In other words, all of the debt against the property cannot exceed 100 percent of the value of the property. Again, this is consistent with the current policy. Mr. Fernelius stated the policy change really relates to the "cash-out" provision and, under this particular scenario, the HRA would agree to subordinate only in a situation where the owner wants to make more improvements to the property. The borrower would need to show verification of the improvements, such as a copy of a contract or bid from a material supplier. They would also be required to sign an affidavit, stating that they intend to do the improvements and what those improvements are so the HRA has some kind of verification. In this case, when they are doing a cash-out refinance, the HRA would want a little more security and protection and maximum loan-to-value ratio of 90 percent is appropriate. Mr. Fernelius stated staff is recommending approval of the policy, and the action would be to approve a resolution modifying the original policy. Mr. Bajwa asked whether the 100 percent and the 90 percent were on the current appraised value? Mr. Fernelius stated that is correct. Mr. Bajwa asked what rate was the HRA at? Mr. Fernelius replied their loans are at a 6 percent, fixed rate. Mr. Bajwa asked if they could refinance those also. He inquired whether it is necessary even in a cash-out situation, that it doesn't really change the scenario with the HRA loan being present and considering the amortization schedule, does it not? Mr. Fernelius stated, no, it does not. HOUSING & REDEVELOPMENT AUTHORITY MEETING. NOVEMBER 14. 2002 PAGE 3 Mr. Bajwa asked why would they want 90 percent instead of 100 percent? Mr. Fernelius stated that the borrower is taking equity out of the property and simultaneously adding more debt against the property. In seems to make sense to have more protection for the HRA loan. Mr. Bajwa stated he did not feel the HRA loan would be in jeopardy. He believed the borrowers should not be penalized in this case. The cash-out situation exists because of the different requirements, giving them that option to advance and cash out. He did not think it is absolutely necessary to have the different loan-to-value ratio. Mr. Fernelius commented those are good points, and staff is not tied to this particular issue. Obviously Mr. Bajwa does have an area of expertise in lending and, if that is something he would like to see, staff could certainly include this in the new policy language. Mr. Bajwa stated he would like to see them both at 100 percent. Mr. Commers stated, as he understands it, Mr. Bajwa would prefer paragraph 7(b) be changed from 90 to 100 percent. Mr. Bajwa replied that is correct. Mr. Commers asked a question relating to canceling this transaction to cash out. He thought the way they did that is, the money is in escrow at the lending institution and then they draw against that as the improvements are made. This way, if somebody comes in with a bid from the contractor, it looks to him like they can get the money and there is verification that in fact the value of the house has increased when the work is done. Mr. Fernelius asked if he was referring to the new mortgage they would be taking out with the improvement. Mr. Commers replied, right, they are allowing an increase in the mortgage, as he understands it, on the basis that money goes to valid home improvements. So, what he is asking is how do they verify this in the policy? Mr. Fernelius stated that it would be done administratively. Staff would ask the borrower to sign an affidavit prepared by our legal counsel. The affidavit would affirm that they are making improvements to the property. In addition, they would also be required to furnish a copy of the bid. They need some proof that in fact the borrowers are not just saying they are going to do the improvements, but they have actually gone out and received bids from contractors. Mr. Commers stated that the next step would be to hire the contractor to do the work. Mr. Fernelius stated that is correct. Ideally, we would like to know about improvements before the owner has completed them and then tries to come back and refinance the cost. That might be a little troublesome for the borrowers, so instead staff would like to see the borrowers come to the HRA when they are contemplating doing the refinance and making more improvements to the property. These are the things the HRA needs to know in order to verify that. Mr. Bajwa stated he agreed with Mr. Fernelius with the money being kept for an improvement. HOUSING & REDEVELOPMENT AUTHORITY MEETING. NOVEMBER 14. 2002 PAGE 4 Ms. Schnabel stated she did not know how they can say that. Take the scenario where a person has had a house for 10-15 years or more, has built up a certain amount of equity, and then for whatever reason, maybe a health issue in the family or some other reason, they want to take that equity out. The bank is in charge and makes the decision whether or not there is enough equity there to grant a new mortgage. It may not be something that the HRA has to be involved in at all. The HRA's position was originally in a subordinate position and they would continue to be in a subordinate position under that circumstance anyway. So she is not sure that all of this is equitable in certain circumstances, but she thinks there could be other reasons why the HRA couldn't and shouldn't be involved. Mr. Fernelius stated that the idea of subordinating is really a discretionary call on the part of the HRA. He did not know how many private lenders agree to subordinate in these kinds of situations; typically a lender requires that their loan is paid off. So, the fact that the HRA is instituting a policy which gives people some flexibility is a good thing. In terms of what the loan proceeds are used for, staff acknowledges Ms. Schnabel's point. From the HRA's perspective, part of the idea in providing these loans is that people presumably do not have the funds to do the improvements on their own and they come to the HRA for the initial home improvement loan. Over time, if their financial situation improves, and they can go out and afford to take on a larger mortgage, then the HRA loan ought to be paid off in that situation. If they are going to take equity out for a car or debt consolidation, you may ask what is the relevance of the HRA? Ms. Schnabel stated maybe there are areas or times when they want to become involved in some way, but she thought there are other times when it is just moot that they have nothing to do with the HRA. She stated that, yes, Mr. Fernelius is right, they should protect their own loan. Can they plan on an individual to go to the bank for a refinance and ensure the bank goes through a thorough check on what the value of the property they are asking the mortgage on, to be refinanced, and what their debt consolidation would be? The HRA lien would show up she was sure. She felt they should have some type of document if somebody comes in with a request. Mr. Fernelius replied that he thought it important to note that the language can be changed and they can amend the conditions under which there is a cash-out, refinance. However, absent the change in the current policy, right now they cannot approve these requests. So, some type of policy modification is needed if they want to try and address this situation. Mr. Bajwa commented that he thought Ms. Schnabel has a very important point, that nowadays people are refinancing, cashing out, paying off their debt, and the home may not need any improvements. So, in essence, the home improvement is totally a separate thing. As long as the HRA does not allow any loan aggregate going beyond 100 percent, he feels they would be pretty well set. The purpose of the refinance could be something that they really do not need to tell. Mr. Fernelius stated that it makes it easier from an administrative standpoint. Ms. Schnabel stated that she is sure the HRA has always been in a subordinate position, and so that is just a continuation of that. Mr. Fernelius commented that what is not covered is if somebody wanted to take out another home equity loan, they would not subordinate for that. Ms. Schnabel replied, yes, and she would agree with that. HOUSING & REDEVELOPMENT AUTHORITY MEETING. NOVEMBER 14. 2002 PAGE 5 Mr. Commers stated that perhaps the staff needed to go back and work on the Resolution and come back in a month with it. Mr. Meyer stated they have (a) and (b) rate of term of refinance which, as he understands it, doesn't have any restrictions on the loans of any kind. Mr. Fernelius stated that is where someone is just refinancing their first mortgage for a different term and is not increasing the amount of the loan. Mr. Meyer replied that the HRA would have no interest in that essentially. However, the second one, part (b), "Cash-Out Refinance," he thinks the reasoning that the public purpose for the loan in the first place was to improve housing so, therefore, a cash-out refinance system (which that money would only be used for an improvement) is consistent with the basic philosophy of granting the loans. He likes the principle itself but, unless he was missing something on the other points, is the HRA suggesting that they get rid of that idea? Mr. Fernelius stated that it sounded like the consensus was that they didn't want to get involved in determining the conditions under which the Authority would subordinate its loan, in other words, what the equity is used for. Mr. Meyer stated that he thinks it is a very good principle for us because of the public loan to insist in some fashion that the proceeds from the cash-out refinance operation be used to improve the property and not to buy a car or pay off a debt of some kind to put that back in the property, to be faithful to the basic philosophy of helping with the public money to public credit anyway. Mr. Bajwa stated that he agreed with Mr. Meyer; but when the original loan was provided, there was no such provision that if they come to cash-out, that they had to pay off the entire loan. He did not know if this event triggers that. It may trigger a review of the payments, but it does not trigger automatic prepayment of the loan. Mr. Meyer stated that was a good point but that even before the basic philosophy of why they were involved in the loans was for "a purpose," and that purpose is improving housing. It seems to be implied and is part of that philosophy to keep any proceeds into that property. Ms. Schnabel stated that she thinks Mr. Meyer is right that they did have trails on the money received from the HRA, they did know what improvements were made, and the HRA made sure that the borrowers made that improvement. As long as they are making their payments back to the HRA in a timely manner, she stated the HRA cannot control the borrowers' first mortgage. If the borrowers have accumulative equity they want to take out for another purpose, maybe to another project on the house, maybe to finance some health issues in a family, it may be to buy a car. She did not think the HRA could control that mortgage taken out with a lending institution. However, they can control the HRA loan. Mr. Commers stated they did control it to the extent they did not allow subordination. So, if the borrowers wanted to pay it off, there was no acceleration. The HRA could not do anything and they would have no control. Mr. Bajwa stated it did give them the right, however, to look at the number of loan payments that they will make or the loan to be paid off. HOUSING & REDEVELOPMENT AUTHORITY MEETING. NOVEMBER 14. 2002 PAGE 6 Mr. Commers stated they could also ask if the credit has changed or if the credit itself is the same as it recently was. They would have to have good credit to refinance. The default on the first mortgage should also be a default on the HRA loan. Ms. Schnabel asked if a person were to go to refinance, wouldn't the bank notify the HRA? Mr. Bajwa replied that it would be the responsibility of the lender who provides the new mortgage. He stated that for the staff to go through reissuing a subordination again, he would recommend a fee. Mr. Fernelius stated they currently do and it is $75. Mr. Meyer stated that he believes that if someone makes money because he/she is given public money, there should be some public purpose assigned to the profit, an improvement to the property. Mr. Bajwa stated there is a balance left on every loan. On a 10-year loan, in the sixth year, the second half of the loan term, perhaps there doesn't need much change and can be paid back. For the first year of a loan term, and they have the funds to pay off that loan balance, that loan can be used for a better purpose. If the loan is less than half amortized, the borrowers pay off the loan. Mr. Meyer stated that because it goes beyond amortizing the loan, it is a question of forcing the party to put money back into the property. Mr. Commers asked staff to rework the Resolution and have further discussion at the next meeting. Mr. Fernelius replied they could prepare a couple of alternatives and bring it back at the next meeting. INFORMATION ITEMS: 4. UPDATE ON GATEWAY WEST PROJECT Mr. Fernelius reported they are still in the process of working on the analysis for the Gateway West project and are not prepared to discuss it at this meeting. As staff spent more time on it, they came up with a number of different scenarios and they really need time to thoroughly analyze each of those scenarios. 5. REVIEW DRAFT 2003 BUDGET Mr. Commers asked that discussion on the budget be postponed until later in the agenda. 6. FOLLOW-UP ON COMMERCIAL REHABILITATION LOAN PROGRAMS Mr. Fernelius referred to the Krass Monroe memo outlining how cities and HRA's can create these kinds of programs. A number of things are needed to establish the programs, not the least of which includes defining some kind of public purpose and whether or not there is support for this kind of program. As indicated in the memo, since it seems to have public policy implications, one idea is to include this in the upcoming Council/Commission survey which HOUSING & REDEVELOPMENT AUTHORITY MEETING. NOVEMBER 14. 2002 PAGE 7 would help identify the goals and objectives in the coming year. The program could have impact on the HRA from a financial perspective. So it would probably be a good idea to get a sense of where people are at. There are a number of different program options out there, a number of different funding sources ranging from federal block grants to State programs. So, they just kind of touched the tip of the iceberg in trying to understand the programs. He asked if they could have more time to research this item. When getting into commercial rehab, it gets quite expensive. They may not have the ability to meet everyone's needs, but it is certainly something they can look at. Mr. Meyer asked when the group would be discussing this? Mr. Hickok stated it would be February. Mr. Fernelius stated they could wait until they receive the results of the survey. Mr. Meyer stated he was trying to recall whether Dick Harris said there was a time emergency on his part. Mr. Commers commented it would involve a change in the ordinance. Mr. Hickok stated he believed it was related to the outdoor storage amendment that is before the Council right now, and the Council has forestalled the first reading of the ordinance as they look closer at the Onaway Addition where, coincidentally, some of the Harris properties are located. The Onaway Addition has some real unique, small properties. The ordinance they anticipated would probably be done by the end of the year, and he thought Mr. Harris was really hoping there be some sort of funding mechanism for those owners who need to make improvements, be it landscaping or screening of storage areas on their property or whatever. He estimated they would come back in December for the first reading of the ordinance for the Onaway Addition and the other industrial district. The second reading will probably come in early January. Best case scenario, the publication of the ordinance will come mid to late January, then they would need to start thinking of special use permit funding for new improvements probably late January or February. Mr. Meyer asked if the ordinance should be deferred for six months. Mr. Hickok replied that is an excellent point and one of the things they anticipate is they will have a very large backlog of people stating they need the outdoor storage, they are ready to do a special use permit, and the City will just have to line those up. Logistically, they will not be able to bring them all through the process at one time. So, they will have some sort of inethod of breaking that into sizable chunks and bringing those properties forward. Realistically, if the HRA chooses to do so, they could have a funding mechanism in place before people are deemed out of compliance and scrambling for another alternative. Mr. Meyer asked if they would have the power to retroactively reimburse the funds. Mr. Fernelius replied that was probably something they would have to research. Mr. Hickok replied that one of the things that is important for the listening audience and industry to understand is they do see these as works in progress, and they do work with the industry under a realistic timeline to get their properties into compliance. So, if one of the things they are looking at is being a candidate for the new funding program, that would be part of the overall HOUSING & REDEVELOPMENT AUTHORITY MEETING. NOVEMBER 14. 2002 PAGE 8 review and they would try and build their timeline so they can know and answer when they would be able to fund it. 7. MISCELLANEOUS UPDATES None 8. MONTHLY HOUSING REPORT Mr. Fernelius stated there is nothing out of the ordinary in the Monthly Housing Report. The loan and grant activity has been picking up in September and October which is a good sign. He handed out a supplementary loan servicing report entitled October 2002. He just got the information from the loan servicing contractor early in the week after he had already sent out the packet. So the members had reports for both September and October. October has information on delinquencies as well. The report also includes updates on the Remodeling Advisor and Operation Insulation programs. Mr. Meyer asked if there was any new activity on loans regarding the Hyde Park neighborhood? Mr. Fernelius replied he had not done an analysis lately of what kind of activity has been going on in Hyde Park, but, in looking at the addresses, it did not look like a whole lot of activity had been taking place in this area for at least this year. There have been a number of loans provided in that neighborhood in the last six years. As part of the Gateway West discussion, it might be helpful for them to do that kind of analysis to determine how many people have actually gone through the programs. REVIEW DRAFT 2003 BUDGET Mr. Fernelius gave a power point presentation showing a summary of the 2003 budget. He stated the budget was for discussion only and no action was needed at this time. Assuming they can reach a consensus on the budget and if everyone is comfortable with how the budget numbers, the HRA would formally adopt the 2003 budget at the next meeting on December 5th. Mr. Fernelius stated the HRA budget is broken into a number of different funds, actually 18 in total, and they are separated into three categories: a general fund, housing funds, and 14 tax increment funds. The budget document handed out has both estimates for revenues and expenditures. Also included is an additional report that shows the cash balances for each of those three fund categories. This gives a sense of the available resources. Looking at revenues, the slide presented showed a comparative analysis of 2002 to 2003. A description of each of the revenue source: tax increment represents the largest revenue source and in 2003 they are estimating almost $3 million, $2,890,000 (or about a 16 percent increase over 2002). There may be some questions from folks about, well, given the tax reform that took place in 2001 last year and projected a decline in revenue, why is this number going up, he would get into in just a moment. The tax levy, which the HRA has had since 1997, is projected to generate $264,000 in revenue. Interest earnings of $411,000 has actually declined by about 35 percent and that is reflected by what has been happening overall with interest rates on their investments. Rental income from the parking lot they lease to the clinic next door is $9,600. HOUSING & REDEVELOPMENT AUTHORITY MEETING. NOVEMBER 14. 2002 PAGE 9 Sale of real estate, that is predicted to increase to $95,000. That figure reflects the land sale payments from Medtronic to the Authority as part of their new corporate campus. And finally there is a transfer from the City. He asked Mr. Eisenmenger if that was from the special assessment revenue? Mr. Eisenmenger replied, yes. Mr. Fernelius stated that revenues for the year are projected to increase from 2002 by about a little over 7 percent to $3,700,000. As he explained earlier, when they had gone through the analysis the past spring of the tax increment program, they were expecting to see some decline in the tax increment revenue. One of the things that has happened is that the Medtronic project, has reached full valuation for tax purposes. As a result, the tax increment is now higher than in the two previous years. The installment land sale payment from Medtronic will actually increase too. They did receive a small payment last year and that will nearly double in 2003. Mr. Fernelius stated that they have several broad categories of expenses. Personal services, staff salaries and benefits, those are projected to drop actually by about 7 percent. One of the reasons is that they have not refilled the remodeling advisor position resulting in a decline in the personnel services expenditures. Supplies are projected to increase, the percentage is rather large, which he believed was from software that the HRA has to buy in order to be consistent with the City's system. Mr. Fernelius stated other services include everything from professional services, legal fees, things like lawn maintenance and other fees that the Authority has to pay, and that is projected to drop only slightly between 2002 and 2003. Capital Outlay is expected to increase by 100 percent. That includes expenditures of the Gateway West project as well as some expenditures related to the Medtronic project. HRA is obligated under the development contract to start reimbursing Medtronic for its eligible costs. That payment is rather substantial in 2003. Overall, the expenses are projected to be a little over $4.5 million, about a 35 percent increase from last year. Looking at the significant capital outlay expenditures, they have budgeted funds for the Gateway West project. He can get into detail in terms of what those expenditures would cover but in general that would be land acquisition. Mr. Commers asked what is the fund number. Mr. Fernelius replied, 470. It was on page 52 to top of page 53 where it shows approximately $467,000 for land. Again, he stated that is acquisition, demolition, relocation of potentially two additional parcels that they have talked about before. This would be capital expenditures for the Gateway West Project including the two additional properties next to Frank's. Mr. Fernelius stated the building category is an estimate on the HRA's contribution toward the public improvements in that project. They used the Gateway East project as kind of a model in terms of public improvement with things like roads, utilities, and other infrastructure, including what the HRA has contributed towards that project. They haven't gotten to the point where they have negotiated with a developer, but it is something they want to anticipate. They are looking at approximately $400,000 in additional funds for infrastructure type improvements. So that is the capital outlay portion for the Gateway West project. When you combine the additional professional legal fees, those kinds of things add up to the $896,000. Mr. Fernelius stated regarding the Housing Replacement Program, they are projecting $360,000 which is principally for land acquisition and demolition. That program is a voluntary program for HOUSING & REDEVELOPMENT AUTHORITY MEETING. NOVEMBER 14. 2002 PAGE 10 acquiring property and relocation payments are not typically provided to sellers. They negotiate an arm's-length transaction like anyone else would. He pointed out that they have not had a whole lot of activity in that program. Mr. Fernelius stated that $300,000 today probably does not go very far in terms of acquisition. Several years ago they could acquire from 4-6 properties for that amount. Now he does not know if they could acquire 2 or 3 properties for that. Based on the consensus of the Council Commission Survey last year, there was still support for the scattered site program and there was still a need for it in the community. Whether or not they could acquire as many properties as we have in the past, that is something that they will have to do internally, but they have budgeted those funds for next year. Mr. Fernelius stated the capital expenditure earning is the Medtronic reimbursement which is $855,000. So, of the roughly $2.3 million that they identify in capital outlay, $2.1 million of that amount is broken out into the three activities. In addition, they also have scheduled bond payments from the check increment bonds of $1.7 million. Most of those bond payments come out of the tax increment financing districts 1, 2, and 3. Most of that increment is pledged to paying off the those bonds. Mr. Fernelius showed a final slide providing a basic summary of expenditures versus revenues showing a rather sizable deficit of $779,000. Essentially they would be taking money out of the general fund in order to cover that deficit. He stated again that is based on the assumption that they talked about it as it relates to Gateway West. If those expenditures are less than that, then that deficit is smaller and less money is taken out of the general fund to do that. In looking at the budget from a discretionary perspective, it seemed that the areas where there is the greatest expense would be the Gateway West program and the Housing Replacement Program. The Medtronic reimbursement is an obligation they have under the development program. Mr. Commers asked if Mr. Eisenmenger, at the next meeting, could bring the conditions of the funds overall. The HRA has had a number of projections that indicated its fund balance would be $8, $9, $10, $11 million. Now it looks like it is $6 million and going down to $4 million. He asked if Mr. Eisenmenger could do an analysis and bring that to the next meeting. He stated that Mr. Pribyl has done a number of studies showing those kinds of projections. The reason he is raising that now is it does not look like they are going to make those projections, particularly if Medtronic cuts way back. So, their fund balance at the end of 2003 goes down to $4 million something. He asked if that included the road improvements they have to make for Medtronic? Mr. Fernelius replied that has already been paid. Mr. Commers stated then they would be down to about $4 million, rather than that $11 or $12 million they thought they had. The biggest thing he could see is that they are having a very great difference in the cash difference; and if Medtronic is even half as successful, they are going to be severely limited in what they are going to be able to do. Mr. Fernelius stated the other thing to point out is reserving part of the general fund to pay for those bonds that have to be continued to be paid after the first three TIF districts expire. Mr. Commers inquired whether those were a couple million dollars. Mr. Fernelius believed it was $2.9 million that they would have to repay. HOUSING & REDEVELOPMENT AUTHORITY MEETING. NOVEMBER 14. 2002 PAGE 11 Mr. Eisenmenger stated they have $3 million reserved for bond payments. Mr. Commers asked what the HRA participated, Mr. Eisenmenger stated he did not know the exact number. Mr. Commers inquired about the $3 million in reserve. The HRA really did not have a balance sheet. Mr. Fernelius replied, no, but that is taken out of the cash account projections. Mr. Eisenmenger stated, no, it would not. That would be reflected in the fund balances. Mr. Commers stated so through that $5 million fund balances, $3 million of that is for the bond reserve. Usually they had a minimum assessment agreement when they agreed on these developments. He could not remember any discussion on Medtronic, but this is exactly what happens. They come in and they reduce it significantly and that is the problem. He could not remember why the HRA did that. Mr. Fernelius could not recall either and stated they could certainly look into it. He was not privy to a lot of those negotiations, but he did know that on some of the other redevelopment projects, they have had minimum assessments before. Mr. Eisenmenger stated the working resources for cash balances, they are projecting at the beginning of 2003, between the three groups of funds, $12 million in cash. That is before obligation. Mr. Commers asked where that was located in the budget document. Mr. Eisenmenger stated on page 7, the general fund, projected cash balance, for 2003. Housing fund, page 18, they are going to close out fund 262, so they are going to roll in 262 into 267, so projected cash balance will be approximately $2.5 million in the 2003 fund. Mr. Commers asked whether those were all mortgages? Mr. Eisenmenger stated that was correct. Mr. Fernelius stated this is cash. Presumably, this is money they can use to recycle and make funds. This is available money and is not the same thing as the fund balance which is quite larger and would include mortgages. Mr. Fernelius stated those are generally considered restricted funds, so generally they have to be used in our tax increment program. They do not have as much flexibility to use that cash as they would in the general fund. Mr. Bajwa asked if there is a page that shows balances of all three funds. Mr. Eisenmenger referred to page 2, showing an overview of revenues and expenditures and projected fund balances. Mr. Commers asked what the bottom line is. HOUSING & REDEVELOPMENT AUTHORITY MEETING. NOVEMBER 14. 2002 PAGE 12 Mr. Eisenmenger replied the bottom line shows a fund balance for all HRA funds and also each group of funds for the beginning of the year and also what was projected in the fund balances at the end of the year, taking into account revenues and expenditures budgeted for the year. Mr. Bajwa stated that on an overall basis there is a reduction of $650,000 or something like that. He asked what is the overall fund balances for the last five years. Mr. Eisenmenger replied it has ranged from 9 to $13 million over the last five years. Ms. Schnabel asked whether the HRA is in better shape than they thought they were? Mr. Eisenmenger stated he could provide a better answer next month and provide a five-year comparison showing how the fund balances have gone up and down. Mr. Commers stated he believed what Mr. Eisenmenger was saying is that they have been pretty stable, and it is a question of going forward. Mr. Eisenmenger did a study and analysis of what happens if Medtronic's values are changed. Mr. Fernelius stated, yes. Obviously it was a negative impact. To a degree, the valuation is reduced according to what happens with our tax increment. He thought he had shared that with the HRA, but he can do that as well. He believed the true magnate of their resources is the general fund and in looking at the cash balance of the general fund, because those are really the resources that the HRA has for the projects they request. That is what they need to watch. Mr. Commers asked if that is because they will transfer out of that general fund the bond payments and the shortfalls on the other funds? Mr. Fernelius stated not the bond payments. The bond payments come out of the TIF districts. The net amount they have to take out of the general fund is $1.3 million. Ms. Schnabel stated regarding the $7.7 million, the $1.3 million has already been taken out. Mr. Fernelius stated he believed the excess deficiency is actually $1.37 million. That is the difference between the budgeted fund balance the first of the year and the end of the year. That is the net TIF. Mr. Commers stated it looks like they will have $7.7 million at the end of this year assuming they don't take it with the Medtronic's hit and that Gateway West is $900,000 or so. Mr. Fernelius stated that was a fair assumption, although Medtronic's tax increment is not reflected in the general fund. That is in its own TIF column. Mr. Commers asked if that was one they can transfer. Mr. Fernelius replied, no. Mr. Eisenmenger stated the only funds that will go into the revenues that go into the general fund, that is Medtronic, is the land sale, and that will be for approximately the first 12 years, a little over 11 percent of what they paid them in taxes. HOUSING & REDEVELOPMENT AUTHORITY MEETING. NOVEMBER 14. 2002 PAGE 13 Mr. Commers asked whether the infrastructure improvements came out of the Medtronic TIF district. Mr. Fernelius replied, yes, but they authorized interfund loans. The TIP district does not actually have any cash to pay for those improvements so they create a loan in the general fund for that district to actually advance the money if that is how he understands it. Mr. Commers asked if they have any actual cash sitting in the general fund? Mr. Fernelius stated the actual cash projections he has reflect everything with the loans as well. Mr. Commers stated one thing the HRA gets asked about is the HRA's liability coverage . Mr. Eisenmenger stated he would check into that. Mr. Fernelius stated it would probably be through the League of Minnesota Cities. Mr. Commers inquired about the Medtronic transfer listed under a parking facility. Mr. Fernelius replied that the way that deal was negotiated is the HRA is essentially reimbursing Medtronic for its TIF eligible expenses and that is the parking ramp. ADJOURNMENT MOTION by Mr. Meyer, seconded by Mr. Bajwa, to adjourn the meeting. UPON A VOICE VOTE, ALL VOTING AYE, CHAIRPERSON COMMERS DECLARED THE MOTION CARRIED AND THE NOVEMBER 14, 2002, MEETING OF THE HOUSING AND REDEVELOPMENT AUTHORITY WAS ADJOURNED AT 8:55 P.M. Respectfully submitted, Denise M. Letendre Recording Secretary