EDA 1999 07 29CHANHASSEN ECONOMIC
DEVELOPMENT AUTHORITY
REGULAR MEETING
JULY 29, 1999
Chairman Boyle called the meeting to order at 6:35 p.m.
MEMBERS PRESENT: Linda Jansen, Gary Boyle, Nancy Mancino, Mark Senn, and Mark
Engel
MEMBERS ABSENT: Steve Labatt and Jim Bohn
STAFF PRESENT: Don Ashworth, Economic Development Director and Scott Botcher, City
Manager
APPROVAL OF MINUTES:
Boyle: Don, ! believe you wanted to make a couple of comments regarding that.
Ashworth: Yes, ! apologize to the EDA members in that ! tried to get the sound system working
and must not have been able to so ! had to dictate the Minutes from my notes. And in that
process ! did offer Mr. Wert to insert what he believed that he had said and that's under this
question about how do you justify some of the other portions so again, those sections were
modified by him and ! had no problem, to the best of my knowledge, everything that he had
reported to me as what he had said was correct and ! did insert that. He did kind of object to the
one section where ! had said that ! had stated that three cities may not represent a comparable list
of cities but ! sincerely believe that ! made that comment and so ! left it into the minutes but !
should make the HRA aware of the fact that he felt that it should not, that sentence should not be
in there.
Boyle: Are you asking for an amendment Don?
Ashworth: No. I'm recommending the Minutes as ! presented them.
Boyle: May ! have a motion to approve the Minutes.
Senn: Move to approve.
Mancino: Second.
Senn moved, Mancino seconded to approve the Minutes of the Economic Development
Authority meeting dated June 10, 1999 as presented. All voted in favor, except Engel who
was not present to vote, and the motion carried.
VISITOR PRESENTATIONS: None.
Economic Development Authority - July 29, 1999
LAKE SUSAN HILLS HOUSING PROJECT:
Public Present:
Name
Address
Walter & Marian Paulson
Shirley Robinson
John Jacoby
Jim Jacoby
A1 Klingelhutz
Brad Johnson
Wayne Holtmeier
Sheldon Z. Wert
Vernelle Clayton
Bob Smithburg
Kyle Tidstrom
Brad Willmsen
8528 Great Plains Blvd.
8502 Great Plains Blvd.
8516 Great Plains Blvd.
8410 Great Plains Blvd.
8600 Great Plains Blvd.
7425 Frontier Trail
8524 Great Plains Blvd.
Greenwood, MN
422 Santa Fe Circle
8657 Chanhassen Hills Drive North
8679 Chanhassen Hills Drive North
8510 Great Plains Blvd.
Boyle: Don, I think what we'll do is take it one at a time. A, B and C and if you would brief us
first on the affordable housing discussion.
A. AFFORDABLE HOUSING DISCUSSION.
Ashworth: If I could get a little bit of an overview and that is only from the standpoint that the
primary issue before the HRA, really the only decision item is whether or not we're going to
consider the concept of subsidizing the Lake Susan Hills apartment complex. Approximately 160
units, so that 20% of those would be affordable. Approximately 33 units. And that is really item
number C. But during our last discussion, EDA members had asked that before we get to the
primary policy question, could we have a discussion on the issue of who it is, what occupations
might likely be living in these units. And the secondary question that EDA members wanted to
discuss was the fee schedule and Mr. Wert had said, that was a justification for why they would
be looking for an additional fee. So again we have the two discussion items. Who's likely to go
into these items which is item 2(a). The second issue is really, is there any reason that we should
consider subsidizing the permit fees associated with this project. So with that let's go back to
item 2(a) which again is a discussion item and again the EDA said what are the likely occupations
of persons renting affordable units in the Lake Susan project. It was more, ! toyed with that for a
long period of time trying to figure out how to best answer that question. And the first part of the
question can be answered in terms that, first of all the developer has to take and keep the units as
affordable, which in case of single unit is $465 ! think it is. In the case of two families, $715. But
assuming that he in fact meets those standards of having the rent set at those levels, he cannot rent
to a person who makes, in the case of a single occupancy, more than $22,250. In the case of
double occupancy, $25,450. Or $10.70 for single and $12.23 double. So if you make more than
those two amounts, you do not qualify for one of those units that rents for either $465 or $715.
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Economic Development Authority - July 29, 1999
Now, the second part of the test though is one of the owner. The owner of the complex who
wants to ensure that he is renting to, he or she is renting to somebody, leasing, that can pay that
amount. Generally if more than 30% of your income is being used to pay rent, you probably
won't be paying your bills and you're probably going to be a bad renter and the person is going to
have to kick you out. Which then puts you up into an area of minimum earnings, using the 30%
rule, of$11.46 or on a two bedroom, $12.37 which if it was double occupancy, would be down
to $6.18. Now that seems like kind of a double standard because if you're a single occupancy and
you make more than $10.70 an hour, you're not qualified to go in. But if, unless you make at
least $11.46, the landlord doesn't want you. Now here's where the exceptions come in, and in
talking with Julie Frick and Ehlers and Associates. Let's say for a single occupancy with a den, a
mother with a younger child, there are certain exceptions for her salary. So let's assume that she
really makes $12.00-$13.00 an hour, but they will subtract off of that medical expenses and other
costs that are associated with raising that child. Which actually then would bring it down into an
area where she would meet the over test and also meet the under test. But the long and the short
of it is we're talking about a very, very narrow band of people who have to make at least $12.00
an hour but can't make over $12.00 an hour. And again you play with the numbers a little bit but
it's generally in that area. It gets to be much easier if you're looking at a two person occupancy
because then in that case one person can be making $6.00 and the other $8.00 or whatever and
then take the exception and they fit in. The one bedrooms are really the toughest. Anyway, !
hope that I've responded to the EDA's questions and ! stand ready to answer any questions you
may have in regards to who, what trade. Oh, let me finish. So taking those guidelines, ! then
included a work force sheet that was prepared by the State of Minnesota and in the first instance,
and you should note that this was prepared, Minnesota Economic Security 1994. And if you use
the 1994 statistics, there'd be three trades that would hit into the approximate $12.00 guideline. !
then increased that by 3% per year for five years. That calculation showed that three trades
would likely qualify for renting one of these units. Then our consultant Ehlers had recommended,
or had stated that the average increase in the trade had been 5% is the numbers that ! penciled in.
If you look at those. Three trades would likely qualify for units. In each instance what happened
between 1994 and the current timeframe is those trades that might typically be in the lower
bracket, meaning like a receptionist, did not qualify making enough money five years ago but
today would. So some of the lower paying trades from five years ago wouldn't have qualified,
but today they do. But it still comes down to there's basically just three trades that would qualify
so again if you went down through my list where ! have hand written in the trades which
packaging, filling machinist, operating tender, $12.00. Plastic mold and cast, $11.00. That may
come close. General office clerks, $12.32. That could be close. As compared with again some
of those same trades in 1994. With that ! stand ready for questions.
Boyle: Thank you Don. Why don't we, Linda why don't we start on your side.
Jansen: I don't know if this is the appropriate time for me to ask this particular question but
maybe direct it as to when. Within the TIF guidelines the city is required to monitor the income
levels within the development and ! wondered if we are actually set up to do that. If there's a
format that where we're given or if there's already something in place that we're doing currently
as far as tracking that level.
Economic Development Authority - July 29, 1999
Ashworth: We do do that. We did carry out a subsidy for the units in the downtown area. That
was 20%. Each year they send us a listing of all of the persons that have, that are currently
renting units and what their wages are. Guidelines at that point in time were different than they
are today, but basically the paperwork, although the amounts of such are different, and how it' s
calculated, we're kind of set up to do that. On the other side of the coin, we're not equipped to
be policemen and so if they put a name on there and a certain salary, I can assure you there's
never been a phone call that says do you honestly make that amount of money. Show me your
federal income tax form. We've never done that. But they do send it in every year.
Jansen: And then we send that onto the State, correct? Isn't that a requirement of the State or
that's just something we're supposed to be monitoring?
Ashworth: We simply have that in our files upstairs and it hasn't been sent to any other agency.
Botcher: If we were to be audited by the State Auditor, ifDutcher came and visited us, that very
well may be some documentation she might want to see.
Jansen: Okay, thank you.
Boyle: Mark. First Mark.
Senn: Don, one of the thing I was having a hard time, where are we now in relationship to the
TIF request? Are we talking about 15 years.., requested 25 years.
Ashworth: 25.
Senn: If you're ready Mark, go ahead...
Engel: I had generally two questions. First Linda already asked and that was the enforcement
mechanism but I don't need any more detail on that. The other is, limitations. Is there a low or a
high limit on this thing? How many units are affordable and how many are on the high end and
how many must be and how many can't be?
Ashworth: There is two tests under the metro. One is that 20% of the units meet 50% of the
average salary within the metro area which is $44,500, which when taken by two comes back out
into the $22,250. The second program or eligibility or program that can be entered into is 40% of
the units but then the income drops down to 30% of the metro area. In looking at the statistics
for the Chanhassen area, it was simply, it would simply be impossible to take and look at the 40%
rule and I very highly question whether or not the EDA city would like to see 40% of the units
subsidized.
Engel: So the answer is not 40%. I missed my percentages.
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Economic Development Authority - July 29, 1999
Ashworth: There's only two things you can go to. A minimum of 20% of the units at 50% of the
metro income or 40% of the units at 30% of the metro income. Metro median which again is this
$44,000.
Engel: 20% of the units at the 50% level. What did that come to again?
Ashworth: $22,250.
Engel: The number of units.
Ashworth: Oh, 33.
Engel: 33. That's all. ! think that's been in there, I just wanted some clarification about that.
Mancino: Question about work force...I'm asking. I've got a question out there. That's one of
the concerns...
Ashworth: ! am confident that you could take and put into the development contract associated
with this project the necessity for, and ! might even suggest a local group, you know meaning
business owners who might look at applications that have been submitted and do a thumbs up or
thumbs down with those. Let's assume Mr. Carlson were willing to serve on that type of thing,
think you could do that. The question becomes one of really is the developer willing to live with
that type of condition knowing that he's trying to rent units. And he may not want to take and
give you the authority for a thumbs up or thumbs down for the applicants.
Mancino: ...
Botcher: ! guess if you wanted to, that's one I'd just be more comfortable going by legal.
Personally. Good question.
Senn: ! mean there is a real policy question as to the city's perspective. ! mean essentially if you
take the subsidy and the lower level going into.., amounts to $4 to $5 million over the term...
Boyle: Just one question and I'm not sure Don if you can answer it. Maybe we can lay it later. !
would assume there's a lot of turnover. I'm taking off of Nancy's question but there must be a lot
of turnover in this type of rental unit. Is that a fair assumption?
Ashworth: Mr. Wert might be in a better position to respond to that.
Boyle: I'll hold the question then.
Senn: Yeah, that's what like ! say...on the level of units is 50%.
Boyle: 50% per year?
Economic Development Authority - July 29, 1999
Engel: Turning them over.
Boyle: I have no further questions on this particular subject.
Botcher: Is that much different than regular rental?
Ashworth: Mr. Chair, you should open this up then for questions or response from Mr. Wert or?
Boyle: That would be great. Are we through b, or through a? Should we stay in on a for a
while?
Ashworth: Right. I think we might be ready for though audience questions or anything.
Mancino: Don excuse me, and Mr. Chair. Can I ask you to clarify the three occupations and
wages... ! kind of highlighted them but ! want to make sure you and ! are on the same page.
Ashworth: It has to, now we're talking again about single occupancy. You open a lot of options
when you move into double occupancy. But under the single, the ones ! had with okay,
assemblers, fabricers is a little over but with some exceptions in there like daycare costs and what
not, might fall in. The other one would be general office clerks would hit right into the area and
the third would be the packaging, filling machinist operating tender. You maybe could get into
that machine feeders and office, but that's, there they're really under and there's one if they had
some other kind of income that wasn't seen to meet the over test but the owner felt that that was
true money, that one may fall into there.
Mancino: Thank you.
Boyle: We will open it up to the audience then staying with discussion on item a.
Sheldon Wert: Well I first thought I would wait but maybe I'll just add a couple of things that are
on this particular subject and wait with my overall comment. In terms of the people that are going
to use this site, ! think that we're forgetting the fact that retired people who earn less than those
quantities and if you look at the sheets, ! have a copy of a sheet which is probably the same one
that you used. You have to say that an individual person, the median income in Carver County.
It goes by Carver County. $63,600 which is the median income in Carver County so the 50% for
one individual to do it is $22,250. But for four people like a young married couple with two small
children, they can make up to $31,800 a piece so this includes retired people, which ! think will
be, ! hope will be a big part of the people that live in this complex. And clerical workers,
waitresses, those kinds of people and you just can figure out the type of people that are going to
be living here. The other thing of course is having the city qualify the people. ! don't even think
you can do it under the Fair Housing Act. The Equal Housing Opportunity Act probably couldn't
do it but it wouldn't work for you. We wouldn't do that. We couldn't do that. So I've got some
other comments on structure you know but I'll hold.
Boyle: Alright, thank you. Anybody else? If not, let's move right onto B.
Economic Development Authority - July 29, 1999
b. Permit Fees - Discussion.
Ashworth: One of the issues that have been presented as it dealt with the questions Mr. Wert had
stated that he, in addition to looking at the differentials between affordable rent and market rate,
which we had our consultant had talked about to be approximately $175,000. To make the
project be work, and this is my own terminology. Mr. Wert may not agree. But to ensure that an
investor made a reasonable return he would really need an additional $40,000 per year for 15
years. At the conclusion of his comments he distributed a sheet that basically showed that
Chanhassen's permit fees were significantly higher than the three cities that he had surveyed and
came to the conclusion, ! won't say came to the conclusion. But it basically stated that if that
$400,000, and I'm just picking kind of a number, $300,000-$400,000. Could, that represented
what he felt were the excess fees charged by the City of Chanhassen. If we would underwrite the
cost of those fees, he would not need the $40,000 per year for 15 years. Which then kind of set
up the question, how are our fees in comparison with other cities, and that's where ! prepared this
report which basically looked at Chanhassen's fees and face it, there's three areas that you can
look at and take and say Chanhassen is higher than the three communities that Mr. Wert had
looked at. One is our park and trail fees. Well let's start with what we're really the same on.
SAC charges are the same throughout the metro area. Permit fees, true building permit fees are
basically the same and if anything we're slightly lower if you look at the permit fee schedule. So
what it comes down to three areas. Park and trail fees are higher. But as a community we've
made a major investment in our park and trail system. All of us who are sitting in this room are
paying a significant amount for not only, excuse me. Paying for the trails within each of our
neighborhoods but now we're paying an additional $5 million to ensure that all of the major
collectors are kind of tied in with each of these neighborhoods. It made no sense in my mind that
a particular development such as this one should not pay the same amount that you and ! have
already paid or will be paying. The second area is really the trunk sewer and water systems. And
it came out loud and clear in the comprehensive plan process that those new people coming into
the community who were going to need those extended trunk water and sewer systems are the
ones that should pay for it. And we went through an extensive process of updating the
comprehensive plan and figuring out what those costs should be. And again, ! don't care if we're
higher than Maple Grove or whoever, that's what the costs are. That's what he should reasonably
pay and there in my mind was no justification for you and ! to subsidize this particular project.
And especially recognizing, ! threw some other parts in here. A number of these communities are
relatively flat. They can work on a grid system. ! mean we have a high pressure area for our
water system. Low pressure area. We have 27 lift stations. ! have major costs basically, it's
night that we have all the lakes we have but that's where water runs down to so now you've got,
where you have to take sewage, you have to pump it back out of there. You don't have some of
those things in some of the communities they looked at. But again, ! will be the first to admit that
our permit fees are higher than some of the communities that he had referred to but ! think there's
good justification for why those fees are intact. They should not be waived or in some way
subsidized for this particular development and staff is recommending that that request be denied.
Boyle: Okay, any questions, discussion.
Economic Development Authority - July 29, 1999
Jansen: ! guess ! don't have any questions per se, just in that if we were to make an exception in
this case, I'd have to take it to the next step we're setting a precedent. So then are we re-
evaluating city wide and from what Mr. Ashworth has said, there's a reason why the fees are set
the way they are. They may have been higher than potentially they were in the past, but there's a
reason for them. So ! would be opposed to just eliminating them on this project. ! would not
want to make that sort of an exception here.
Mancino: Can ! just build on that?
Boyle: Yes you may.
Mancino: Well, and I'd just like to be clear and say not only would we be setting a precedent,
then... ! think we were very clear on wanting to...
Boyle: Thank you. Mr. Senn.
Senn: No questions.
Boyle: Mark.
Engel: ! have no further comment on what's been said.
Boyle: I have no comments or questions regarding it. Is anybody from the audience would like
to.
Sheldon Wert: Well again I'll just try to react to that part of that...what I'll call our second
request. When ! come up I'm going to give a booklet out that's got our request at the end of it
and you'll see this is the second part of the request. The feature is that you know you can't just
focus on the fees, and by the way ! don't think the logic follows Nancy that if we don't pay the
fees, somebody else has to pay it. ! mean the project, if it doesn't go ahead, there will be no
money so ! don't think somebody else has to make book for it.
Mancino: I meant it in the, to continue creating our growing and our trunk sewer and trunk water
lines, they have to be picked up by the development that is developing, whether you know it's you
or someone else. And if they aren't picked up by those parties, then we have to rethink that.
Sheldon Wert: Well that leads me to the point that the terms of the second request, which you'll
see shortly enough and like ! say, I'm getting this presentation of mine chopped into pieces but
it's okay. Is for $40,000 for 15 years, which Don commented about. The derivation of that is
approximately 380 some thousand dollars of these fee differentials that we've determined. And
$835,000 of site work, which ! probably boringly read to this commission last time that qualified
costs under the policy and ! have that in the booklet that I'm bringing out. So if you'll recall,
Ehlers, the financial consultants for the city came out with two proposals. One was the $175,500
on the rent differential, and the other was, in their minds, $120,000 a year for 15 years. That
would help pay this $1,200,000 differential. So it's not just the $385 or whatever the exact
Economic Development Authority - July 29, 1999
number is on the fee. It's also qualified costs that would help make this project end. You know
going back and cutting through it if, given our druthers, we would just as soon not do the project
with affordable housing in it and just get the $175,000 because we're just trading money and
subject ourselves to a lot of scrutiny and subjecting ourselves to a lot of lawyer work and
continued on things so there's no real benefit to me as a developer of this particular piece of
property to have 33 affordable units in it if all I'm going to get is the differential in the rent.
We're perfectly satisfied that we can get the market rents for this project. So ! don't want you to
just think lightly about the $400,000 that it relates to only the fees. It's a total qualified cost
which are analyzed in letters that you have, ! gave you before the Kraus-Anderson letters and all
of those and without dragging you through those again, ! mean all of that has been there. So
again I'll wait until the next subject comes up.
Boyle: Okay, thank you.
Botcher: Can ! ask a question of Shel? The Kraus-Anderson letter though as ! read it isn't a fee
letter. Unless I'm misunderstanding. I'm reading from it. This is the one dated April 14th to
Lynn. There's a list of costs that may be considered cost upgrades due to site conditions, building
placement or exterior elevation upgrades from a typical three story apartment project with below
grade parking. The word fee isn't in there anywhere.
Sheldon Wert: No, but you see that $800...also around down to $385 or something. So the two
total $1.2 million and that's where ! came up with $120,000.
Botcher: And the 379 is simply comparing us to the three cities?
Sheldon Wert: Yeah, right. So the idea is...Ehler said lend them $120,000 a year...
Boyle: Thank you. Anybody else?
James Jacoby: ! just...what ! heard.
Boyle: Could you please state your name.
James Jacoby: James Jacoby, 8410 Great Plains Boulevard. You know ! live on Great Plains
Boulevard and I've been assessed for a water line that I've never hooked up to and that's part of
living in the city. ! get no benefit from it. ! pay for it every year through my assessments. ! don't
see why there should be special treatment for other people. ! mean if that's the way the city
handles their things, ! agree with the comments ! heard.
Boyle: Thank you. Any other comments? Or questions. Discussions.
Brad Johnson: Brad Johnson, 7425 Frontier Trail. I've had a number of discussions with most of
you, including Scott about fees and things like that. ! don't think that's sort of your role tonight
anyway. You don't set the fees. The City Council sets the fees. Some of you get your heads a
little screwed up because this is an EDA meeting, not a City Council meeting. The other thing is
Economic Development Authority - July 29, 1999
that, what we're trying to do here I think is economic development, is that right? And that's what
this job is. And economic development by nature is to do what? Can you guys define what you
do?
Boyle: Keep going Brad.
Brad Johnson: Okay. Well one is to remove light, which was to do the downtown. Two is to
work on housing. Housing redevelopment authority, EDA, that's what they do. Second one is to
redevelop old sites. And finally I'm on the school board, is increase your tax capacity. And you
do that by encouraging people to do stuff. In this particular project somebody made a decision
here about 4 or 5 years ago that they wanted to encourage housing. And that's kind of what we're
discussing today. To encourage housing is one thing and then the next question was, do we want
to encourage, that's high density housing. You might be well aware there is no planned high
density housing for Chanhassen currently, or Eden Prairie or Minnetonka. Because it's expensive
to do and it doesn't work. I think Mr. Wert has shared with you some of the returns that he
expects to get out of this project and this is far from greedy because normally, I don't know if you
had $100.00, if you would be willing to invest it and receive $7.00 per year in interest in a highly
risky type of project like this. So in your project you've got two returns. If he was granted
additional yields of the $40,000 a year, I think his yield goes up to 8.1 or something like that.
And currently you're coming in at 7.1. On the national market you're ready to check, reets are
buying these projects at about 9, barring costs. That's just the interest rate to borrow the money
is greater in many cases than his yield, which means he's willing to take a lower return on his
equity. Now those are things that the economic development group should be concerned about.
So I think as a matter of policy is that whether you want the one, housing in this community. And
number two, do you want to encourage low income housing? And I think he spent a lot of time
showing you in real life, especially with adding the affordable housing in here, that this doesn't
work. It just doesn't work. Financially for just about anybody except in Shel's case, he is willing
to move forward with a relatively low return. The other thing is that Don was talking a little bit
about the cost of hook-up. In your comprehensive plan, and you have a copy of it before you.
He summarized that high density residential is at 6 units per acre. So under that situation the
average hook-up charge would be about $30,000. This particular unit building is about 24 units
per acre and it's paying a hook-up charge of $113,000 per acre. When you did your analysis to
determine what your hook-up charges would be, you underestimated the total amount of hook-
ups you potentially could have. Alright. Now I've got all that documented. That's a City
Council discussion with some developers you know but it's, you're getting $113,000 an acre. A
single family home per acre subdivision pays $9,000. For hook-up fees. So we are over charging
apartments and therefore discouraging apartments. That's the HRA. Whether the City needs the
money for the future or not but you do discourage it just because it's part of cost. And that's a
policy decision you make. There are a number of communities that Mr. Wert and others have
shown you and it's in that package that Don does. Is because they realize it's less expensive and
maybe they're trying to encourage high density, to have lower fees per unit but much higher fees
in real life per acre. So Nancy in your case, I mean the amount of I don't know I figured it out.
Total, well here I'll give you this. Because I think this is really where you are and I'm not sure
it's arguing his case or not but as a developer of the Village, we entered into an agreement with
the city with the understanding that we were supposed to put in affordable housing. And that was
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Economic Development Authority - July 29, 1999
a requirement that you made, not us. What you have before you, which ! think is economic
development Gary. It shows you what the impact on the city is of the Village. And the first thing
it shows you is that currently with the Sherlard Housing project and project that we have
currently got under construction, it will create $673,000 of new taxes. It will pay assessments
that you've already bonded for in your trunk system for the sewer of $167,546. We will have
paid a million dollars in hook-up charges on approximately oh maybe 14 acres. And the total
assessed valuation of the project will be about $16 million. Yet to go we have another $958,000
worth of taxes that this project will generate. Another $22 million of assessed valuation. The
potential tax increment that this project generates that could be used by the city for things like
rent buy downs, and not only in this district but other district because that's legal. You can move
this money around. Okay as a policy. Buy down hook-up charges just because you want to be
friendly and make the cost a little less to increase the return to the investor who many times the
HRA's are for example in St. Paul they're trying to attract 2,000 units to their community and
they're going to have a hard time doing it. You can do structured parking in different areas
within our development. If we need it to provide parking for the St. Hubert's and our group.
You can provide infrastructure for 101. ! mean one of the folks here are wondering when are you
going to start 101. Actually there's probably money in this area to do the planning for 101 if you
wanted to do it. And it could be provided. At the bottom ! have, this is just kind of interesting
because ! think this is economic development we're talking about. Not assessments. It's do you
want housing? And what kind of a commitment did, in general, the Planning Commission and the
Council make when they said they wanted housing. The current market value of your community
is $1,000,239,000. Your tax capacity today is $20,942,000. The Village market value when it's
completed, and this is a low estimate, is $39,710,000 and our tax capacity is $1,165,000. ! think
if you check this out you'll find that the Village is the same size in tax capacity as the whole
downtown is currently. That's what we're talking about and ! think that's what the business is all
about in perspective. And the housing that he's generating, our total taxes are $1,631,000. !
think we're talking in this case $210,000 to provide housing, which amounts to about probably
15% of our total capacity that we're generating. ! think you have to keep that in mind.
Boyle: You might want to wait there Brad. ! think there might be some questions. Nancy
believe you wanted, had something on your mind?
Mancino: No.
Botcher: Just for clarification. Under the potential uses of the tax increment, unless I'm mistaken
Don, current law requires us to pool our proceeds to apply against the shortfalls to the downtown
TIF prior to us applying for any grant funds to remedy the shortfall downtown. Is that correct?
Ashworth: I think it's a good question that we should follow through on but my recollection is
that any new districts that are created cannot be, the proceeds, or the increment generated off of
any new district cannot be used to take and pay off costs associated with an older district that has
a problem. So we can check the question as it dealt with Eden Trace but I'm not sure as it deals
with housing. That should maybe be double checked.
Botcher: Okay.
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Economic Development Authority - July 29, 1999
Brad Johnson: The only thing we know about moving housing around, because that's what we
do, is you can move housing dollars from housing district to housing districts and previously Don,
couldn't you move, you could pool districts. This is '89, 1985. There's a lot of things we could
have done to assist certain situations. They've made it kind of restrictive and they've always had
a good eye on Chanhassen to make sure we didn't, because ! think we've done a very good job of
using those dollars over the years that we've been at it. Anybody else have any questions? ! think
a lot of this is a City Council issue as far as the hook-up charges and whether that's fair or not.
The HRA could say it's just a number and it's a matter of this community wanting to encourage
it. ! don't think you lose any, ! figured out if you went to a more aggressive stance on housing,
you'd probably increase your revenue from hook-ups versus decrease them Nancy, and ! can
show you how that works. So ! don't think that's the issue here. ! think the issue is, and as the
developer of the, representing AUSMAR, we have been approached a number of times by major
companies within the United States who are the leaders in housing. We're talking people that
have 200 and 300,000 units of housing, that have turned this project down because of the
affordability issue. If we did not have the affordability requirement, which the city has requested
us to do. Or at least the request that we work on this, we'd be a lot farther along on the project.
But the affordability issue does create a problem. With any of the major people and as Shel said,
it's a fairly confusing package and because it even exists currently, we've spent what, 7 or 8
months on this issue and probably spent 4 months just getting on the building approved. So the
issue is do you want to provide as the housing group affordability within your community, number
one. And then you can't write down, and ! don't think you even talked about that. The
assessments. ! mean you can't change the assessment practice. The Council can. That's where
your heads get kind of confused. The Council could look at this, or they could go to the
community and say what does the community want. You know. But what you can do, because !
believe it's in your realm, and ! believe the reason that he showed them those qualified expenses,
which are qualified expenses for tax increment, and you can buy down rents if you want to. And
you can buy down assessments. In other words much of your downtown, didn't we do it this way
Don? The HRA took over the assessments for the roads, right? And they pay them currently.
To encourage the development of the downtown. That's what we did. And that's how it
happened. When we did Heritage Park, you not only gave us, how did we get that done? You
gave us all the taxes for 13 years, and we have tax credits over there so that 40% of those units
are at 60% of median income. And that's what we did to get those done, because that's what
they wanted done. People wanted housing in the downtown and we have a lot of people living
there. So ! think you always have to go back to say what is the mission of the EDA and have a
policy and if you're encouraging housing, that's fine. If not, then you should let that be known to
the Council and the Planning Commission and then they should change their acts that they have
done, as with us, encouraging us to put housing in. That's how ! look at it.
Boyle: Thank you.
Jansen: Gary?
Boyle: Yes.
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Economic Development Authority - July 29, 1999
Jansen: One thing did come up from what was just mentioned, ifI might be able to ask this
question. The affordability requirement on the total Villages project. It's my understanding that
we weren't specific as to where that affordability would be applied. As to which piece of the
project. Is there, and I'm asking those who remember how it was put together. The PUD. Is it
specific to this property that it be affordable or could all of the affordable credits be put in the
other sectors of Villages?
Boyle: Excuse me, I'm not going to answer that.
Vernelle Clayton: ! have the paragraph here if you want to hear it.
Boyle: Yes please.
Vernelle Clayton: Hi, I'm Vernelle Clayton. It's paragraph 32 of the PUD agreement and it
reads, the developer shall work with the City to accomplish city goals for housing, including the
provision of"affordable housing": 35% of the rental housing and 50% of the ownership housing
shall meet the criteria established for affordability by the Metropolitan Council. There's nothing
that relates to, that designates where it should be. There's a practical matter, it would be not only
inconsistent with plans and probably not doable for the project but also inconsistent with the
City's, if not written at least stated policy that we aren't, that we try not to bunch the lower
income type housing in one area. If we were not to have, if the requirement stays on and we were
not to have it on this side, then we would be in violation of our stated policy of not putting them
all in one place and it would not work. And that is one of the items that ! have checked with the
owners of the property since about 3:00 this afternoon. So if you make a decision to go with
market rate, which ! suspect is where that question might have been leading, then you need to
make a decision to go with market rate for the entire project. If you make that decision, and
that's not your decision. It's the council's decision ! should clarify. But if you decline the
amount of TIF that's needed so that this gentleman can go forward without making a decision to
them say let's go market, then you will have made the decision that the Council will have to deal
with removing that paragraph from the PUD agreement and the owners are requesting that you
also indemnify them against any damages that might be incurred as a result of the Metropolitan
Council not being too happy with what happened with about a half a million dollars worth of
grant money. Should ! explain that? The reason is that in the grant application, among other
things was stated that there would be affordable housing.
Jansen: And I guess going, I'm sorry. I guess going back to the point, I mean we're kicking
around this policy here would have to change this policy over there and I guess where I was going
was more from that high level perspective. We never said within the PUD paragraph that was just
read, where specifically the affordable would or would not go. So if we were to trigger what
would have to then be another policy decision on the behalf of the City Council, we'd need to be
aware of that and we'd need to address it and it may be shifting all the affordable over to one side.
I don't know. I mean I can't tell you that but I guess if we're going to follow the letter of what
was put in that agreement, we didn't say where. We didn't say it all had to be on one side or the
other. We were not specific as to area, and that was I guess where I was going to suggest that we
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Economic Development Authority - July 29, 1999
had made it difficult to develop this side because we had put the affordable umbrella over it.
That's okay, go ahead.
Mancino: Well just building on that. You know ! think that when this whole PUD, we wanted to
leave a lot of options open. And ! think that you know this is new for our community to be
building this kind of a mixed use development, both horizontally and vertically. And we wanted
to have another type of, what do ! want to say, community within a community for people to live
that's different than our single family and etc, with a little higher density. So we really wanted to
be able to not only the developer but the city to as we go, be able to be somewhat flexible and
look at things as they came in and not to be quite so rigid as far as where everything would go so
that we as a city had that, could use that flexibility also. So ! mean what you're saying is, or what
Vernelle read is that no, it absolutely doesn't have to go over there. And she also is right in
stating that you know the affordability, whether it's rental or ownership, you know we weren't
sure that we wanted to have it all in one place either. So ! mean both of those and it's kind of a
paradox exist together.
Jansen: Okay, thank you.
Mancino: To think that through.
Boyle: But don't we, we would like, correct, affordable housing?
Mancino: ! mean ! think that that's something we'll have to come to here, yeah.
Botcher: ! think we should be careful that we don't try to make some sort of broad policy
statement on whether or not we approve this specific project. The reality is that we may not think
that giving this type of assistance to this project is in the city's best interest. That does not
necessarily mean that that's the end of affordable housing on this site forever and ever and ever,
because that's simply not the case. We have a specific proposal with specific costs and a specific
assistance request. That's all we have. That doesn't mean that if you turn this down that we
can't have another one at this site. So ! guess ! would caution you, what she read is correct. But
! would caution everyone not to say that a decision on this project is a decision on the PUD of the
Villages on the Pond.
Jansen: Thank you.
Boyle: Let's take it further and say if we do approve this, does it set precedent for future
developments?
Senn: In what?
Boyle: For extra $40,000. Would that set a precedent?
Senn: You mean if $40,000 was tacked on top of that 75?
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Economic Development Authority - July 29, 1999
Boyle: Yes.
Sheldon Wert: Well if! can break in. The $40,000 can't, you can't look at that. What it is is, the
only thing that you're doing in this project is approving the $40,000 to promote housing. You're
not doing the $175,000 to promote housing, because that's in one sense if the numbers can
ultimately work out, we'll be housing one way or the other. So you know you're taking a small
amount of money basically to try to make the project more feasible and really have a better
outcome.
Botcher: Are you suggesting that your request no longer includes the $1757
Sheldon Wert: Is that a trap?
Botcher: ! thought that's what you said. You said one way, ! was confused there for a second.
Sheldon Wert: Yes.
Botcher: And ! see some other faces here.
Sheldon Wert: You know of course it's a quick answer but the answer is yes.
Botcher: It still includes it.
Sheldon Wert: ... $40,000 for 15 years and could do it at market rate, ! think we've got a project.
Senn: Mr. Chairman?
Boyle: Yes.
Senn: ! had one question ! wanted to clarify here. A statement Mr. Johnson. You said
affordability was the real problem here, and you stated that there's a lot of things you could have
done here and what's held this up is the affordability issue. Yet all along through this project
we've told that this project is not feasible on a market rate basis.
Brad Johnson: Not by anybody here. Opposite.
Senn: Okay. So you're saying that this project is affordable right? Or ! mean this project is
doable right now on a market rate basis. No city subsidy. No nothing. No, I'm just, that's not
market.
Brad Johnson: No, let me just answer a question. There are three national builders, okay. Who
prior to Mr. Wert coming to us, turned the project down based upon the requirement that it be
affordable, and we told them point blank we weren't interested in dealing with anybody that was
not willing to attempt to do the affordable portion, because that was the deal we cut with the city.
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Economic Development Authority - July 29, 1999
Senn: Okay, so that's your decision to meet your affordable component.
Brad Johnson: Now wait a minute. I want you guys to understand. The affordable component is
your request. This city requested us, the developer, to provide affordable housing here. We
didn't request it.
Senn: ...not necessarily in this project.
Brad Johnson: Pardon me?
Senn: In Villages on the Pond, not necessarily in this project.
Brad Johnson: Well, then if you recall correctly, if you go to any type of housing program today,
alright. They're saying you have to do mixed affordability or they will turn down it. Okay, in
other words they don't want median income and low income people in one building, because
that's a different kind of a building than Shel's building. In order to do it. They want a mixed
income so to do that we have to, who's this?
Senn: Yeah.
Brad Johnson: Met Council and Minnesota Housing Finance Agency and the State of Minnesota.
Senn: Oh, and they govern what's going on in Chanhassen?
Brad Johnson: No, but at the time, if you recall correctly, your contract on this project is signed
with the Met Council and you've accepted a grant.
Senn: But there's no requirement in our grant to meet a condition like that.
Brad Johnson: ... affordability there is, yeah.
Senn: No, but there's no requirements to you know, do it on a mixed basis or anything like that.
Brad Johnson: Oh no. At that time it was a mixed deal. We would not build a non mixed
project today. Nor would Shel.
Senn: Okay, I want to go back to my original question and I'd like a straight answer to it.
Brad Johnson: I gave you a straight answer.
Senn: No public subsidy involved here is this project doable on a market rate basis?
Brad Johnson: I don't know if it's doable by Shel. And I guess we just assumed that we were
working in good faith with the city to try to do it on an affordable basis. To do it on an affordable
basis you have to subsidize the rents.
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Economic Development Authority - July 29, 1999
Senn: Well ! understand and it's a policy decision we need to make is that's what cost and an
acceptable level to do it.
Brad Johnson: Yeah.
Senn: But still would like to understand the basis of the statement.
Brad Johnson: ... you have right now four national builders of housing looking for sites for 1,500
housing units in the metro area and there are none. We have 300. Okay. They have been looking
for 2 and 3 years and they still haven't found any. None of them have started construction yet.
Senn: And none of those are affordable units?
Brad Johnson: That's right. Because by their rates and they don't do affordable housing.
Mancino: The rates are only buying a luxury.
Brad Johnson: Yeah. That's the way it is and this is a luxury site in their mind. All I'm saying is
! think on good faith, if you've been around much, we've been arguing to our people coming in
trying to sell people on the fact that this is how we have to do things. We did accept the mixed
concept because we are in the housing business also, and we would not do anything that was not
mixed income. We would not take one building and say well we'll put people earning $22,000 in
there and we'll take another group and put those that make $50,000 in that other building. Okay.
It just doesn't work.
Senn: No, ! understand that but ! mean Brad, that makes it awful black and white. ! mean it's
also our job to... taxpayer dollars and to look at whether there's effectively a legitimate value
coming out of that kind of a public subsidy so ! mean that's part of what we have to look at.
Brad Johnson: Yeah. Well the trick is, you did Heritage, is that correct? That's a subsidized
project. Much deeper than this project.
Senn: Oh ! understand that.
Brad Johnson: It's been very successful with mixed income.
Senn: ! can't tell you any person on this council would have necessarily done that project though
because none of them were on it. So.
Brad Johnson: But that was, see you've got to realize that the purpose of that was to develop
the downtown and basically that's what we did.
Senn: Right. And the point of the downtown was.., economic development was at that point, it
was a very different point than where it's at now.
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Economic Development Authority - July 29, 1999
Brad Johnson: I have no problems about it. It's just that all of this affordability came from you,
not from us. Okay. You, the city.
Senn: Well yes and no. You wanted a half a million dollars so you took.
Brad Johnson: Oh no. When we did the development, when we did the development and signed
our contract with you, if you read. You've got to read this again. It says the City, at the City's
request, the developer will work with the City to provide affordable housing. It doesn't say the
City, at the developer's request and we made sure that was the language of this agreement. So if
you are not willing to participate with us, we can drop out of that agreement and go on to do
market rate.
Senn: Can you pay the Met Council back their half a million dollars?
Brad Johnson: It's not our responsibility.
Senn: Well it's not our responsibility to make sure you get $8,000, the land cost of $8,000 per
unit.
Brad Johnson: ! don't have a problem with that. It's just to explain the contract.
Vernelle Clayton: Just to clarify. The City decided after we had this contract in place that they
would take advantage of the opportunity to apply for these grant funds. So there was, we did not
enter into this agreement based on the understanding that we might get grant funds if we did. The
grant funds came along later. And was based on the fact that we had the agreement, which
included not only the affordability but the type of streets that we have and the type of lighting that
we have and a few other little nice things that we hope to have over there. And ! guess ! really
need to say that AUSMAR has financed as you know, about $5 million worth of costs and they're
just four individuals. They have, as Shel knows, typically you don't tell a buyer this but Shel
knows, they desperately need this sale. If this does not go through, then ! can guarantee you that
we'll be here the next day to petition to get the affordability removed because they can't wait any
longer. And ! can't emphasize the seriousness of that. ! can't over emphasize.
Boyle: Thank you. Are we in a position to move on to point C or would we like some further,
any further discussion? Questions? We welcome any further input. If none, Don let's move
right onto C.
C. Application for Tax Increment Assistance.
Ashworth: Well this is the primary item on the agenda. You do have the application as submitted
by the applicant. He did pay the proper fees to have you consider that application. Reiterate that
there had been a policy decision made that we would like to take and pursue affordable housing
within the community. That it was a generalized goal. That we'd like to take and see a place for
people who work with many of our businesses and have the opportunity to live here. ! will tell
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Economic Development Authority - July 29, 1999
you that as things unfolded with this particular application, it became extremely difficult, because
you're talking about so many pros and cons. Overall this project should generate $320,000. The
amount of subsidy between market rate and affordable, our consultant, Ehlers Associates, has
informed us that it's around $175,000. And we're going to have to get that form in a more
concrete so we're not talking about adopting a specific number this evening. When you think
about $175,000 per year for 25 years is 4 lA million dollars. And ! mean I've got to tell you, your
staff was really grappling and saying, this is a lot of money for 32 units over a 25 year period of
time and you know we all think oh 25 years. That's way into the future. Kind of time goes by. !
mean when we first started the whole HRA, that's close to 25 years ago. So we had a lot of
problems in coming down to final a recommendation but in light of everything that had been
completed we came to a bottom line conclusion that basically said, yeah. Market rates in this area
are higher. The affordable rate that Metro had basically set is so much lower than that generates
the $175,000. It is a pay as you go. So if something happens in the future. He does not pay the
full amount of taxes that he should pay, meaning because of changes in tax law. Changes in this.
Some of the same problems we maybe had with some of the other downtown things. It's not our
problem. It is going to be a pay as you go. So our final recommendation continues to be, yes.
Let's work on a formula that's going to accurately determine what represents market rate and
how to determine how much of the $320,000 should be returned to the developer so that he can
reasonably provide 33 units as affordable. And we're guesstimating that that amount is $175,000.
We again strongly cannot support in any way subsidizing the market rate units. ! understand Mr.
Wart's arguments, whether it be a permit fee issue or the issue that if you don't have the 130 units
of market rate you therefore can't have 30 units of affordable. ! find no justification in that
argument. ! understand it. We as staff just simply do not support it. With that we stand open for
any questions.
Boyle: Thank you Don. Nancy, you have a thought?
Mancino: I just had a couple clarifications. So for 25 years at $175 is around $4.4 million for 25
years. If we were to add the $40,000 for 15 years, it's approximately $5 million.
Senn: $5.5. Yeah, ! have 5.5.
Mancino: How do you get that? 40 times 15 is 600.
Senn: If you take $215,000, right? Okay. For 25 years.
Mancino: No, 40's for 15. Excuse me, just a minute. The $175 is for 25 years but the 40 is only
for 15 so it's not the whole 25. So again I just want to clarify. 25 years at $175,000 is $4.4. 15
years, $40,000 is $600,000 so that's around $5 million for 33 units. So over a 25 year period it
will be approximately, without any carrying charges or anything, we will have paid $151,000 per
unit.
Sheldon Wert: The present value is...
Mancino: Excuse me.
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Economic Development Authority - July 29, 1999
Boyle: Thank you. We'll give a chance here.
Mancino: So ! just again, ! just want to make sure that I've got my numbers correct before ! go
ahead and make some comments. Okay. That's my one question on the numbers.
Boyle: For now, okay. Linda, would you like to voice yours?
Jansen: ! actually started playing with some of the numbers that we were given and I'll pass these
around. ! found them interesting. ! took the market research sheet that was in our packets. It's
in the 2C, page 11 where Maxfield Research on behalf of the project did a market study of 18
apartment buildings in this area. Quite a few of them were Eden Prairie as a matter of fact. !
took our project and the monthly rents and compared it to the average that was given in that
study of those 18 projects. When you compare them and come up with the subsidy difference, it's
36%, our project is 36% higher on a one bedroom unit to subsidize it in this project than for the
average of the 18 projects. Am ! saying that without being too confusing. On the two bedrooms
in this project, the subsidy would be 52% higher than on an average two bedroom given within
these 18 projects. So what led me to do the numbers was taking a look and trying to figure out
okay, what kind of project is this. Are we moderate? Are we upper? It seems expensive. ! don't
remember being able to afford even the affordable housing rents back when ! was in my cheap
apartment. So just trying to get a feel for it in general and ! guess where it led me to was in the
one bedroom we are fourth highest of the 18 projects. The monthly rent. And on a two bedroom
it would be the highest of the 18 projects. So if we're saying that this is our affordable project
here in Chanhassen and it's one of the more luxury priced of projects in this area, are we
committing our tax dollars as well as we could by putting them in this project. We could spread
them out over 36% more one bedroom units if they were an average rental or 52% more two
bedroom units in a more average price. And ! don't know if this is the result of how expensive
this site is. If we take this project and it is on a lesser expensive site to build, does it then become
a more affordable type of a project. More comparable to some of these other buildings, and !
didn't visit the buildings, and ! know that we even within our TIF policy and the PUD for Villages
has specifically put high quality material as one of the criteria for building on this piece of
property. So on all of them, but so is it feasible to have both of those sets of criteria on this
project and achieve it. It looks like we could get affordable housing in Chanhassen for less
expense to the taxpayers is kind of what these numbers went to.
Sheldon Wert: Can I respond?
Boyle: Yes, you have the floor.
Sheldon Wert: Linda, I don't think your statistics work because when we set the rents on this
project, and I think we, there's so many papers flowing around here that I know that they average
somewhere between 98 and a dollar three cents a foot which is what, the way people in the
apartment business measure this. And of course the units that we took, the units that you take 20
or 25 units, they aged from 5 years to 25 years old. And projects that are at the halfway mark of
that are not what we're building. And even if we built those projects, the cost today to build them
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Economic Development Authority - July 29, 1999
would be so much that we can't build this project unless we're at the top of the market. And even
the top of the market there's an FHA proposal ! saw go through the other day that's at a $1.08 a
square foot because of the cost and because of the cost of doing it. And so the fact that, if you
said well this is going to cost $100,000 a unit to build all in, but let go into a project that costs
$50,000 a unit to build and we won't have that much differential. That's sort of! thought where
you were going. There is no such thing as a project that costs $50,000 that's new. You'd have
to go in altogether different ways to try to do something with some existing projects or HRA
owned items or something. But not on a piece of land in downtown Chanhassen. It won't
happen. It doesn't matter what the land cost is, whether it's a million or $800,000. Or a million
two. ! mean the land cost are just so much of the deal. Nobody can build a project with those
kind of numbers so that you could bring affordable units on at $50,000 to the cost. It doesn't
happen. It's impossible. And that's why if you look further into the Maxfield thing you'll see, !
think the sheet is connected to it where Maxfield makes a judgment at the end of their statistics
that says in their opinion the one's will go for about this and the two's about that and that's a
new, brand new project with these size and these amenities to it.
Jansen: And actually that sheet is in here where they were recommending the actual rents by unit.
Oh, it was in here.
Botcher: Page 16 and 17 or no?
Jansen: It's actually where they gave the.
Mancino: No, it's at the beginning. This Table 1. This one?
Jansen: Where's that in mine? Oh, ! got it. Thank you. And our one bedroom would be priced
at per month rent $896. Their recommendation was $795 to $850. And then on the two
bedroom, ours are $1,170 to $1,236 with their recommendation being $1,095 to $1,150. So
we're.
Sheldon Wert: ...we can get them to back up their information but...
Jansen: Sure. Sure, okay.
Sheldon Wert: This seems to be an oxymoron here. We're trying to build a gorgeous project and
affordability but as the developers of this particular...we tried to go ahead and but ! don't know if
it's my time to make a speech or not.
Boyle: You know maybe it is your time to make a, why don't we do that because otherwise it's
going to be piecemeal.
Sheldon Wert: Thank you. Well ! won't make this redundant. There are a number of things in
here that you've seen...
Mancino: Can we just spend our time getting up to speed on what you gave of last time.
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Economic Development Authority - July 29, 1999
Sheldon Wert: Well a lot of it's the same. I just thought I'd try to quantify the request. Because
we've gone way ahead, an analysis. What I've done here, and the first thing...the first one just
relates to the goals and all we did was... ! will bore you just a little bit with the second section in
terms of the tax increment financing under 2(a). And say the fundamentals, the reading from the
policy of the City, again this is redundant from the last meeting so I'll try to breeze it a little bit.
The fundamental purpose of TIF in Chanhassen is to encourage desirable and affordable housing.
Senior housing and assisted living that would not otherwise occur but for the assistance provided
through TIF. This project costs us money to operate. If we operate under the affordable housing
guidelines. And consequently ! think that we are entitled to some additional money besides the
rent differential. What other encouragement have we got to doing it on this basis, and it's a
modest amount. You talk about the $175,000. It's the rent differential. If you're the ones that
care about it, it's the $40,000 that actually is not really that much money over the 15 year period.
That helps us bring the combined package to the city. And if you go further down on that, under
2(a), you'll see that the activities that can be considered for financing and Ehlers and Mark Ruff
and everybody had said that the Kraus-Anderson letter and all of the items that make up the
million two are qualified. You know they're the pros. They tell us if it's qualified or not. Land
write downs, cost of streets and utilities. Demolition and relocation costs. City costs such as
trunk utilities, street costs, MSA reimbursements, extraordinary landscaping and lighting. This is
a qualified tax increment district on the next page. It goes over the reasons because there was a
question as to why was it 20 or 40 rather than 40 for 60 and this relates those reasons that the
professionals came up with the fact that it needed to be that way and also as Don said, it was
discussion as to how many of the units should be affordable just from a policy standpoint. So that
relates to that. There's a couple of things ! know that you're in receipt of Scott's letter to you
and I've discussed a little of this with Scott in the hall prior to this. ! understand his position. A
couple of the things that he talks about ! think are legal and policy things like the fact that if the
rates get compressed and the taxes go down, how that shared and the other thing that was talked
about is oh, the fact that we need to keep these to be available for affordable. And we talked
about the fact that there's normal vacancy and there's a reporting system. We did find, ! mean we
know today that the Minnesota Housing Finance Agency is not involved in the governance
because they've not put any money in this so it's a city governing type thing. And I'll refer you
again to Ehler's memorandum which is the next thing in that page which is the two things
basically that we're asking you for. ! go back to that memorandum because he's the pro. He's
the one that came out with the original lead to us and from that lead we've answered that lead.
We've answered all of the design criteria. We've answered now the economic criteria that he's
come out with. We changed this $120,000 loan thing, because everybody and ourselves included
thought it was cumbersome and really not necessary and so we come up with what you've got
and it's in these two pages which are highlighted for you. We come up with our request, which is
the last half. And that is, I'll modify it somewhat because ! had this discussion with Mark Ruff
this afternoon. We request $175,000 annually for the rent differential, and that reminds me you
know that we are investing in this project if you make it affordable, that you're not paying us for.
That's the rent differential. In the first year, in the year 2000 if everything goes well, we will be
rented for half, the second half of the year we hope. We won't get it done quite that well but let's
just assume that we rent this for the second half of the year. We will pay only $5,000 in taxes.
But you won't pay us anything because there's no increment. And so we're renting it at below
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market so we're investing. We're investing in this. If we do it on a market rate basis, like every
other project in the country, we rent for the half of year and we don't pay any taxes. And we go
home. Every project that you run you always have that little grace period in the beginning to help
you with your costs and your overruns and everything like that to get to the project. Here, we're
renting 33 units at roughly $80,000 for half a year that we're not getting the rent and there is no
increment because we're not paying the taxes and we're used to getting the taxes in the first half
year. That first half year and the second half year sometimes. When you develop a new project.
With these units that's taken away from us. That's a real cost. So ! think that there's some real
reasons. That plus other reasons. You go to the second year, we rent for the whole year to these
people and we assumed on our proformas that it would be at half taxes because that would be
based on the assessment this coming January and let's say we're about half done with the project
by that time so I just assumed half taxes. So our increment is going to be very, very small. And
yet we'll be renting our apartment at a $175,000 less than what we would get if it was market.
So there's all kinds of reasons why this group should look to the $40,000. ! am not being
presumptuous that the $175,000 is a given. But that $40,000 should not be looked at as some
kind of an ice cream cone for this project because it's not right. It's a cost for us to operate for
25 years under the ordinances that run this in order to get the money, it costs us money to do that.
None of that comes free. To qualify these people differently, to report, to wait for our money to
come back. We have to wait a half a year ! think Scott. We don't get the rent like we get on a
normal project. We get it every money from you people in terms of the increment. We pay the
taxes. All the taxes. $300,000. $150,000 every six months. And then we wait three months to
get the money back. If it's three months. It's an onus on this project to do that and I'm in a
penumbra now. I've got a project I've worked on for a year. This process has been slower than
molasses.
(There was a tape change at this point in the discussion. There were audio problems with the tape
for the next 30 minutes of the meeting. Taping began again at this point after public input.)
Senn: ... on that basis ! wouldn't have a problem proceeding.
Engel: ! don't know where you got that final number from. I'd like to learn a little bit more
about that but it's interesting to sit and listen to developers exchange information if you will,
because ! don't know much about the development. It's an educational process so, these are
tougher decisions for me. ! could teach you a lot about putting millions of dollars of enterprise
software to run manufacturing companies but you'd probably be pretty bored with that. But !
find development pretty interesting. I've got so many dispirit thoughts, I'm going to try to boil it
down to three. Linda touched on this earlier. ! am very dubious of our chances of ever
reconciling what seems like oxymoronic goals in the Villages development of high quality and
affordability. ! mean they're almost mutually exclusive in almost everything else you do. So that
said, ! have no problem seeing this thing go forward at a market rate and ! hope that we can pull
that off in some sort of a time frame that let's them build it. ! don't know what has to take place
after this. ! know there's going to be more meetings and ! know we've got to go through the
permit process for them. ! don't know how we're going to get it all done in the time frame he
needs. ! would like to see that happen but that's the one thing going through my mind is this is
just, there are goals ! think that are going to be too tough to reconcile, and this is going to come
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Economic Development Authority - July 29, 1999
back to us again with almost every one of these housing component developments in the Village.
! just don't see, ! see a replay of this coming every time we go through this on the Village parcel.
! don't see how we can avoid it. ! mean the fundamentals are just in there. My second thought is
! view, we probably have a little disagreement on this Mark. What ! view our job, and I'm
speaking about EDA. This chair. My chair on EDA, at least the way ! look at it, it's this body's
mission to enhance the overall value of our city. The livability of our city. The desirability and
image of our city. And to lower, hopefully, the tax intrusion on private homeowners by enhancing
the commercial value of our tax capacity. And when ! see chances to do that with subsidies, !
think that's what it's our job to do. ! think you know where I'm going with that. I'll try to wrap
it by saying ! have no problem proceeding on a market rate and ! would be willing to look at
assisting over perhaps a shorter term with maybe a different dollar amount. Maybe it's higher,
maybe it's lower. ! don't, ! haven't thought that far ahead. I'd like to hear comments on that if
we go that route. More increment just to help it get off the ground, yet build. Enhance the tax
capacity and hopefully lower the overall tax burden on the homeowners of the city. Long term.
Mancino: I'll agree to that. I'll agree with that one, there's no question about it. ! do think that
we can get quality, affordable housing in, ! don't think it's an oxymoron, in Villages. Again, !
think that some of the affordable that we've been doing, whether it's Mission Hills. Whether it's
Walnut Grove. Whether it's Autumn Ridge is good quality affordable housing that we've got
going in other places in the community and ! would taking some of those architectural
components and putting them in Villages. ! think that we can get some good affordable, quality
housing in Villages. ! do have a concern about setting a precedent of this much subsidy for the
rental and as ! see that our goal is 35% and this is just 33 units for $5 million, ! do have a concern
about that sort of, that high price of subsidy for affordable so. And yet at the same time I'm very,
very committed to making sure that we do continue our commitment and our pledge towards
affordable housing as a city. ! think some of the others that have come in have felt more
comfortable for us at the $700,000 subsidy, taxpayer subsidy that we've gone before. ! think the
$5 million really does set a precedent for us. So that's where ! have a great concern on that part
of it.
Boyle: Nancy, ! have a question on the $700,000. Explain that please.
Mancino: That was the North Bay where we had owner occupied affordable 35 units...
Boyle: Was that a different ratio? ...Was it TIF? It's different. So it wasn't a subsidy. A sense
of a subsidy.
Senn: It was a straight subsidy but it was based on a differential.
Boyle: Okay.
Mancino: And that's what I think it's important in the differential and maybe this is something to
discuss also is that when we get into again rental housing, that where we have market rate and
where we have affordability, if there can be some underlying structural costs in those affordability
units that we would design, actually make them cheaper. Maybe they're not towards the lake.
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Economic Development Authority - July 29, 1999
Maybe they're on the other side of the apartment. Maybe the interior package is a different
standard. Cost difference. How can we get those affordable units not only to be affordable rate
wise but really to be affordable housing from the very beginning. If that makes sense.
Boyle: You know it's interesting. You hear all the comments and what have you. ! guess if!
was a developer, based upon information that ! as a developer received or this gentleman received
from the City, from the landowner, and come to Chanhassen and said gee we would like you to
include affordable housing into your project. ! would laugh and say no way. Not based on that
because ! do believe that the rent differential is essential. ! do think that we're asking for quality
units and nice project. It's going to be upscale, and ! think that's what, kind of let people, that's
how ! feel. On the other hand we're saying well geez, maybe we really don't want to do that
because it's not in the best interest of our tax base. I'm a little confused. ! mean do we all share
in this to get quality and affordable housing, which is nice?
Mancino: Personally ! think you can get both.
Senn: But you have to ask what's quality you're trying to achieve. Are you trying to achieve
quality luxury housing or quality moderate priced housing?
Boyle: Well that's what we have to give these people that information. That's our obligation to
say hey, here's our guideline. We have to give direction. We have to let them focus.
Senn: But our direction was clear on this project ! think. We have a PUD agreement that's the
direction clear. Now how it breaks down in that is up to the landowners and whoever they deal
with. ! mean we can't keep going back into the middle and solve that...
Boyle: Well ! didn't know...
Senn: I'm sorry.
Boyle: And ! personally believe the subsidy is...but ! believe it's a subsidy that's justifiable.
Whether we all share in that, the City shares to bring that type of...
Engel: ! have a question on that Gary. When you say you think the subsidy is appropriate, you
mean just for the affordable housing or if it was really altogether, any subsidy at all to build a
project?
Boyle: ......
Engel: On the 40. ! mean the 40 is really.
Boyle:...
Mancino: Is the market rate. The 40 is just for market rate.
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Economic Development Authority - July 29, 1999
Engel: If it was just market rate it would be, how do you feel about a subsidy.., market rate
development. That 40 potentially is that component.
Boyle:
Engel:
Boyle:
Engel:
Yes.
Which is some subsidy regardless of, the 175 is.
Regardless of rent differential?
Yeah, regardless of rent differential. ! think if you're going to do rent differential, you've
got to do that. It's whether or not we do what we talked about. How you feel on that. Some
subsidy beyond that is specifically ! think is called a subsidy of the project. Not related to rents at
all. And it sounds like you're okay with some of it, which ! think is where I'm at. I just wanted
to clarify that.
Senn: I'm not understanding that.
Engel: He basically agrees with me that the $175 we could take or leave. It sounds like a lot for
what we're getting. But that there's some subsidy that could be appropriate to build it.
Senn: But you said if it was market, okay you said if it was market, would you agree to a
subsidy. Well if it's market, there is no rent differentials, okay. So 175 is not the issue.
Engel: Right, it would just go away.
Senn: So then the issue becomes, should we provide a fewer subsidy to a project that has total
market rates. Well but that's the question. ! want to understand. That's what you were saying.
Engel: Yeah.
Senn: Okay, and I don't think he was understanding that.
Boyle: No, ! wasn't understanding that. You're saying would look at subsidy if it was to market.
Engel: To my opinion we've done that in the past. Yes. ! mean that's the way ! view this
petition is to help develop the community.
Senn: Mr. Chairman I've got a question to ask staff...understand something before we jump to
the next step. I'm assuming right now tonight if we take no action to subsidize this project, that
the developer is free to go ahead on the project as it has been approved as a market rate project,
correct?
Botcher: He has secured site plan approval. And ! am unaware, unless Don you know of
something, if he wanted to go ahead and make it a market rate project, he could proceed with
pulling permits. Doing the work to pull the permits.
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Economic Development Authority - July 29, 1999
Senn: And that requires no action on our part.
Botcher: None.
Ashworth: If! may.
Botcher: Is that correct?
Ashworth: He has made an application for tax increment assistance and ! think for the record you
probably should act to deny that application and encourage him to proceed with the project as
market rate project. If that's what I'm hearing you say.
Senn: ! understand. Yeah, that was the same as my question. ! mean my question was
effectively if we decide not to subsidize the project, can this essentially then, it can go on a market
rate basis. Okay, ! just wanted to understand that.
Engel: Mr. Chair.
Boyle: ! recognize you Mr. Engel.
Sheldon Wert: If you took the action to deny it, I'm not trying to bring up problems.., one of the
conditions under the conditional use permit, condition number 36 was that it be...
Engel: ! think we should speak to that individually.
Boyle: Yes we may.
Engel: ! would like to say that as a council person ! can't in any honorable way sit here and say !
think we should remove and let him go affordable housing, or let him go market rate and at the
same time say we wouldn't remove that. ! think it goes without saying that that would be,
something should be...
Sheldon Wert: ! know things are not permanent but ! think the council' s... it just would make us
feel better.
Engel: It would make me feel a little better if it was my capital going in the hole.
Botcher: Yeah, ! would just suggest that is a strictly legal conclusion that he's asking for, and
certainly he can check with his counsel and check with our city attorney as well to get.
Engel: Probably Roger's the best one to answer that.
Botcher: Well and I'm sure he has very competent counsel as well. You very well could be right.
! guess ! don't want to see five people here each rendering their own legal conclusions.
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Economic Development Authority - July 29, 1999
Senn: ... probably know the answer to it effectively though but essentially from a standpoint of a
site plan approval and a condition in it that simply goes back to council for a simple council
action... That's the council's prerogative.
Brad Johnson made a comment from the audience.
Boyle: Vernelle.
Vernelle Clayton: At this point I think I really do need to remind you that it is my direction from
AUSMAR to tell you that they would be happy to comply with his request, which will have to go
back to them because he has a purchase agreement that says he will do affordable housing. He
has to go back to them to amend the purchase agreement. They'll be happy to comply with that
request. I have to reiterate they never wanted affordable housing. They did it only because, they
agreed to it only because it was a requirement. I need to say that there have not been an
enormous amount of concessions made in this project. AUSMAR has not received very many
concessions. They agreed to a fairly restrictive PUD. They paid for all the streets. The City has
no exposure for any construction of any of the streets or any of the utilities within the streets or
any of the ponds or any of the reconstruction of wetlands. In typical development the city pays
for the pond, the city pays for the street and the city pays for the utilities. So don't get the idea
that this project has received a lot of concessions. It's been an enormous burden. During the
period of time that AUSMAR has been waiting for this project to close, and has been waiting to
hear what the outcome is for his request for TIF, which had been requested to be received by
December of last year, it has cost them $80,000 just to carry his piece. They are more than happy
to permit him to sell this project, to purchase this project and construct market rate housing. But
they won't agree to the change if it's assumed that somehow or other that 35% can be easily
absorbed in the other portion. They'll be asking for a change in that. Let me just tell you what
the numbers are. We're approved for 322 units. 35% of that is 113. Shel is building 162. That
leaves 160 for the other side. Subtract 113 from 160, that leaves 47 market rate apartments.
Think of how much that buyer is going to be coming to you for TIF in order to do affordable over
there. They will not be any less expensive over there than they are here to build. They may be
more expensive. So don't plan on an easy out by putting it over on the other side. There is also
the issue with respect to the city's exposure with respect to the grants and you need to deal with
that. I just lost another thought. Oh. I have to say that among the things that you very seriously
need to consider tonight is if you don't do this project, and therefore you will not be doing any
other project that will create a TIF district, then you have lost an opportunity to spend on much
needed projects a fair amount of money. Because 20% of the value of the residential projects
being built in that district could be used to do other things, and that's a lot of money. What is that
amount, I've forgotten. $4 million. That can do a lot. So to save $4 million, you lose the
opportunity to use $4 million. The other thing that you need to think about is as Shel suggested,
and believe me I, at the outset didn't care if we had affordable or not. But we've spent a couple
years trying to get it for you folks because you wanted it. And we basically assumed that you
knew it would cost some money. And we were told that there would be TIF. That's how we
proceeded. Now I can tell you that no matter what we're not going to be very happy, and neither
is the owner, trying to pursue another purchaser for the rest of the apartments and explain to them
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that you have, you need to do it affordable but don't ask me if there's going to be any TIF. Now
! don't think we'd be very bright to proceed and try to get those sold on that basis. It's just plain
not practical. Shel mentioned that you need to think about the present value of the dollars that
you're spending. ! did a calculation a little while ago while we were talking. For the record,
$4,375,000, which you'd be paying over 25 years, discounted at 10% to present value is
$363,000. $600,000 over 15 years discounted at 10% is a present value of $135,000. That's
$498,000, or roughly $500,000. For that you could buy at $120,000, 4.16 houses. That's what
we're talking about. So to Scott ! will address this. If this is turned down, if it's market rate,
that's fine. But we need to be, AUSMAR needs to be on the agenda at the next council meeting.
Botcher: First of all I think that any statement that you couldn't sell this because there's no TIF is
a gross misrepresentation of what people have said up here. What they have said is, what they
have said up here that they're uncomfortable with the amount of the subsidy for this specific type
of project. No one has ever said tonight, unless I've been zoning out somewhere, that TIF is not
going to be used for affordable housing at this site. In this city. For this type of housing. That
has not been said, and ! want to make sure that's extremely clear. The issue here with some of
these folks has been the amount of money put towards this type of project. ! think for those two
council members, if I'm misstating your position, you can so state but ! think I'm on that one.
Secondly ! think that if the owners, ! won't say they're not in a quandary but if they decide, !
mean part of their risk analysis is that if they decide to sell to this gentleman, or anybody else who
wants to do market rate housing, they do have to balance out the value of that sale against the
requirement to do affordable housing on the balance of the project. In no way does that
necessarily release them from that obligation. If they want to sell that at market rate and take the
cash now, that means something. That something right now means they still have that obligation.
It may mean that it's more difficult to reach, ! don't disagree with your numbers. But if they want
the cash now, that may just mean their obligation is more difficult. The only thing that ! thought
of, and the Chair was talking about it. If we can, if we're getting, and we can do present value,
future value calculations all day and ! assume you're numbers are right. ! don't have any reason
to double check them. But we're still talking 4 ~A-5 million bucks when we're only getting 33
units. To meet the goal city wide, how much money are we talking about? ! don't even want to
know. My calculation doesn't go that high. Finally ! think.
Senn: ... affordability.
Botcher: Well ! think that's an issue. Secondly, the analysis that Shel's folks put together was
very well done. ! know Linda cited it as a reference. And in there it talks about other market
developments being constructed in communities near to us and ! think ! have this right. There
weren't many if you recall. That would tend to indicate to me, along with Brad's comments
about these other developers wanting to come in and do market, that there's demand out there.
And you know maybe there's a project out there that can be done. Shel's on a time line that's
difficult at this point. ! don't have any disagreement with that. But we have to be aware of the
fact, and again ! said this earlier. ! don't want anybody to believe that, it's sort of the Chicken
Little thing. Just because you say no doesn't mean the sky's going to fall. We do have a fiduciary
obligation to our taxpayers. We also do have an obligation to meet the agreement that we signed
onto in the Affordable Communities Act. And as Mark said, where the rubber meets the road is
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Economic Development Authority - July 29, 1999
how you do that. And maybe this isn't the way or the extent to which we do it. Because you do,
you four anyway, as elected officials have to be able to substantiate that to the voters. And that's
your burden, not mine.
Boyle: Mine either.
Senn: Mr. Chairman?
Boyle: Yes.
Senn: I would like to make a motion that we deny this application.
Boyle: Does that include the rent differential and the subsidy? We have a motion on the floor.
Do I have a second?
Jansen: I'd second.
Boyle: Discussion. I think we've probably discussed as much as we're going to.
Senn moved, Jansen seconded that the Economic Development Authority deny the
application for tax increment assistance for the Lake Susan Hills housing development. All
voted in favor, except Boyle who opposed, and the motion carried with a vote of 5 to 1.
APPROVAL OF BILLS.
Boyle: Okay, there's one last thing on the agenda and that's approval of bills. Item number 3.
Don, would you do us a favor of a very quick review of the bills so we can.
Ashworth: Approval is recommended.
Boyle: Well let me say this. Are there any questions to Don regarding the bills he has
recommended we pay?
Jansen: I have none.
Mancino: I have none. I move to approve.
Boyle: Can I have a second?
Jansen: Second.
Boyle: Discussion.
Mancino moved, Jansen seconded to approve the Bills for the Economic Development
Authority as presented. All voted in favor and the motion carried unanimously.
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Economic Development Authority - July 29, 1999
Chairman Boyle adjourned the Economic Development Authority meeting at 9:05 p.m.
Submitted by Don Ashworth
Economic Development Director
Prepared by Nann Opheim
31