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EDA 1999 04 15CHANHASSEN ECONOMIC DEVELOPMENT AUTHORITY REGULAR MEETING APRIL 15, 1999 Chairman Boyle called the meeting to order at 6:30 p.m. MEMBERS PRESENT: Jim Bohn, Nancy Mancino, Gary Boyle, Linda Jansen and Steve Labatt MEMBERS ABSENT: Mark Senn and Mark Engel STAFF PRESENT: Don Ashworth, Executive Director; Todd Gerhardt, Asst. Executive Director; and Roger Knutson, City Attorney APPROVAL OF MINUTES: Bohn moved, Mancino seconded to approve the Minutes of the Economic Development Authority meeting dated January 28, 1999 as presented. All voted in favor and the motion carried. VISITOR PRESENTATIONS: Clayton Johnson: Thank you Chairman Boyle and members of the commission. I'm Clayton Johnson representing the Bloomberg Companies and we are, we would like to just spend a few minutes with you today on a project that we've been working on for quite some time and it recently has become more intense. In other words there's some strong interest on the part of the proposed tenant here to pursue this project. And this is a project that if this thing has been referred to in the past as the MLT project. MLT is located currently at 7 and 101 in a building that they recently lost their parking and they're looking to relocate. And if you go back in time, Herb Bloomberg's dream has always been to put an office building adjacent to the Dinner Theater and his rationale has been that the parking is complimentary. In other words, the parking that you're providing a tremendous amount of space for parking for the Dinner Theater, it just seems to make sense that you should put an office building there to utilize it during the non peak hours. Well Brad Johnson took that a little further and came with a project that's even more intense than Herb ever envisioned and we've been working on this for about the last year, and when I say we I should identify ourselves, the Bloomberg Companies being the land owner, Brad and Vernelle representing Lotus Realty, Amcon Construction who is, they're partners of ours on Market Square and have been involved in many projects in Chanhassen, and First Industrial. First Industrial is a real estate investment trust based here in Minneapolis. It owns a lot of commercial property. As we envisioned the project it would evolve that Bloombergs would be a partner in the project and would sell the land to First Industrial. First Industrial would be the landlord and would actually own the building or a majority interest in the building and turn around and lease it to a tenant. In this case MLT. This project has been on hold for about a year because of the problems, MLT is owned by Northwest Airlines and with the strike problems at Northwest Airlines, this thing went on the back burner. And what happened is they lost their parking lot across the street over there at 101 and 7 and so temporarily what they've been doing is leasing the space from T-Wrights I believe it is. The restaurant down 101 and busing a good share of their Economic Development Authority - April 15, 1999 people over to their facility. Now we have been asked to submit a formal proposal and the project is a lot more intense than we had ever envisioned and ! don't know if you can see, is this coming through? Focus or something. This is kind of the, I'm going to turn back one page and show you the overall parking requirements of the project. This is the Dinner Theater located here. This would be a parking ramp located in the rear. And this is the current remodeled Frontier Building. The project would entail constructing a three story office building of about 105,000 feet to house approximately 800 employees. And the parking ramp would be adjacent to that and obviously and very conveniently it would shade and shield the whole back side of the Dinner Theater. There's really two elevations that are shown. That would be the front elevation from the theater side. And this would be the rear elevation on the lower level. ! think ! can try and summarize this development in the following terms. We would expect that it would generate about $500,000.00 a year of tax increment. About $500,000.00 per year of tax increment. In order to generate that kind of increment, the building is much larger than we envisioned, 100,000 square feet and would require a parking ramp. And the parking ramp is something that we probably cannot justify without the use of TIF or assistance. And so ! think the bottom line from the commission's standpoint is more or less like this. In other words, we at the Bloomberg Companies have got many different ideas of what we may utilize this land for. We probably didn't envision anything nearly this intense so ! think the options are, if we're going to pursue something like this, we're going to need some assistance to provide the parking and the parking ramp and also to relocate the tenants that are currently in those two existing out buildings. The alternative to this, and it shouldn't, we estimate that the project will require about half of the increment. If there's $500,000.00 worth of increment coming off the project, we estimate that it will require about $250,000.00 annually for us to be competitive. Now what that does is it makes about $250,000.00 available to the commission for use in the district for other uses. The alternative as we see it is that, if we put a small office building in this location and then turn around and in the rear, the very back, the other alternative would be in the area where we're proposing the parking ramp, we probably could put some sort of a retail or restaurant development on that back site. So ! mean ! think long term we're going to accomplish the use of that land and the screening of the back of Frontier. Or the back of the Dinner Theater. But ! think that our project would not be without significant assistance, it would not nearly be this intense. So what we're asking, we're not asking for any action tonight but ! guess we are asking for a sense of direction and some opinions as to what you think as to whether or not this is something we should seriously pursue and reach the proposal stage. Boyle: Thank you. Who would like to start? Mancino: Could I just see the front view? I'm sorry, ! was writing. ! saw the. Boyle: That front view faces what direction? Clayton Johnson: That's on the top side, the Dinner Theater side. The Dinner Theater would be off to your right. Where's the depot? It's there. No, the depot was down here Todd. The depot's down here. Mancino: Could you also, I'm sorry, orient me again with your line drawing. I just needed to be oriented again. If you could go through that. 2 Economic Development Authority - April 15, 1999 Clayton Johnson: Okay, here's the from of the Dinner Theater. The building would wrap around, okay so this is a railroad, the old railroad track right in here. So it would wrap around and the parking. What you'd do is the parking would be utilized by coming right between the Dinner Theater and the office building so that is the top level of the ramp. Okay, the bottom level of the ramp would be accessed from here in the bottom, from the bottom side. And we can't accommodate, you know we've done a study of the parking and we cannot accommodate a development of this size on this piece of land without the parking ramp. And the parking ramp needs to be subsidized in order to make it fly. We're not going to be competitive, pardon? I believe it's two, isn't it? Yeah, I believe it's two. Two levels. So there's no spiral. In other words you eliminate a lot of the, you come in and exit on the top and you come in and exit on the bottom which eliminates a lot of wasted space for a spiral or for ramps up and down. Labatt: Is the building itself, or does the Dinner Theater give up existing parking? Clayton Johnson: The Dinner Theater gives up existing parking during the day and then the theory is the office people leave at 4:30-5:00. The Dinner Theater guests come in after that period of time. And the only conflict, apparent conflict, is Wednesday afternoon when you have a matinee at the Dinner Theater and you have parking but the matinee and the Dinner Theater on Wednesdays is currently primarily bus traffic. So a lot of those people come by bus. But that is a potential conflict. Labatt: How many stalls is it giving up right, you know with the building going where it is. Clayton Johnson: We don't take any space. Right now this building is laid out to utilize all the current parking on the Dinner Theater, with the exception of maybe that front row which faces, which depends upon what kind of landscaping you end up doing and so on but.., all the space that's currently there. Which is expensive to replace. ! mean that was Herb's original idea and that's what Brad expanded on. ! mean it is a very complimentary use. Now one of the things that is not shown in this plan but has evolved, is we would have to replace the scene shop. The two buildings in the back of course would go. That'd break everybody's heart. But we would have to replace the scene shop and so the scene shop would be contained in the first story of the parking ramp and a really modest facility. Somewhere around 3,000 to 4,000 square feet. But that would give the Dinner Theater, the scene shop immediately adjacent to their space. Now one of the things that we hope to do too is that out of this we want to look at the long term needs of the Dinner Theater. In terms of what do we need for that to be economically viable long into the future, and there are some issues that need to be addressed. There are heating, air conditioning. The roofs. Obviously the facade. We're all interested in changing the look of the back side, and that would be a part of the negotiations with the tenant, Tom Scanlon on the Dinner Theater. Try to make better use of, ! think one of the challenges they have is they have a lot of space that is not very well utilized. And so one of the, some of the synergy here is that there's a food service operation that obviously would be required. We'd hope that we could meet that food service requirement with the facilities that are currently in the Dinner Theater. 3 Economic Development Authority - April 15, 1999 Boyle: Why don't we address issues as we might see them that might be a stop gap here. That kind of puts the cards on the table. Can you think of anything? Let me be more specific. What about the increment financing? Right to the point. Jansen: Would it again be a pay as you go I guess? Clayton Johnson: We have always approached everything as though it is since we've never floated bonds for any of our projects we've done so our first assumption is... Jansen: How much does a parking facility actually... ? Clayton Johnson: ! was afraid you'd ask me that. ! don't know. We do know this. That basically, based on current land costs in Chanhassen and what the alternatives are, they're going to have some other alternatives they're looking at. It'd probably, we are not going to be, we can't meet their parking needs without a parking ramp and with a parking ramp we're not going to be. Boyle: And the $250,000.00's an estimate at this time. Clayton Johnson: Yeah. Of the annual increment needed to service that, yeah. But we're pretty sure if the project goes, in the proposal there's a little bit of leeway. They can increase the space 15%. Cut it 10%. So we're saying right now it's 105,000. On that basis we think it'd generate an additional, ! mean this parcel's already generating a significant amount of revenue from the Dinner Theater but the $500,000.00 we're talking is the additional revenue. Boyle: What's your time line? What's your time frame? Clayton Johnson: Well they want to occupy late this year. That's obviously not possible. ! think you know realistically it would be middle of next year. They have a lease that runs, ! don't know Vernelle why they're in such a hurry because they have a lease that runs for about another year and a half or two years. Boyle: Well that, they're down to the gun then. Clayton Johnson: They're having trouble with their employees. They're not fond of the current parking situation. Now one of the reasons you might ask why does MLT want to come here? ! mean there's very good rationale. Their employees, they're located just down the road so they're not very far away so it is currently, they're close to their current location and they want, their employees, they surveyed their employees. They want the accessibility of shopping and those kinds of facilities and so the presence of Target and Market Square and Byerly's and so on is really obviously a big plus and we think is going to weigh in our favor versus another suburban location which they might look at. Boyle: Well we've known for a long time that that's been the plan for that. Not necessarily to this extent but office building. Proposed. ! think we have an obligation to give the... Economic Development Authority - April 15, 1999 Bohn: Originally the land back there was... Clayton Johnson: ! think the challenge here is, and you know I'm not, Don and Todd would have to comment on what you can do with the other, with the additional TIF being generated. ! don't know if that's some of the, you may have had discussions about that in the past as to what some of the needs are in other parts of the downtown that you could utilize this TIF for. Boyle: Are there any other questions or comments? Mancino: I'm just trying to give feedback because obviously this is real new to... questions have to do with the parking ramp.., parking ramp that works for other, not just the office building but do we need one in this area for our whole downtown? And what size should it be and questions like that. ! mean ! have kind of a lot of planning questions that are just going through my mind right now because we really haven't sat down as an EDA with this empty area and said you know what do we think will work. Where do we want to put more parking? Where should this or that go? So it's not negative or anything like that. It's just taking some time to look at your proposal and say how does the rest of that area work? It is also, it may be in the next and this is really looking long term in the next 20 to 40 years if we ever do do some commuter rail, is this a place where you know a park and ride go. Or not even a park and ride. Just a station or whatever should there be retail there so ! don't know, it brings up a lot of those kind of questions. Clayton Johnson: ! think the parking would compliment and could be of an assistance to the cinema. But basically, ! don't think the rest of the, ! think that's about the only area currently downtown that it would possibly service. Bohn: How tall is the office building? How many stories? Clayton Johnson: Three. Bohn: Three. Could the ramp be made with three stories? Clayton Johnson: Sure. I think what happens, you know when you get into the design of the ramp, the minute you go to three, now you enter into the spirals and the ramps, which I'm not saying it isn't feasible but it does add to the cost per space. When you do a two story and you have to be able to access from either level, it's nice because you don't waste all that. Mancino: And ramps are very expensive. We're looking at them at the Southwest Metro Transit hub right now so. Boyle: Would there be room to expand that ramp? Clayton Johnson: Well up. Boyle: Other than up is what ! was thinking. Economic Development Authority - April 15, 1999 Clayton Johnson: Yeah, it fills the land. There's no question. But ! think, you know our approach has been, why did we go to this much work when we didn't know how serious MLT was. We think the concept's really interesting. We think the complimentary use is interesting. We think that it's a much more dense development than we envisioned but that's to your benefit. ! mean basically it's going to put some money in your pocket to decide how you want to spend it where ! really do feel if we don't do a ramp, ! don't care what kind of a proposal we come with, it isn't going to generate this kind of revenue. I'm sure of that. Mancino: Conceptually has this gone to planning staff looked at this? Clayton Johnson: No. Gerhardt: We saw some concept drawings when we did the parking analysis but those were just little square buildings and we talked about generation of cars with MLT. Probably one of the biggest concerns is the traffic impact on both Great Plains and West 78th Street and Market. Mancino: Yeah, because we were concerned about with the cinema and everything having a roadway that goes all the way through. Clayton Johnson: It does give you that. In other words, it does give you access now through the two parcels. ! mean this particular plan accesses that straight through but yeah, ! don't know what. Boyle: I think that could be an issue with 800 employees. That could be quite a traffic issue that we're going to have to address at some point. Clayton Johnson: 24 hours a day I understand though so, isn't that Jim? I think they have staff on there 24 hours a day. Boyle: So it's not 800 from 8:00 to 5:00? Clayton Johnson: No. The travel agents that are calling in and being serviced operate at night, Saturdays. A lot of work on Saturdays and Sundays. So ! think they have quite a staff right through the weekend. Boyle: Well ! didn't hear any really negative comments. Or really any negative issues. ! think the next step would probably be get to planning for a conceptual. Gerhardt: ... Johnson and putting a proposal together. I think MLT is looking for a proposal from you. Clayton Johnson: Yeah, real quick but ! think speaking for the owners and the people involved in the meetings we've attended, ! mean everybody just wants to know which way the wind is blowing. ! mean if it was absolutely dead set against, ! don't think we'd pursue it but if there's a feeling that number one, it's consistent with the overall plan and that, we really feel that when the whole thing is done and you know from experience that these things go through a lot of changes Economic Development Authority - April 15, 1999 from start to finish. But ! think you have to admit, if you dump 100,000 square foot building in there and it generates half a million dollar worth of increment, there are definitely going to be some flexibility to the commission in terms of what they can do. Build libraries or build senior citizen buildings or ! don't know what you want to do with it. Mancino: Mr. Chair, would it be possible for the EDA to maybe do some ideation or some work with the planning staff and kind of get some input from them and work together? Boyle: And give further feedback after... Mancino: Yeah, and maybe have a discussion with planning and getting some of their input. And again, more conceptually. Not, ! don't know how the other members feel about that. Clayton Johnson: Vernelle, do you want to add something? Vernelle Clayton: Well ! don't know that ! really have that much to add and ! don't know how much people can bear to listen to this voice tonight but ! think right now we probably have enough, we haven't heard anybody saying take your ideas and go home. And we have to respond fairly quickly. ! think we've conveyed to you that there's a possibility that it will be MLT but it's not a certainty. But it's such a good idea perhaps that we should pursue it with someone else if this doesn't work because of the mutual benefits to the owners of the property and the area and the downtown as a whole. For sure we will work with both planning and EDA, but ! don't know if we're going to be ready to do that next week. ! think it will be a little longer. ! don't think that anybody is totally committed to this particular design package and we have to get a little farther down the road with MLT's needs and wants ! think before we get there with a particular design package. It may be that the design will include some of the same components that you see here but ! think they're, ! don't think I'm misstating when they're still looking at what the overall design is going to be. Clayton Johnson: Yeah, actually one of the things they're dealing with is this issue of how much can they utilize outstate people. How many people they want in the metro area versus you know this work now. By the way our fiber cable would be a very big plus in this particular application. That'd be very important. They are wrestling with this thing of how many people can they put outstate and how many people can operate out of their home and how many do they need then so that in the specs there' s, yeah there's a little flex. Vernelle Clayton: A fair amount of work to be done before we're at a point where we can sit down and say now here's the plan we're going to be proposing. But in the meantime this is a large enough project so it's not going to be all of a sudden one day here Planning Commission, here it is. Now 30 days let's have our hearing. So we're doing this incrementally. We just needed to know if some bright lights came on in your mind tonight and then we'll take many steps. Hopefully this will be done. This would be wonderful for Chanhassen ! think. And we'll be having lots of meetings. Boyle: I didn't see any really bright lights tonight but. Economic Development Authority - April 15, 1999 Vernelle Clayton: Saw a few flickers. Boyle: Did you see some flickers? Okay. Bohn: ! would like to see retail in the lower level of the ramp facing the parking lot. Vernelle Clayton: Well you know, we certainly will bring that back to them. The other thing is that, another thing happens all at once sometimes and while there's no real crying need for some retail down there right now, having just expanded the Frontier Building. If the next phase or one of the phases of what you decide to do with the extra $250,000.00, which incrementally ! don't know how much that gets to be over a period of time but it's a fair amount of money, would be somehow or other revitalizing the Dinner Theater and changing some things around there. Maybe that scene shop would move up into the Dinner Theater or where one of the old, ! told you ! really couldn't talk. Where one of the old theaters is or in the basement and maybe in the process of expanding the theaters so they're more productive, that space down there because it's vacated, it could become retail. ! think it's probably a little premature but we need to keep that as a footnote. Boyle: Well why don't you folks go ahead and we in turn will get together with planning and ourselves and try to notify you if there's any issues or major issues that come up. We'll try to do that. Thank you very much. Mancino: And Mr. Chair, if we could maybe in the next two weeks or month, again meet with planning staff as an EDA and say let's look at the whole area. How does this work here? Again, look at the whole area and say should we see some more retail? What will a big parking ramp like this do to this area, etc. And again just very conceptually. Boyle: Todd, would you try to coordinate that. Gerhardt: We'll set up a meeting between planning staff and EDA members in the future. Vernelle Clayton: Do you want us to be at that meeting if there are any questions about our proposal? Boyle: ! would think probably not originally. It'd be time to really hash out more conceptions as to what, if not that then what else type of thing .... Thank you. KLINGELHUTZ EASEMENT ACQUISITION. Don Ashworth presented the staff report on this item. (There was a tape change at this point in the discussion.) Economic Development Authority - April 15, 1999 Ashworth: ... I believe that we acquired that as a part of the parking lot construction. Is that not correct? A1 Klingelhutz: At that time we sold that old roadway to the city. The road was taken away from us for $2.00 a foot, and some of it, I know the city paid a lot more for it but I think the church and myself were pretty generous at that time. The reason, our legal and my property and the church's property went clean across that road, plus about two feet on the other side. If we really wanted to have been mean, we could have shut off any driveway on that side because we had two feet of property on the other side of the road. But that's the way they laid the property out in those days and our legal extended beyond the old Highway 101. I think we came up with a pretty, kind of fair settlement here. I guess the only concern I would have about it, and I didn't think of it when we were talking, is if I ever wanted to put an office building up similar to what, it wouldn't be quite that big. But this would actually take a lot of my frontage away from that property and I'm just wondering about access in the future. How wide of access I would need. The present roadway I don't think would be wide enough for a big building in there and I would be giving something up. And I was going to ask you that if this would happen, ifI could have access off the parking lot because we gave away all our frontage on the parking lot when the parking lot went in there. Bohn: It depends if we sell that property or not. We may not own it. Ashworth: Well what Al and I had discussed, and first we started an acquisition. We then came back realizing that it would be in his best interest if it were acquired as an easement which would then give him the full right to count that square footage of that property from a planning perspective because he's really met green area requirements and it does a lot of those type of things. If in approval, maybe ! can sit down with Al. We can go through where he might have some type of an access and simply put into the easement agreement that he would continue to have the right to construct an access drive into his property as long as it didn't interfere with our easement. The signage and whatever else he may have there. Boyle: That would be in everybody's best interest. Al Klingelhutz: Yeah, it would be about another extra 8 feet before you'd actually get to the sign in there. That we could widen on my present driveway to make it wide enough to get an entrance to the property. Otherwise we'd have to put the entrance closer to the railroad track where ! do have probably 60 feet down there that we could get on the property there but it wouldn't be very feasible to put a driveway right next to the railroad tracks, unless you were going to put a park and ride deal there. Boyle: What does this have to do with the east portion? Anything? Only the west portion that's on the road is the concern. Al Klingelhutz: The portion that is what they're paying, they're paying for my easement on the east portion. Boyle: Okay. Economic Development Authority - April 15, 1999 Ashworth: Well he's giving an easement really over the, well. In donating that westerly. A1 Klingelhutz: I'm donating the western portion of the property as part of the easement. Boyle: Okay. So with this donation, Don can you explain it a little bit more to me. ! don't understand how this easement portion would work. If in fact we're going to make a wider entrance or maintain an entrance. Well ! need something drawn up ! guess. Ashworth: If you want Roger to respond after ! try to explain. We're getting the easement for the entire parcel. In the process of doing that though, easterly, westerly, it doesn't make any difference, is going to be seen as a donation. In Roger's drafting the documents we will ensure that we have in those, in that easement agreement, Mr. Klingelhutz' right to expand a driveway into his property. Boyle: Or anybody else in the future that might own that property, right? Roger Knutson: Right. Boyle: Regardless of. Al Klingelhutz: The only other thing you could do is, if it could be written in there that ! could get a right to the property from the present parking lot. See the parking lot goes right up to the line right now. That's what they acquired from Jack Barnes and ! several years ago at $2.00 a foot. Ashworth: It would sound as though we're going to need to bring back documents to you. In the meantime we'll sit down with planning staff and with Al and come up with potential areas where he may be able to expand his driveway. We'll look at the alternative of letting him come in through the parking lot. ! can tell you right off the top though, generally you don't want to take and bring what I'll call more major traffic through a parking lot and then onto another parcel. It would be better if it could be direct access. Boyle: Are there any other questions or issues that a member here sees? Mancino: Mr. Chair, ! have one. This is just an off the wall kind of put it out there. As ! looked at the Vision 2002 and saw where our entry points to our downtown are, they're kind of changing. And ! looked at the east entry which is east of the pedestrian bridge and that area that we want to, which ! think was where the taco shop was. That we want to do an entry theme there. We talked about an entry theme at Market Boulevard and an entry theme at Powers. So my question again, just kind of off the wall here is, do we want to continue this as an entry area to the city or do we want to expand the entry monuments to other places in our downtown and that's again, just a question ! had. So you know ! don't know how other, and maybe that's not a decision to make right here but it was something that made me kind of expand my you know vision of where our entry monuments should be and of course that was done so many years ago and was so appropriate and is so much a part of that area of Chanhassen but we are changing. So 10 Economic Development Authority - April 15, 1999 I bring that up for us to think about and I certainly don't want to take $12,000.00 away or anything but. Jansen: Is that a planning department question then? Throwing it back to them? Boyle: That's a good question. It probably is. Mancino: But again, ! have no idea how the other commissioners feel. If that's something they would like planning to look at. If this entryway has been in our community for so long, it should stay. ! mean that's always hard but. A1 Klingelhutz: ! can tell you one thing, ! know how much it costs to put it there. It was about $35,000.00. Mancino: So again, but it is kind of in an era, ! mean we are changing so ! bring that up for discussion. Boyle: I have no comment on that. Well maybe one. Only the fact that I think that might be down the road far enough that it would not be an encumbrance on this recommendation as far as I'm concerned. Jansen: I guess if we were going to do that, I want to throw it back to the planning department to see where they would you know maybe envision if we were going to move it. Then we wouldn't, yeah. Then we wouldn't. Boyle: Would it be the same one, you tear down and build another or leave it there? There's a lot of options. Mancino: And I think that the Highway 5 corridor study also talked about, again a lot of this was picked up from the Vision 2002. From the Highway 5 corridor study and again, is that something we still want to do and my only comment was, a lot of the reasons why we haven't ! think is funding, or lack of funding and so if we do have some money, $12,000.00 to work with, maybe we could do one of these. We could start one of them. We could put a couple trees in there. Boyle: So our direction to staff is to, one. We've got to clear the documents. Follow up with planning to see where their plans, where they feel the plans are and when. That might change. That might say hey, do we really move forward. Thank you Al. Do you have any other questions or comments that you'd like to make? Al Klingelhutz: Well the comment that I was going to have is you know I would be donating half of this $12,000.00, right? Half of the 24. They say it would be a wash but it really isn't. As far as income tax, ! talked to my accountant about this and he says anything over $5,000.00 I'd have to get an appraisal on to see if ! could come up with the same amount of money ! wanted to use as a deduction in my income tax. You know when ! had this thing surveyed it cost me $1,450.00 too. 11 Economic Development Authority - April 15, 1999 Boyle: So you're out some money now is what you're saying. Okay, thank you very much Al. Al Klingelhutz: I hope we get some action soon because this, you know if you wouldn't be promising me something tonight, my next step I would have taken was hiring an attorney. Boyle: Oh I don't think, it's pretty close Al. In fact we probably would have been able to go for it other than the fact that we need to look at the easement fund. Okay. Item three. Consider assigning the Gary Kirt loan (Hanus facility) to Gary Brown. Todd, are you going to do that? Is Mr. Brown, do you have some? I wonder, where's Todd? Al Klingelhutz made a comment from the audience. Mancino: Al, how many acres do you have there? Al Klingelhutz: I have... Mancino: Remember at one time we were looking at a library there. Boyle: Still would be a good location for a library. Al Klingelhutz: It would be a nice location with the parking lot... Labatt: How big is the land? One acre? Al Klingelhutz: An acre and 1,200. CONSIDER ASSIGNING THE GARY KIRT LOAN (HANUS FACILITY) TO GARY BROWN. Boyle: Gary, we're going to we'd probably better wait until Todd. And when he gets back I want to ask him to kind of brief us up front a little bit. Gary Brown: That'd be a good idea. He just gave me some new paperwork when I walked in here too and I think it's going to make it a lot easier for all of us. Boyle: Okay, once we find. Maybe he left, I don't know. Decided the heck with it. (The EDA took a short break at this point in the meeting.) Boyle: Todd, what we thought we would do would be, we thought you might, it might be apropos that you give us a little brief on item 3 please before. Gerhardt: For Linda's and Steve's benefit I'll give a little brief history here. Back in 1992 the HRA purchased the Hanus facility from Gary Kirt to allow the HRA at that time to redevelop the building. If you look at Don's first report, there's a nice picture of what that facility looked like prior to our ownership with all the trucks and there were some contaminated soils and fences 12 Economic Development Authority - April 15, 1999 down and no parking lot. And so in that five year ownership of the building the EDA had managed the building. Collected the rents and paid the expenses associated with the utilities and snow plowing. Sprinklers of the lawns and also hired the contractors to paint the building. Put up signage and put in uniform parking lot and landscaping. As a part of that original purchase agreement from Mr. Kirt, the HRA had also agreed to sell the property back to Mr. Kirt for the principal value of $820,000.00. In that we would then recoup our cost of what we had put into the building. We closed on that property last February of 1998. And since that time Mr. Kirt and Mr. Brown have been trying to negotiate some differences that those two have had and Gary had been trying to exercise his option to purchase his portion of the building. This past January, February Gary Brown and Gary Kirt had gone to court and the Judge had asked that the two of them sit down and work out their differences. And by the end of February ! think the two Gary's had worked out their differences. However, as a part of that they were looking for some concessions from the EDA. As a part of those concessions they would like to see the assignment of the current mortgage that the facility has with Mr. Kirt be transferred over to Mr. Brown as a part of his purchasing the property from Mr. Kirt. And also as a part of that, our 5 year ownership of that, Mr. Brown has an option in his lease that would recognize the $525.00 a month to go towards the repurchase of his portion of the building. And that is estimated to be anywhere from $31,000.00 to $33,000.00 during our 5 year ownership. And then also Mr. Brown has asked that the interest during that time period be reduced from the straight interest rate of 10% to kind of a deducting interest rate of 12%, 10%, 8%, 6% and 4% during that 5 year period in which the mortgage would then balloon and the principal amount would be owed to the EDA at that time. And ! think it was estimated at the principal amount of $781,000.00 in May 1st of 2004. Staff, ! don't know if we really understood what Gary was asking for. Never committed or agreed with kind of the reduction for the 12, the 10, the 8 because ! didn't know how much that would be so this week ! did some calculations and handed that out to you and that shows in changing the interest rates from the flat 10% to the reducing interest rate is a cost of $66,310.83. That would be the difference between a flat rate of 10% and the reducing interest rate. As to staff agreeing to make the assignment, we have agreed, well staff' s recommending that the mortgage and the note be assigned over to Mr. Brown and that the term of that note be reduced from ballooning in 15 years to 5 years and that the option money that Mr. Brown has paid to us during our ownership, ! used $25,000.00 based on Mr. Rapp's letter to Mr. Tom Scott as Attachment #3 in your packet. Paragraph, page 2. Or the last, the second to the last paragraph on page 2. Labatt: What exhibit is that one? Gerhardt: Exhibit #3. Where Mr. Kirt in the amount of $25,000.00 of the more than $33,000.00 collected by the HRA from Brown since the option agreement in our management of the building. So ! went along with that because staff had been negotiating with Mr. Rapp since he is the one that we have the mortgage with so we would have to give Mr. Kirt the option to assign the mortgage, correct Roger? And then Mr. Brown had come in approximately a couple of weeks ago, month ago and had asked that he receive all the money and also asked for the reduction in the interest. And ! told him at that time ! would let the HRA know your wishes but that staff had proposed over to Mr. Rapp that we would like to see a 5 year balloon payment at the 10% and that we would recognize Mr. Brown's option money. So that is staff's recommendation from our negotiations with Mr. Rapp. 13 Economic Development Authority - April 15, 1999 Boyle: And what is staff's recommendation regarding the option money? 25 or 33? Gerhardt: The $25,000.00 based on Mr. Rapp's letter. We never talked about a dollar amount so as to the difference in that, I guess I would suggest Gary talking to Mr. Brown on that because I was basing mine off of Mr. Rapp's offer in the letter. Boyle: Thank you Todd. Gary Brown: It was really nice of Mr. Rapp, Gary Kirt's attorney to give away $8,000.00 of mine, wasn't it? Boyle: Well we'll address that. Gary Brown: I want to turn this around for just a second. Boyle: Gary, for the record would you state your name so it gets on the record. Gary Brown: My name's Gary Brown. I've owned a business in this town since 1971. Boyle: Thank you Gary. Gary Brown: Getting back to the interest rate that Todd was just speaking of. I have.., explain it very clearly last week when we talked. I wasn't asking for a reduction in the interest rate on this note. I was asking for the fact that the note changed from a 10 year note to a surprising 5 year note. If anybody does have, no matter what type of business they're in, they typically give you a discount for paying it off early. And that's what I'm asking for. I'm asking you to give me an incentive to get you folks out of the mortgage business. But after looking at Todd's analysis on this amortization schedule, the difference in the interest over that period of time is $79,650.00 in rough numbers. If I'm able to put a new mortgage on this property, which I'm pretty sure I can do, I'm falling definitely in the same category that he's proposing to you. So it gives me an incentive to go out and put new money on it. It gets you folks out of the banking business and you can use that $800,000.00 as an EDA to get something new started in this town. I think that's what the money was for. And I'm very appreciative of you folks to let me use that money for a few months. Boyle: Thank you Gary. Well first off, are there any questions of Mr. Brown? Take them one at a time. Gary, not at this time I guess. Jansen: No, thank you. Labatt: No, not right now. Mancino: Mr. Chair, I just have one. You talked about Gary of getting a new mortgage. Soon? You've talked about getting a new mortgage soon. Just getting a new mortgage on it. Is there a reason why we shouldn't just wait until you get a new mortgage and just make it simpler? Instead 14 Economic Development Authority - April 15, 1999 of our assigning the note that we have right now to you. Just wait until you get a new mortgage and come to us. Gary Brown: Yeah... Mancino: Okay, good. Explain that to me please. Gary Brown: We've been prolonged through this symphony since 1992. It's to the point that Mr. Kirt and I, who have had a legal ramification if I may, to turn it around and become partners and. Mancino: You don't want to miss the opportunity. Gary Brown: Gee whiz, I don't want to sue myself and suing the city is like suing yourself. Correct? And you don't need that. I don't need that and why spend the dollars to do something like that. We are prepared to close on this property on the 23rd of this month if we can get through this small hurdle this evening. Mancino: Okay. Gary Brown: And Mr. Kirt has been, we've both been pretty patient through this ordeal. But he's getting a little anxious right now if I may. Boyle: That was very evident in his attorney's letter I think. Gerhardt: That was a calm letter. Mancino: Well we haven't all had to be so patient because we haven't been here since '92 so thank you. (There was a tape change at this point in the discussion.) Boyle: ...we like that and it's been going on for a long time. Then the next issue is, do we discount as a result of that? If we were a bank, and we've been acting like a bank here for quite some time now, we would probably discount the note some. Knutson: It depends on what kind of interest you're getting. Boyle: In today's world 10% we probably would, would we not? Knutson: 10%'s pretty decent. Boyle: Is it? For this type of. Gerhardt: Yeah, commercial's going to run anywhere from 9 to 12 1 would say, wouldn't you Gary? Isn't that what you're seeing? 15 Economic Development Authority - April 15, 1999 Gary Brown: It's jumping all over the place. From day to day. Knutson: ! don't see discounting the mortgage. They haven't asked for that... Boyle: Todd, on the amortization schedule that you handed out tonight, is the $66,000.00, explain that again? That would be the difference between what you have.., compared to if we were to discount? Gerhardt: Say that we agree to the 5 year term on the mortgage and based on the $820,000.00 a year principal payment, and then with the amortization of that $820,000.00 over a 30 year period, so your monthly payments would be fixed at $86,984.98. What gets, where the difference comes is in the interest rate schedules and then what ends up being a principal payment changes. So if you were to add up the interest based on Gary's 12, 10, 8, 6, 4 over the 5 year period, that's an average of 8% over the 5 year period. And so his total interest paid would be $324,841.00 and his total principal payments would be $43,772.00. So if you add those together, that gets you $367,000.00. And then if you were to add the interest and the principal payments for the 10%, you get $434,000.00 and that's a difference of $66,310.00 in lost interest over that 5 year period. But if Gary's looking at trying to go out and find private placement here within the next 2 years, or even 3 years, our interest rates are the same. So it should be equal. But I'm sure Gary still wants the comfort if he can't find private placement in the next 5 years, he'd still like to have that luxury to know that he's got financing on his building during that period. Correct Gary? Gary Brown: Yeah, ! guess so. Knutson: Theoretically, if he refinances in one year we're better off under his schedule. If he refinances at the end of the 5 year period, then we would have been better off under what we have here at 10%. It depends on when he refinances. What works out for him. Boyle: The sooner we're out of it ! think. ! will now open it up for questions. Jansen: ! have one along the lines of what we were just talking about. If in fact you're trying to incentify to pay it off sooner, wouldn't you reverse the trend so that the percents, the interest percent is going up in order to incentify to get out of it? Knutson: The only thing wrong, yes. It makes some sense but one thing to remember is the principal goes down every year. So 12% interest on a lower amount is not as much money as a lower percent, as a higher percentage on a larger amount. At some point it crosses. ! don't know exactly where but. Jansen: Okay. Boyle: Do you understand? Jansen: Yeah, got it. 16 Economic Development Authority - April 15, 1999 Labatt: He wants to make a point. Gary Brown: Simplify this. If you take the interest difference, what Todd is talking about doing Plan A or Plan B. The interest difference is $79,650.00. Let's say you went with the plan ! proposed and ! got the loan done in the second year. The difference would be $81,000.00. We're talking about a $2,000.00 gamble here on a $800,000.00 note over 2 years. Boyle: Gary I'm sorry, where is the, where is your proposal? Gary Brown: My proposal is stated in there. Boyle: Ohthis one? ...Oh okay. Oh, the 12, 10, 8, 6, 4. Gary Brown: That's what ! was getting at. ! wasn't looking for that interest rate. ! was looking at an incentive deduction on the note. Labatt: You're looking at a discount. Gary Brown: Discount the note to get rid of it for you, yes. Gerhardt: Gary, Gary Brown's proposal is the 12%, 10, 8, 6, 4. Boyle: ! understand that. Gerhardt: Okay. And then this is the one, the 10% that ! guess is my proposal. Gary Brown: Like ! say, if you look at the second year, we're within $2,000.00 of what we're both talking about. Boyle: Well in the second, that's where ! think it threw me. I'm sorry Gary. Okay, you're talking the 79 to the 80. I'm with you now. Gary Brown: And use those safe numbers. In other words, I'm putting the monkey on my back to get rid of the note for you folks. To get you out of the loan business here. Boyle: Okay. Gerhardt: Where ! came up with the difference there is that you also have to look at the principal difference. There's a $13,338.00 in principal difference too. It takes in a lot more principal. Mancino: Mr. Chair, ! have a couple questions. Boyle: You have the floor. Mancino: Thank you. Todd, do we have any, what's the, does the City of Chanhassen, because we assumed the note in 1992 from Ministers Life. How much is left of that? 17 Economic Development Authority - April 15, 1999 Gerhardt: off. Mancino: Is there any, are there any other loan documents or escrow agreements? Okay. So everything is just free and clear? Gerhardt: With the exception of that $800,000.00 note and mortgage that we have with Mr. Kirt. Mancino: Okay, thankyou. Knutson: ...there's no offsets. It's your money. Mancino: Wonderful. Gerhardt: It has to be used for a... Mancino: It has to be pardon? Boyle: For a what? Mancino: Oh yeah, yeah. A bubble. Okay. So have we done a market value? What's the property today? ! mean has it gone up since last year? What's the worth of the property? Have we done a? Gary Brown: It's gone down. Mancino: How did it do that? In Chanhassen property goes down. Gary Brown: It's going to take a minimum of $200,000.00 worth of work to put the building back in shape. Right out of the shoot it's going to cost $100,000.00 to put a roof on it. And ! mean that roof issue was directed 5 years ago and at that time you gave Mr. Kirt $25,000.00 to help with the roof. Which that's gone too. Mancino: Oh, okay. Gerhardt: Well no, this has been a long... Mancino: Okay, ! thought the roof had been done so okay. That brings me up to speed. Is this a personal guarantee? Is this a corporation? Or is it a personal guarantee? Gary Brown: Yes. ! believe that's how you wanted that, correct Todd? Yeah. Mancino: Okay, so you have a financial history and everything of Mr. Brown to make sure that the personal guarantee could be satisfied? Or do we? We paid that off. It came due, it was like $400,000.00 and that note is completely paid 18 Economic Development Authority - April 15, 1999 Knutson: ! haven't seen it but what you're really looking for is the land as the guarantee. Mancino: Okay. Knutson: If you don't pay, you sell the building. That's the, maybe you won the lottery and you've got a hundred million, ! don't know about that. Mancino: Great. Well we'd have to put a roof on it. Great. The deed secured by the property. ! guess that's it. On my questions, thank you. Boyle: Good questions. Labatt: Well Nancy asked my question. Is the financial aspect... The other one ! had was the question of the $33,000.00 was more for Todd. ! take it that money is somewhere on the balance sheets or? Gerhardt: When we received the rent revenues off of the, what we called the Hanus facility, they went into historical trust so in that fund balance included all the rents that we received from the Hanus facility. And for the 5 years that we've owned the building, everybody was current on their rent and so we collected 100% and ! think we're 100% leased with the exception of this little mezzanine area which we rented out for $200.00 a month. So that was 100% leased all during the time we owned it. Labatt: Okay. So the money is there. Gerhardt: The money's there. Labatt: And then the other one, another question ! had was the benefits... Boyle: The benefits to the city in regards to? Labatt: Getting out of the banking business. Boyle: Those are quite, any further discussion that we would like to have? Motions? Mancino: ! just want to...that we get out of the banking business as soon as possible. Boyle: That seems to be pretty universal, doesn't it? I'm not quite sure how to pose. Knutson: .... recommendation to you on the basis, motion subject to any amendments you think that you want to make. Boyle: Well I'll make a comment before we do that and after reviewing carefully the letter from S. Todd Rapp. And in view of the fact that this has been going on for quite some time, and that these gentlemen reached agreement in February and now we're into April, and that was not their doing. It was our doing because we couldn't get a meeting together for the last two months to 19 Economic Development Authority - April 15, 1999 try to bring this to a conclusion. There is a threat, ! guess is the proper adjective of litigation from Mr. Rapp. Labatt: Yeah, that's their job right? Boyle: Now we could say well, fine. That's just ideal threat because that's what lawyers do. Or we can say, hey for $66,000.00 we can get out of this. Move forward and save the taxpayers some money in the event that litigation would come up. So ! guess it comes down to, do we call the bluff or not. That's my comment. So with that, get back to the recommendation. My recommendation to accept Mr. Brown's proposal versus the 10% fixed rate for the small amount of money involved and the potential delay of things. This has been going for quite some time. I'd like to get out of any further delay issues, etc so that's where I'm coming from. That will probably generate some discussion then before. May ! have some feelings and discussion on that subject. Jansen: If! could ask a question. According to his schedule, if we are talking about the possibility of Mr. Brown being able to get out of this in the first two years. If we stayed with the flat 10%, that would give the interest savings in the first year compared to his plan of the 12%. If we go to his plan in the third year, if anything that incentifies to hold onto this mortgage in that the interest rate is then below the market interest rates, correct? So if we're, ! guess I'm having a tendency to stay at the 10 for the benefit to Mr. Brown in the first year, seeing that is a plus. And if he's talking about getting it out of it in the second year, then he's in a better position than if we go to his schedule and we're more likely, ! would assume, to get out of the banking business on the flat 10% versus suddenly we've got 8, 6 and 4% money out there. I'm wondering what your comments would be to that as to the pluses and minuses of the two. Boyle: What are the dollars we're talking about though? $2,000.00? Jansen: But again it would work, if we're trying to benefit Mr. Brown in what he's requesting and he's speaking to getting out of this even earlier than the 5 years. Then yes, in his favor, does it not work out better to stay with Todd's numbers? In interest he'd be paying $82,000.00 in the first year versus $98,000.00 in interest in the first year. Boyle: Maybe Mr. Brown would like to comment. We're really looking after Mr. Brown's best interest. Gary Brown: ! really like my plan. If! went with your plan, Mrs. Jansen, ! would be foolish to make any attempt in the first 5 years to pay it off. Because what incentive would ! have? I'm going to save $80,000.00 in interest. So by going with what ! stated, figuring that it's going to take to the second year to get a mortgage put on this, we're talking about a discount here of $81,000.00 versus $79,500.00. Again, it still leaves you folks in the banking industry. ! really firmly believe that the EDA could use those funds towards a more beneficial program in the community to start something newer or whatever. Jansen: Okay. Todd help me out here. Oh I'm sorry Mr. Chair. 2O Economic Development Authority - April 15, 1999 Boyle: Still have the floor, go right ahead. Jansen: Am ! reading it wrong then? Between yours in the first two years, if we went the first two years, it'd be $163,000.00 in interest compared to Mr. Brown's schedule at $180,000.00 in interest so aren't we saving Mr. Brown $17,000.007 Gerhardt: You've got to look at the principal difference too in there so it's another $1,000.00 so he saves $15,000.00 if he goes and finds private replacement financing within the next two years under my scenario. He starts to benefit in the third, fourth and fifth years if he can't find private placement. Knutson: My read on it would be that if he finds himself in a position where he doesn't get financing the first two years, have an incentive frankly not to, to wait for three more because you've got very favorable financing the last three years. Jansen: But you'd stay here with ours, correct? Knutson: ! would. Jansen: Yeah. Knutson: Unless the market really changes and you can get something less than 8% which is... Gary Brown: ! doubt it. Knutson: Probably not. Gary Brown: If! can't get it... Mancino: ! agree with that. The assessment. Knutson: But at 10%, is it possible he can do better than 10%? ! don't know. Or comparable. We're just. Boyle: Or it's possible he could do better than 12%. Obviously, but maybe not in the first year. mean not the percent but just the time to put it together. Knutson: All we're doing is speculating. Boyle: Yeah, which we really shouldn't be doing. Knutson: ...get financing. Boyle: ! have to turn it back to you Gary ! mean, and ! think it comes down to the fact of what, do you want it 5 or how much help? 21 Economic Development Authority - April 15, 1999 Gary Brown: If I understand correctly, you folks would like to get out of the banking industry, correct? I'm going to put my best foot forward to take you out of the banking industry by supplying my own financing on that building. I'm asking for the help, put it in a help form of a discount towards the note. If you went to a bank and the bank changed the rules from a 10 year to a 5 year, they'd probably give you 20% discount by doing that. Or any other lending institution would. It's taking the monkey off of your back so to speak and putting it on mine. You have to remember when you go for new money, you don't just walk in there and they hand you $800,000.00 or $900,000.00 on your good looks. You have to pay for appraisals. You have to pay for points, da, da, da, da, da, da which comes up to, when you're looking at $800,000.00, a lot of money. But I'm willing to take that risk. Did, I'm sorry, did I answer your question for you? Jansen: Either I'm really confused or I'm not getting this because. Boyle: Is this discount included in your plan? Or is there another piece here that we're missing Gary? Gary Brown: No. You've got the pieces to the puzzle. Boyle: We've got it all. It's right here. Linda's saying, if you're really going to finance within. Gary Brown: Let me read you the last paragraph to this and maybe it will make some sense, okay? In paragraph three, I'm sorry, of the memorandum dated April 12th, '99. Item number 3. Reduce the balloon payment of the mortgage from 15 years to 5 years and a deduction in the interest rate changed from fixed rate of, next page, 10% to the following: But this should have never been, it should have been written in that paragraph as the interest rate should have never been put in there and I think that's maybe where the confusing issue comes. It should have been written, instead of interest rate, it should have been written discount rate. To take care of, to satisfying the debt. But as long as we've got that written in there and Todd went through all the work of showing you an amortization schedule, which was very helpful, it kind of, it spells it out in the same category. Boyle: Do you understand Linda's confusion Gary? What she's saying is that in two years you would pay less interest at 10% for the first two years than you would on the. Gary Brown: 12%. Boyle: 12, 10, yeah. Gary Brown: We've got 2%. Boyle: 2% difference. Gary Brown: Correct. Boyle: To your advantage. If you sell the note off, if you find other. 22 Economic Development Authority - April 15, 1999 Gary Brown: If! sell it off in the next year ! have an advantage of 2%. Knutson: At the 10% rate you do. Not the 4% rate. Boyle: At the 10% you would but not in your proposal Gary. That's where she's confused. Gary Brown: Oh, ! see. Gerhardt: You've got an interest of $82,000.00 and interest of $98,400.00. Under your scenario you would save you approximately $16,400.00. And you have a difference in the principal of $1,587.00 under total savings over the two year period is $14,812.00. Gary Brown: According to this schedule here. Gerhardt: Correct. Gary Brown: Yes. Gerhardt: This interest is $14,812.00 higher than this one. Gary Brown: Correct. Correct. Gerhardt: Okay. And what they're saying is if you can go and find private placement in the next two years, they want to save you $14,812.00. Gary Brown: ! wish ! had brought a calculator along, ! think it would have helped both of us. Oh there we go, Steve's got one. If you break this down. Let's use the number of $800,000.00 to keep it relatively simple here. If! get rid of this mortgage in the first year. In the first 12 months what I'm asking you for in dollars would be approximately $96,000.00. In the second year, if it takes two years, I'm going to be asking you for a $80,000.00 discount. And so on and so forth. Do you agree with me on that number? Jansen: So Todd, am ! putting this together now? If he's asking for that discount, we're still charging 10% interest but we're giving Mr. Brown a 12% discount if he pays it off early? Knutson: There's nothing in Todd's memorandum that talks about a discount. Jansen: That's now what Mr. Brown is saying it was meant to be? Gary Brown: Yes. Jansen: He's saying that his. Knutson: ... concept. 23 Economic Development Authority - April 15, 1999 Gary Brown: That's the way I explained it to Todd. That's the way... Jansen: That's what ! just heard. Gary Brown: And ! guess ! communicated wrong. That's what I've been asking for this whole time. The rules have changed from a 15 year or a 10 year, whatever, down to a 5 year note. Jansen: Is that how banks do it? Gary Brown: So we're asking for a discount on that note. Knutson: Oh, generally not. You can negotiate anything that's huge numbers but if! go into, taking my house and ! go to the mortgage company and say I'm willing to pay it off early, will you give me a discount? They'd laugh at me. Gerhardt: You want a reduction in the principal amount, is what you're saying? Gary Brown: No, the 12. The first year at 12%. The second year at 10%. Third year and so on and so forth. ! wasn't asking for an interest discount. ! was asking for the principal discount in order to get rid of the note for you. Jansen: So if we actually went apples to apples, and let's say the first year's a 10% discount and we've had 10% interest, would really be giving him back the interest, correct? If you went 10 and 10 though. Boyle: Oh, if you went 10 and 10, yes. Gerhardt: ! don't know, this is where ! lost it before so. Jansen: Because if we went 12, we'd be getting back not even our principal. Knutson: ! was never aware that that was on, was ever a matter of discussion. ! just thought we were talking what the interest rate should be. ! think that's what Todd thought we were talking about. Boyle: There's obviously the misunderstanding and you tried to explain on the front when you said discount versus interest. Gary Brown: Right. Boyle: Doing for a 12% discount... 10% discount off it. A 12% off of the 10%, but no. Jansen: He'd actually still be paying the same interest rate, because we're talking two different things so if we stayed with Todd's 10% interest, he would get a 12%, we're pay him 12% at the end of the year if he paid it off in a year. So he'd actually make 2%. Well, we wouldn't get the full principal back. I'm with you ! think. 24 Economic Development Authority - April 15, 1999 Gary Brown: Jansen: Boyle: Jansen: We're getting there. I'm with you ! think. Yeah, you're right. But ! wouldn't think you'd want to satisfy losing part of the principal that maybe we could start, you know we don't charge him interest for the first, carry him the first year as he were to try to you know find financing. And then go with the 10, the 8, the 6, the 4. Because then actually if we give him an 8% discount, we've made 2% interest? Mancino: Mr. Chair. Gary Brown: ...you'd like to give me an interest free note the first year. Jansen: Well if you do the 12% discount, we've actually, you haven't given us back the whole principal. If we've done a 10% interest rate and then we give you a 12% discount, we've made $82,000.00 in interest and we're paying you $96,000.00 to have gotten out of it early. So we lose $14,000.00 of the principal. Knutson: I think this has taken us by surprise frankly. Boyle: Well it'd be hard, we don't have the bottom line on this which would have to be amortized over the, what would happen if it was the first year, the second year, the third year, fourth year, etc. Obviously ! think there was some misunderstanding Gary. Gary Brown: Well there definitely was. When I read this I was in total shock. It wasn't what I asked for and that's why Todd brought up this other thing. I'm sorry to make this so complicated. It shouldn't be but it's turning out this way. Boyle: Yeah, ! guess ! misread it too. Jansen: That's what I'd be curious to know what banks actually do. If they do incentify to get out of a loan early. Knutson: Banks do anything that makes money for them, is my experience. So it depends on, you have to do an economic analysis of it... (There was a tape change at this point in the discussion.) Jansen: I move that this item be tabled to Tuesday, April 20, 1999, to allow city staff to meet with Mr. Brown to discuss the discount issue as presented this evening. Bohn: Second. 25 Economic Development Authority - April 15, 1999 Boyle: All those in favor. Excuse me, ! should have had discussion but we did. Gary Brown: Thank you and I'm sorry to... Boyle: Well a combination Gary, thank you. Jansen: Thank you. Mancino: Mr. Chair, could we also make sure that Minutes are given to the other two council members and they're notified of the. ! don't know if we'll have Minutes done by next Tuesday. Not verbatim Minutes. Gerhardt: We'll try. Mancino: Or if staff could give a briefing to those two council members and kind of get them up to speed and. Boyle: Yeah, ! think just a few bullet points might even be apropos Todd. If we could just, because otherwise it would take an hour to get them up to where we were tonight if we don't give them some heads up in advance. APPROVAL OF BILLS: Boyle: May ! have a motion? Bohn: ! have some questions on the bills. $6,153.00. Legal services rendered. What was that for? Gerhardt: That was money that went to Kennedy and Graven for assisting us in our lobbying efforts for extending the life of our TIF district. Bohn: $4,175.00 was? Gerhardt: Part of that also. Labatt: Boyle: Bohn: Gerhardt: Bohn: ... Over $10,000.00 in legal services? They add up fast don't they? Are there further questions? Why was it broken down that way? Two separate bills. 26 Economic Development Authority - April 15, 1999 Gerhardt: They're all Kennedy and Graven. If you turn over you'll see that the check was written, the net to Kennedy and Graven was $10,718.00. That takes the 4 and the 6 and adds that together. ! did hand out ahead of you for next meeting there's some information that we provided to Keith Carlson from the Minnesota State Senate. On some of his requests and then Don can also update you on his efforts yesterday. Mancino: Oh great and Mr. Chair, Don could you also update us on from the Minutes from January 28th. I think the request to go to the legislature was asking for you know full increment for the three years. As I was reading the Minutes and wasn't the request to the legislature not only asking for the full increment for those three years but also one more year of full increment and if you could explain, that'd be helpful. Boyle: Would it be better to get through the bills first and then do that or is this part of it? ! think it might be better that we go then get in. If we might please. Bohn: ! make a motion we approve the bills. Mancino: Second. Boyle: Discussion. Bohn moved, Mancino seconded to approve the bills as presented. All voted in favor and the motion carried. Boyle: Don. Ashworth: Had basically four committees that are key in getting legislation through. One is the House Local Government Affairs Committee. The second is the House Tax Committee. And then you have a similar set on the Senate side. In fact Nancy had attended the one on the House and that was favorably received. It was the Local Government Affairs. The second one we had more difficulty with, that's the House Tax Committee and the Chair of that is Abrahms and spent 10 hours, a few days ago, literally taking him off of the floor of the House to try to reach some type of a compromise position or some type of a full understanding of really what we were looking for. That conversation began with his requesting how much of a problem is this for, because of tax rate compression created by the State of Minnesota. Well first of all, prove to us that in fact this entire problem was created by the State legislature. Okay, so we've done that and we spent a lot of, ! don't want to say lot of money but it's true. We spent a lot of time and effort with Tautges who is our auditing firm and Dave MacGillvrary with Springsted to document for both the House and the Senate side that this entire problem was created by the State legislature. There's a lot of feelings in the beginning that this was maybe poor management by the city or the city should have realized what was occurring. There was some allegations in there as to that the city bonded in 1998. This legislation is '97-'98. Why in the world would we bond in 1998 and now try to blame the thing onto the State. So we spent a lot of time saying no, no, no. This was a $6 million project with Carver County that made, that commitment was made in 1993 and 1994. The majority of the funding occurred in '95-'96. The bonding in 1998 was solely clean-up financing. So there's been a lot of, we've had to go through a lot of discussion with key 27 Economic Development Authority - April 15, 1999 legislators to get them to realize kind of what this request is all about. The one with Abrahms focused down to alright Don tell me, if we give you, instead of having partial increments, so we'll be getting a check literally for the full amount of the increment in 2001, 2 and 3. But we can only use that portion of it to pay bonds that occurred before 1990. Which then means that there's a gap in there. Now if you use, if we allow you to have the full increment to pay existing bonds, not new projects, existing bonds, what will your deficit be at the end of 20037 Well the first question was what is the total? The total is $6.2 million is the deficit. What if we allowed you to keep the full increment for those three years and use that to again pay the debt problems we've created plus the debt you previously issued? That meant that ! had to go back, huddle up with our group and what not. The answer came back down to $1.2 million. If we can keep full increment, which we're going to receive anyway in 2001, 2 and 3, the problem will be about $1.2 million. Well then Don ! don't really like the idea that you're requesting 2004. The reason we did that is to pay off the 1.2. We can only use the 1.2. It's not like the difference could be used locally. It's got to be sent back to the County. Well ! still don't like the idea that you're going to take and request 2004. Are there any other options? ! said well there is the option of pooling, which is allowed under Minnesota Statute, in fact recommended. Won't you have any districts that would have the monies to pay off the $1.2 million under the pooling statute? ! said yes. The Hennepin County district is projected to have sufficient dollars to pay off that $1.2 million in 2004, but we do have a problem. And that is that the legislature passed a law that says you cannot use increment that's generated in one county to spend it in another county. Well let us do some research so they end up going back to all of their experts, Dutcher and whatever else, and that's when Abrahms came back with the green light basically saying we have gotten the approval from the auditor and from our legal advisors that the City of Chanhassen can use the Hennepin County dollars in 2004 to cover that $1.2 million problem. And ! said well, ! had received that same kind of an opinion from Ron Batty but he was a little skeptical so I'm really happy to hear that your researchers and those people that you might use to slap our hand have all agreed we can do that. And the reason is if there's a conflict where you have two laws that conflict with each other, the newer of the two laws prevail. So the whole law which allows cities, and there's a whole bunch of us out there. ! mean we're not talking to these folks alone. There's at least 50 cities over there. This pooling statute was, they came up with that specifically to take care of these kind of problems. So that's where we left it with Abrahms. He literally said can we shake hands on this deal and what not and ! said yeah. Then ! attended the actual House Tax Committee meeting that occurred about 4:00-5:00 that afternoon and it was 100% agreed to by the House members there. We have since now gotten back to Doug Johnson who is Chair of the Tax Committee. He's in the Senate side. The House now has recommended and Chanhassen is on the omnibus tax bill on the House side. We want to see similar language now on the Senate side. Now the Senate has really already kind of agreed to this so this compromise with Abrahms should be seen as a very positive position by the Senate. We still have a fellow named Keith Carlson who is off of Mr. Johnson's staff had posed a whole group of questions. Well ! guess that's what this thing here deals with. So we've responded to all those questions. Unfortunately in the meeting that we had then with him, he came up with two additional questions. We're in the process of responding to those. They're not difficult questions. Well, they're time consuming questions but they're not damaging questions. We're not anticipating anything out of those two questions that's going to harm our position. Very much want to get to the position with both the House and the Senate would have in the omnibus tax bill the same version of how to help correct this problem for the City of Chanhassen. If that's the case, it's a no brainer. Because the omnibus 28 Economic Development Authority - April 15, 1999 tax bill is where they're going to fight out sales tax reimbursement versus tax rate reductions. They've got some big fish to fry over there and that's all in the omnibus tax bill. They're not going to screw around with us if we have no monetary impact on the State of Minnesota. Which is where Abrahms wanted to go to begin with. He wanted to do it as this loan fund which would have really been damaging so what we negotiated, I think it was Tuesday, really is in the best interest of the city and I think this will take care of the problem and I'm hoping that within two weeks I can come back and say it's done. Boyle: How does this money get from Hennepin County? Ashworth: The pooling statute basically just says, we make a finding that we have a problem with paying off debt in Carver County tax increment district, we can just make a transfer. We just literally, it would have to come back I think to you. I'm not sure. We'd take it back both to the Council and the EDA. So you know here's the report. We would request that you approve a transfer of $1.3 million from Fund blank, which is the Hennepin County District to Fund 460 which is the Carver County Tax Increment District. Boyle: It seems kind of simple to go through all this you've been through and all of a sudden it's kind of, okay. Mancino: Mr. Chair I have one question. Don, what does that do for our Highway 1017 Ashworth: It doesn't really affect it. The numbers that Todd had put forward, I think he reserved what, $2 million. You're looking to right now 3 lA to 4 and you're overly conservative. It probably should hit more than 5. Gerhardt: Well, if we see some more buildings come in. Ashworth: It's not damaging 101. Mancino: Thank you. Boyle: Thank you. Just as clear as mud, right? No, I'm kidding. Mancino: It's important. Boyle: It really is. Very important. I shouldn't have said that because it's a very good update and probably the most understanding I've had since this all began. Were we supposed to talk to this or did you want to make a comment on it? Gerhardt: No. Basically what you have here is the lake communities, the cities of Orono, Shorewood, Tonka Bay, Excelsior, Deephaven, Greenwood, wanted to get together a group of all councilmembers, planning commission members to a little summit to talk about affordable housing. And they have Nancy Reeves coming in to talk about some of the programs out there that.., from affordable housing so it's going to be over at the South Shore Community Center. And just trying to give you a heads up that it's May 20th, 7:30 a.m. to 9:00 for those people that 29 Economic Development Authority - April 15, 1999 can attend. And one of the things we're also working on is to, you know you've got communities like Tonka Bay, Greenwood that are fully developed and they need to meet the Livable Communities Act and for them to try to build affordable housing would be very difficult. So one of the things that we would be talking about is maybe if we have additional credits in Chanhassen where we would build more affordable housing in Chanhassen, that they could maybe buy some of those credits from us. Say that Village on the Ponds get built. The property over by Lake Susan gets built and the stuff down by Lake Riley, and we have 600 units of affordable housing. ! think our goal is 300. Somewhere around there. We have 300 extra units that maybe Greenwood, Tonka Bay could contribute or buy into was some of the discussions. And we're trying to collaboratively plan for affordable housing in the lake communities. Chairman Boyle recessed the Economic Development Authority meeting. Submitted by Don Ashworth Executive Director Prepared by Nann Opheim 3O