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EDA 1998 01 15CHANHASSEN ECONOMIC DEVELOPMENT AUTHORITY REGULAR MEETING JANUARY 15, 1998 Chairman Boyle called the meeting to order at 6:35 p.m. MEMBERS PRESENT: Gary Boyle, Mike Mason, Steve Berquist, Mark Engel, and Jim Bohn MEMBERS ABSENT: Nancy Mancino and Mark Senn STAFF PRESENT: Todd Gerhardt, Asst. Executive Director APPROVAL OF MINUTES: Berquist moved, Mason seconded to approve the Minutes of the Economic Development Authority dated November 19, 1997 as presented. All voted in favor and the motion carried. VISITOR PRESENTATIONS: None. (The microphones for the commissioners were cutting in and out throughout the following discussions.) DISCUSSION REGARDING TIF PAYMENT TO INSTANT WEB COMPANIES FOR COUNTY ROAD 17 PUBLIC IMPROVEMENT PROJECT. Todd Gerhardt presented the staff report on this item. John Dean: Well Mr. Chairman, commission members. The letter that Todd is referring to is one that I addressed to Todd as City Manager for review by the City Council but quite obviously it's really a letter that's more appropriate for your review, although many of you are on the City Council. It really relates to HRA/EDA matters. Again, just to real quickly put this in perspective. There are two steps in this process. The first one is, the special assessment issue. That's one that does not directly involve the EDA but rather the City Council and then the question of, if there is a special assessment due and owing, who's supposed to pay it and should the EDA have any role in paying that special assessment. Obviously that's your issue and that second issue, should the EDA have any role in paying a special assessment if there's one due and owing, is the reason that I was asked to take a look at the matter and render the opinion that I did in my letter to Todd on November 19th. I looked at basically four of the projects in the downtown redevelopment area. The Instant Web, the Victory Envelope, the United Mailing and the Empak project. I looked at them from two standpoints. Number one, were there existing agreements between any of those parties and the EDA or HRA or City for that matter, which would entitle them by virtue of those agreements to some kind of special assessment reduction assistance. What I mean by that was, were there any agreements that we entered into with those parties as an inducement for them to come into the downtown area by which we agreed if you come, we'll spend some money to cover some of the costs which ordinarily you'd have to cover to come in and develop in our downtown Economic Development Authority Meeting - January 15, 1998 area. All four of those entities had been involved in agreements with either the HRA or the City. All four had agreements in place. Two of the agreements, the ones involving Empak and the one involving Instant Web did not provide for any special assessment reduction assistance. None whatsoever, and so yeah. Berquist: ...in the third paragraph of the letter, and you say the Modification No. 5 specifically naming sites which include all those sites eligible. John Dean: Yes. Berquist: And okay, by making them eligible and having the documentation in place.., applies to the eligibility and nothing else?.. John Dean: Right...that's a good point. The Number 5 Modification said, that if and when land in the downtown area, the following described parcels in the downtown area is developed, the parties may enter into agreements providing for special assessment reduction assistance on those parcels. So there was kind of the basic authority given to enter into such agreements. The problem was though, in two of those, Empak and Instant Web, no agreements were ever entered into in fact with respect to special assessment reductions. With respect to the other two, Victory Envelope and United Mailing, there were in fact agreements entered into that did provide for special assessment reduction assistance with respect to those. The Empak agreement provided for a different form of tax increment assistance to Empak. That was in the form of land write down. In other words, they got their money by basically our reducing the cost of the land that was made available to them to zero. So they basically got assistance to cover the cost of the value of the land. Berquist: Is there any precedent where the eligibility for the site and the non-inclusion of... agreement after that eligibility was in place? Does the eligibility hold any legal water?... John Dean: Yes you are. Yes. We can swing into that now because I don't think there's any, Instant Web and Empak, let's not talk any more about whether they have agreements in place or not. You're really asking the question, let's assume there are no agreements now. Can we have one? After all that land is determined to be eligible. Can we now just simply enter into an agreement and provide some level of tax increment assistance? Berquist: Since the intent apparently was to, was to do that. John Dean: Well the intent was that we basically, the HRA at that time said that, when those properties are developed, the developer of those properties would, under the right circumstances, be entitled to this level of assistance. Now, just to kind of play that through a little bit further. There was however in the same modification that said if those properties are ever developed, they'll be eligible for, if those sites are developed, those sites will be eligible for assistance. There was also another provision that was in Modification No. 5 and that's on page 2 of my letter which is kind of, it says if you happen to be this developer, or a developer of this, under these circumstances, you're not going to get any assistance at all. And I'm not sure, but I think there's 2 Economic Development Authority Meeting - January 15, 1998 at least a strong potential that that was a direct reference to Empak. Excuse me, to Instant Web. Again I cannot, I wasn't a party to these discussions but I have read the agreements. The agreement that does exist between Instant Web and the City providing for their payment for their being displaced at the other site and many of the things that are mentioned in this document suggest that that's a direct reference to Instant Web so, and at the time this language was in there, no one knew for sure where Instant Web was going to go in the downtown area. It just turned out later on that they went into one of the sites that at least had been designated or earmarked as a potential site for special assessment reduction assistance. Berquist: ...very first... John Dean: But it was the Modification No. 5 to the downtown tax increment district occurred prior to the time that Instant Web chose the site where they wanted to go. Berquist: ...more than coincidental. John Dean: That may well be so. Okay, but in any event, to get back to your question about can we now, after the fact, or at this point in time, because of the fact those sites were designated potential locations for such assistance, can we do it now? And again I do address that issue in my letter to Todd starting on basically the second half of page 3 and going on from there. What I've indicated is again, the purpose of providing tax increment assistance to developer is to induce them to come in and develop. It's basically an effort to provide development in circumstances where absent the provision of that assistance, development would not occur. That's kind of the underlying basis for the authority of cities, HRA' s, EDA' s, whoever, to use tax increment. The concern I have in this particular instance of now saying well you can have this TIF assistance is that that provision of TIF assistance at this point is not an inducement for them to do anything, and since it's not an inducement for them to do anything, my concern would be that the EDA's providing that assistance now would be open to challenge and I think there is a great concern about your legal authority to provide assistance after the fact when there is no development driven purpose any longer for providing that assistance. That was basically the point that I attempted to make in my letter to Todd on the 19th. Questions? Boyle: Mike. Mason: Not right now Gary, thanks. Boyle: Steve I know you do. Berquist: I'm trying to think of how to ask. Boyle: What... ? I'm confused by the fact, you're saying currently there's a question as to whether legally we can even pay them under TIF... but if the intent, as you commented earlier, was made at the time that we did induce them to come in and made an agreement, there some contractual agreement as I understand. Why would that not take precedence? Economic Development Authority Meeting - January 15, 1998 John Dean: Yeah and again, just to kind of close that up. With respect to Victory Envelope and United Mailing, you do have agreements with them that provide for giving them special assessment reduction assistance. And as I indicated in the letter, they would be entitled to assistance to reduce special assessments including these if two facts could be determined. Number one, that this project, CP93-29 included improvements which were contemplated at the time Modification No. 5 to the TIF plan occurred. In other words, it's either the same improvements that we were talking about back then when you said, when the HRA said we'll give them special assessment reduction to cover the improvements. If these were the kind of improvements that were being talked about, then first of all they would be covered improvements. They would qualify as covered improvements for United Mailing and Victory Envelope. That's number one. And number two, in our agreements with those two entities, there were caps placed on the total amount of special assessment reduction assistance that would be made available. If those caps have not been reached or exceeded yet, whatever is left under the cap for qualifying public improvements could be paid to them. So clearly in those instances, if there is, what you might say a little bit left of that original inducement, not only could you pay them but in my judgment you would have a contractual obligation to pay them. So if there's still money on the table for those two, and if these are the same type of improvements that were discussed in Modification No. 5, then you would have not only the option to pay them but I think you have the obligation to pay them. Todd and I have talked briefly about whether or not these are the same types of improvements that were covered by Modification No. 5. I think they are. So really the question was, was there any money left on the table that they haven't previously received. Boyle: In the timeframe. Modification No. 5 was... John Dean: Well let me see here. March 18th of'82. Boyle: March 18th of '82 and Instant Web was being built about that time I would guess. And Victory Envelope was quite a bit later? John Dean: Quite a bit later. Boyle: And United Mailing was quite a bit later. John Dean: Yeah. Boyle: So is it not possible then.., are you sure there's no contracts between? Gerhardt: There is no contracts regarding Instant Web. John referred to a contract between Instant Web and the HRA which deals with the purchase of the old Instant Web building and providing relocation to their current facility and I think at that time the HRA felt as if, you know they gave quite a bit to Mr. Carlson for the relocation and for the purchase of that so there is language in there that says. Boyle: This is it. 4 Economic Development Authority Meeting - January 15, 1998 Gerhardt: You're not going to get anything else kind of down the line for that facility. Boyle: Instant Web was up in operation when the decision was made.., or even to talk about... Bohn: CR 17 didn't even go through that bridge where it goes... Instant Web was already there before that bridge was built. Boyle: Tonight, I mean thank you John for filling us in but as you said earlier, there's special assessment... Then, depending on what the City Council decides, then it becomes an EDA decision on whether we'd like to pay.., is that as I understand it? John Dean: Well except there's another party involved now too and that's the Court. The Court, they Instant Web people together with everybody else for that matter, has challenged the special assessment. I believe the challenge is primarily on the basis of benefit. So a Court will now, at some point, unless there's a settlement of that issue as well, a court will determine whether or not the amount of the special assessment that's been imposed, exceeds the special benefit that each of those parcels receives as a result of the improvement. For example, if you've got $100,000.00 special assessment against a property, and a court concludes that the improvement has resulted in an enhancement of the value of the property of only $25,000.00, then the court will roll back the special assessment from $100,000.00 to $25,000.00, which is the amount of the benefit. So a court will also determine what is due and owing here also. Once that decision is made, then it will perhaps fall back on the EDA to determine of that $25,000.00, how much, if any, should we be participating in. That's one question that may come to you. Another, and I don't want to get into it too much but all of the sudden now there's $75,000.00 that has been spent and we're not, and there is, the party we thought was going to pay it isn't going to be paying it any longer and one might argue, or one might ask, where's that money going to come from. And you and the City Council, the EDA and the City Council may be discussing then whether or not perhaps that's where any excess tax increment should be going rather than to assess the $25,000.00 left to be paid by the property owner. So there's a lot, it's a relatively complex issue. B erquist: Of the documents.., on behalf of all of the parties involved.., that receive the benefit... John Dean: They're all challenging, as I understand it, each is challenging the special assessment. None of them have indicated that whatever the amount of the special assessment is, they've not indicated in the context of litigation that whatever the amount of that special assessment is, should be born by the EDA. Empak will simply not be able to do that because their agreements are absolutely clear that they don't receive any special assessment assistance at all. Berquist: The only way for them to... John Dean: That's right, and really the only way for, they all need to start squawking by going after the... Berquist: The other parties could not, my perspective... Economic Development Authority Meeting - January 15, 1998 John Dean: Well with two of them, the agreement, again with United Mailing and Victory Envelope, there are agreements in place that deal with the special assessment reduction and it's probably the case that we haven't used all of the increment there. However, the total amount in each of those cases of available increment. Total amount. Had we never spent a nickel on any assessment reduction was, as ! recall, significantly less than the amount of this assessment itself. And as ! understand it, we have been reducing a number of other special assessments against those two properties so, over the years, so that there's less than the original amount left in the accounts for those two so, they would receive less than the amount they need to pay these special assessments so it really would behoove them to try to reduce the amount of the special assessment as well. Berquist: So you read Todd's memo dated the 19th of February that... John Dean: I did see it. I don't recall right off the bat what it is but I'm, I have not double checked those figures. ! assume they're accurate, yeah. Berquist: That's what you're referring to... John Dean: ... afterwards and ! think that's right. And we're talking about, in excess of! think 250 plus new assessments in each case so. Gerhardt: The credit available based on the agreements, those numbers John and ! verified.., and ! went back and checked records. ! did add up the total assessments assumed by the HRA. Berquist: Do you remember off the top of your head... ? Gerhardt: ! think around $250,000.00 a parcel. For all three. Berquist: All four parcels? Gerhardt: Well there wasn't $250,000.00 on the old lot. That was... Gerhardt: So somewhere in the neighborhood of a quarter million bucks, well a quarter of a million. That's two hundred. Gerhardt: There's a little under.., roughly half of what United Mailing and Victory Envelope, the credits available is a little under half.., total assessments. Boyle: As ! see it right now, the...bring it back and I'm sure the Council... Gerhardt: Just to update the EDA and to have John and Tom Scott from Knutson's office, had a conference call. The three of us and the process we would like to take to update you. Go back to the City Council at their 26th City Council meeting and at the end of that meeting go to executive session to discuss the suit against.., benefit of assessments brought up by... and get direction from Economic Development Authority Meeting - January 15, 1998 the City Council at that time of how they'd like to see us proceed and handle the assessments and benefit. Boyle: But the courts are going to... Gerhardt: You can negotiate. John Dean: If for example, just very hypothetically, the property owners said, you know we'll sell them for 40 cents on the dollar if you'll reduce this stuff by...we'll pay that, we'll pay what's left. Then the issue would be as between the City and the EDA, is there any way we can come up with the difference. Boyle: Yeah, then we'd have to... CONSIDER APPROVAL OF THE 1998 BUDGET. Todd Gerhardt presented the staff report on this item. Boyle: There were quite a few questions at the last time... Most of the concerns or questions that were raised at the last meeting.., have they been addressed? With that I'm going to open it up for questions.., whoever would like to start. Engel: I'd like to know what's going on with Paisley Park...update. Gerhardt: Most of the documentation is included in your administrative section. The Judge has established the hearing date. The appraiser is reviewing much of the information that Paisley Park has provided them. The date of the hearing, it looks like around August of 1998. There was a date established for May 6th of '98. However ! think there's also a letter in there that's not in here, Mr. Bakken has got prior commitments through that process. Has basically delayed it into August. Engel:... Gerhardt: Yes. Boyle: ! have just one question. ! had it last time... Under other acquisition costs, the question was asked... $49,768.00. Gerhardt: That was detailed in taxes. Boyle: ...that was on the first part. Gerhardt: Taxes being. Boyle: it was on the front page. Economic Development Authority Meeting - January 15, 1998 Gerhardt: And staff was directed, eliminate as many of those.., go back on the tax roll. Boyle: For example the old Pauly site? Gerhardt: Not the old Pauly site but the Red-E-Mix site. At least that's what Mark Senn wanted. Berquist: Wait a minute .... Gerhardt: Mark said that, when ! listed that out, as one that we were continuing to pay the taxes on. He felt that it was going to, you know, that was one that was.., exempt. Boyle: But didn't we also bring up about the old... Gerhardt: Yeah at that time but there have been some meetings on that. One of the options is to allow the building to go on that site .... right. ! didn't want to take it off until.., tax increment standpoint. That's why we've continued to pay the taxes because it keeps the value of what it was back in 1977 to capture that increment. ! see it that we just continue that $49,000.00 that we pay, comes right back to it so. Berquist:... Red-E-Mix paid off?. Gerhardt: I'm not sure. ! had Jason do quite a few of those...we get a lot of tax parcels every year... ! get probably about 12. Of those each year and ! don't know if! did that one in there... either for August or September, you have to have those certifications in. Berquist: Well on that particular one, and ! can understand...that particular one, that would seem to me to be too iffy to take off... ! looked at that, just from my perspective, just coincidental that... ! look at that site as an asset that may or may not at some point... Mason: I'm inclined to agree with you on that one. ! guess it's kind of what's the hurry. Because you're right, that does end up coming back to us pretty much.., so yeah. Berquist... Mason: Right, right. ! agree with you on that. Gerhardt: As ! explained before, ! know it looks like an expenditure on your budget. That money comes right back to you as revenue because...taxes paid on parcels is increment. So it looks as if... expenditure could get that tax revenue. Boyle: Do we need to make a motion on that or do you just want direction? Gerhardt: No, I've got direction. Economic Development Authority Meeting - January 15, 1998 Boyle: We're all in agreement. Gerhardt: So need a motion. Boyle: ! know that. May ! have a motion? Mason: I'll move approval of the 1998 budget for EDA. Engel: I'll second it. Boyle: Discussion. Mason moved, Engel seconded to approve the 1998 budget for the Economic Development Authority as presented. All voted in favor and the motion carried. (Commissioner Mason left the meeting at this point in the meeting.) APPROVAL OF BILLS. Berquist: Are we discussing payables? Boyle: Yes. Berquist: Review TIF report, Tautges. $28.00 to Don. Gerhardt: Probably a lunch. Well with TIF law. Berquist:... Gerhardt: Unless they went to Taco Bell, then he. Boyle: Todd, the legal professional service... Gerhardt: Medical Arts. Boyle: Oh, it's a combination... Gerhardt: Village on the Ponds and Gary Kirt. We did close with...last Monday. ! talked to Gary on Tuesday. Bohn: Which Gary? Gerhardt: Gary Brown. Asked him if he had any questions. He was friendly. Berquist: When is that first mortgage payment due? Economic Development Authority Meeting - January 15, 1998 Gerhardt: Berquist: Gerhardt: First mortgage payment will be due February... TIF analysis for Tautges. Is that it? I'm not sure. ! don't want to say yes and then you get... Boyle: Were we satisfied? Were we able to satisfy all... ? Gerhardt: Yes. There weren't enough expenditures versus revenue so ! have not heard back from the Department of Revenue. ! feel very comfortable in our report standards, there are half dozen cities that have called the Department of Revenue. They're just not going to do it. And so ! think we've gone much farther than the other cities in providing financial... Berquist: Do they run? Gerhardt: They haven't...Well to us it would be $900,000.00. Depending on which cities there are, it could be substantial. Chaska's way over a million. A lot of cities operate... Boyle: And we have to pay Kennedy and Gravens for...the impact. Gerhardt: Yes. The justification for that was for John to review to see if we had contract obligation from an HRA perspective... He is not processing the.., reviewing the benefit of the special assessments. Roger's office is doing that. The City Attorney... special assessments as per private redevelopment... Boyle: Bohn: So moved. Engel: I'll second. Boyle: Any discussion? Okay, may ! have a motion to approve the bills as. Bohn moved, Engel seconded to approve the EDA Bills as presented. All voted in favor and the motion carried. EDA PRESENTATIONS: Berquist: Hanus building, we've already covered that. Have we been successful in trying to sit up with Fahey? Gerhardt: We met with him yesterday. We had a very good meeting. We gave our side of the scenario. They seemed very receptive. We prepared letters today to Mike and his assistant. 10 Economic Development Authority Meeting - January 15, 1998 Berquist: ... off the original opinion? Gerhardt: Yes. And basically what she was looking for from us is to provide documentation showing that we had obligations.., at the time of or prior to decertification of... revenue. And we based a lot of our opinions on County Road 17 project, Galpin Road...joint in Carver County in the City of Chanhassen... special assessment for sewer and water connection fee money. Pay for that. And I'd like to sit here and say I'm 100% sure that...I feel very good, receptive and work with it. Boyle: When do you think it will? Gerhardt: I think we should hear back early next week...Lundgren's office needs to make those distribution so they can finalize '98 statement.., do that by tomorrow. So that's why we're rushing to get letters back...to them. Have a letter, a bonding consultant. Letter on... and ! will be drafting a letter... Berquist: Then the only other thing I wanted to talk, I wanted to mention.., all of this heard before any of this... Gerhardt: Well we've got a minimum. Berquist: Yeah, was challenged in part and it said... 10 years ago we made these, we as a city... We're talking a million bucks by the time we're all done. Not to mention... Bohn: What's the story going on with the property next to... ? Gerhardt: I'm working with an individual and he'd like to get feedback tonight on, you have a realtor has brought.., consider paying a commission. And I've said we haven't in the past but ! would pose the question to the EDA. ! definitely believe that.., receptive to something. So use is not one.., service oriented. It's a furniture store. Have a showroom.., had some manufacturing with it. It did not make any sense to me to pay that kind of price for land, like $2.00 a square foot. Her answer was one that he already operates out of... in combining this into one would save close to $6,000-$7,000 a month... Engel: But how does that... ! agree, it would be good to combine them but it doesn't alleviate the fact that he could still combine them for less on $2.00 land than... Gerhardt: Unless he was going to...the space. Less space.., so one of them is not, one of the locations isn't profiting so he would close that. Use that amount... Boyle: Have we ever been approached before? ! mean.., and denied or. Gerhardt: In the past we've paid realtor fees but we pushed the burden back on... our asking price for like Applebee's is $8.50 and ! think we closed for $8.75 and that was just a pass through to pay the realtor... In this case ! was thinking, you know if she could bring anybody in 11 Economic Development Authority Meeting - January 15, 1998 above $10.00, that we would split the difference. So if she brought somebody in for $10.50, we would give her 25 cents a square foot...! don't know if that's too generous or not. We benefit a bit and... Boyle: ! don't like...but ! think what you said, if we throw the realty fees back on somebody... Gerhardt: And another option, just to go with... ! told her off the bat, ! said we want a clear $10.00 a square foot. ! said anything over and above ten, you know ! don't know what the EDA would consider. ! said maybe a fixed dollar amount. $10,000.00 or maybe splitting the difference of whatever you bring in above $10.00 a square foot. So if she brought in $10.50 a square foot, she would get you know 25 cents a square foot commission and then... Engel: ...radical like Steve said, $10.00 a square foot with us...If we get our 10, we're not on the.., we have our money now at the level we want it and the parcel gets built sooner. We win all the way around. ! don't care how much... Berquist: The question that ! have, are we firm...if you pay, sold it $10.00...paid her 10%, we'd still come out... Gerhardt: She's already told this guy the asking price is $10.50. Engel: Well ! tell you...to negotiate and take what she can... Gerhardt: That was my other question. ! said do you want to see that kind of use. Engel: We still control the zoning. Berquist: We control the...on it. Boyle: So have you got enough direction? Gerhardt: No. Engel: Kind of, maybe not? Gerhardt: ! heard a lot of things. Engel: What is the consensus? If we get $10.00 a foot, do it? Boyle: ! can... Engel: That's my position. If he can get $10.00 a foot, ! don't care what she gets. Gerhardt: So she can have anything about 107 12 Economic Development Authority Meeting - January 15, 1998 Engel: If she came to me with an offer for whatever. Boyle:... Berquist: ...for 107 Engel: That's why ! said, if you can get it, I'm surprised... ! say you take 10. Berquist: You're missing something here. The issue is whether or not she, we are willing to pay commission out of the 10. Engel: No, above the 10. Berquist: Well ! think...talk about getting rid of the land. And yet you want to get more than $10.00 a foot...$10.50 a foot. At some point nobody's going to pay that... (Taping of the meeting ended at this point in the discussion.) The meeting was adjourned by Chairman Boyle. Submitted by Todd Gerhardt Assistant Executive Director Prepared by Nann Opheim 13