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Committee Minutes

MINUTES

FINANCE COMMITTEE
Tuesday, October 27, 1998 – 3:45 p.m.

ROLL CALL: All members present

1. Report for Smart City Committee and grandforks.com
Roxanne Fiala from the IS Department said two weeks ago this committee asked her to attend the Smart City Committee on October 15. She said she asked the consensus from that group of their feelings as far as the grandforksgov.com. She said she outlined for the group that it would be a government site with just government information and they came back as a group and really felt that should be what the City is doing – maintaining a government site with the government information. She said the main thing they suggested was that maybe the Finance Committee could put the information onward to City Council and then perhaps publish it in the Herald so there is a definite knowledge to the community that the Grand Forks City will be doing a government site. Ms. Fiala went on to say there was a subcommittee formed which she chairs with four other individuals that will be looking to make sure that as a community with all the Grand Forks sites including the university, the library and the public schools that we are all linked together and are getting out the information that the committee people from Smart City would like to see.

Mike Maidenberg said they are continuing to build out grandforks.com as a regional site and some of the issues early on were whether grandforks.com would have business and other listings and he said there will be and they won’t charge like Yellow Pages charges. He said they will be soliciting listings so grandforks.com can be used as a springboard to get to other places. He said they are also trying to come up with good websites for the surrounding communities in the Grand Forks region, i.e. Crookston, Thief River, Grafton, to help cut through the clutter of the web so grandforks.com becomes a good place to navigate from. In response to Mr. Hamerlik’s question Mr. Maidenberg said there would be basic listings (restaurants, for example) and that would be free of charge and as complete as possible. Carpenter made a motion to proceed only with the governmental site. Hamerlik seconded. Carried.

2. Matter of request or issuance of MIDA bonds for Grand Forks Region Economic Development Corp. – LM Glasfibre building and call for a public hearing
Mr. O'Leary said this is a two-fold request regarding a package the Development Corporation has been working on in conjunction with the City. He said LM Glasfibre has expanded the size of their deal and the building will be built by the Development Foundation and the bonds will be secured by a Letter of Credit which is in turn secured by a lease to Glasfibre. He said the Development Corporation builds the building and leases it to the City and the City in turn leases it to Glasfibre with the amortization schedule of 15 years and a lease of five years. He said one of the members asked how much debt would be on the building after five years and it would be $3.4M so if at the end of five years LM Glasfibre goes away the JDA does have a revenue stream on a number of projects, most notably the Noah's Ark building which was paid for exclusively with federal money so there isn’t a debt service on it. Mr. O’Leary said they haven’t done very many industrial revenue bonds around here and in this case an industrial revenue bond is a good vehicle, and the Norwest Bank is proposing to provide the financing and would float an industrial revenue bond. He added that under an industrial revenue bond you are not obligated in the event the bond goes into foreclosure but you do have a lease with the Development Corporation on the building and although you are not obligated for the bond you are obligated for the lease. He said the lease will be co-signed by the both the City and the Jobs Development Authority so there will be a lease from the Development Corporation to the City and a mirror lease from the City to Glasfibre. Mr. O’Leary said they have discussed this with Howard Swanson so it will be a joint lease with both the JDA and the City signing off on the lease. He said Howard is fine with that and you don’t need anything other than the Council Referral and council action. Mr. O’Leary summed up by requesting two-fold action, one to authorize a proper city official to begin the MIDA Bond process, public notices, notices to competitors and the like, and authorization to enter into a lease agreement with both the Development Foundation and LM Glasfibre. In response to Ms. Babinchak’s question, Mr. O’Leary said there would be a liability with both the JDA and the City because it is a joint lease. At this point balloons were delivered to Mr. Carpenter in recognition of his birthday.

Mr. O’Leary said there is another obligation since the city and the JDA have jointly entered into this agreement with the Development Foundation and Glasfibre and even if it wasn’t for the legal co-signing of the lease, certainly there would be an ethical commitment to make this project proceed and if the JDA failed it is pretty unlikely that the City Council would sit and watch this project fail. Mr. O’Leary said there would not be a lot of latitude to use program income for CIP, the money would have to be spent on economic development. Mr. Downs said we need to set the public hearing for December 7 for this resolution that is being proposed today. He added that the legal owner of the building will be the Grand Forks Regional Economic Development Corporation and the Development Foundation is one of their sister companies. Carpenter made a motion to give preliminary approval of the issuance of MIDA Bonds for Grand Forks Region Economic Development Corporation and call for a public hearing on December 7, 1998. Babinchak seconded. Mr. Carpenter said he understands that Mr. O’Leary would like to see the City guarantee the lease before the public hearing. Mr. O’Leary said that would allow the lending institutions who are underwriting this to proceed with marketing bonds because they assured us that is going to be required. He added that there is construction below grade which complies with the law, but what you can’t do prior to the issuance of the bond is to start construction on the building so there are some things we need to do before winter sets in, particularly laying a large slab of concrete for parking lot. Ms. Babinchak said if there are any questions they should be brought upon Monday night and not wait until December 7. Carried. Mr. Olson said the lease with the city will provide for turning the building back to the city for $1 at the end of the lease so he wanted the public to understand that this is not a gift to the Development Corporation. Carpenter moved that the City of Grand Forks guarantee the lease payments related to this project. Babinchak seconded. Carried. In response to Mr. Brooks’ question, Ms. Babinchak said Glasfibre was given a 50% tax exemption for five years. Carried. Mr. O'Leary said this is the most cost effective way to do this and is a way that would not have been possible had we followed more traditional mechanisms to wait until spring and the client would have gone away and we would have lost the jobs. He said more than that it is real evident that the way it came together and the short timeframe in which it came together, that Grand Forks’ capacity to do economic development deals in creative kind of ways and still secures the City’s interest in the project makes us a formidable player in the econo-mic development arena. He added that Norwest bought these bonds and it is a real community effort and a real partnership effort that has been going on. He said he is proud to be part of it.

3. Matter of Refunding Improvement Bonds, Series 1998A, and calling for public sale
Committee received a report regarding refunding of Improvement Bonds, Series 1998A for a sum of $5,185,000 par amount and a request was made to set the sale date for December 7, 1998. Al Erickson said this is a refinancing of various improvement projects within town. He said the cash flow works out that we can actually pay the bonds off in 15 years. He added that the markets are very good right now and we should get a low interest rate. He pointed out a need to notice there is a requirement to come up with $110,000 for the first payment for 1999 and it comes out of the Loan Stabilization fund and after that it stands entirely on its own and actually creates a small surplus that goes back to that Stabilization fund. Carpenter moved to adopt the resolution calling for the sale of $5.185M of Refunding Improvement Bonds, Series 1998A with a bid day of December 7 with bid opening at 11:00 a.m. Hamerlik seconded. Carried.

4. Matter of proposed tax increment exemption on former First National Bank building owned by Ogier Properties LLC (James Hawley)
Jim Kobetsky of Schoen and Assoc., architect for Mr. Hawley, said they are in the middle of renovation at this point and they are talking about putting a new face on the whole project, which is difficult from a cost standpoint because the side elevations have to be addressed where buildings were up against it. He said this becomes roughly a $3.6M project and they are spending more that they should on a building like this. He said there are no federal or state funds into the project, and when Mr. Hawley ran his Performa they ended up with much higher rent than he would like to see and he would like a tax exemption to buy the rent down and pass it on to the renters. Connie Triplett said Mr. Hawley request is for a 10 year tax exemption, and the numbers projected would indicate that with the tax exemption Mr. Hawley would be able to reduce the projected square foot rental from $13.50/sf to $11.88/sf, and that would be more in line with accepted rental figures in the community. She said she thinks this is an exciting project to help jumpstart the renovation of downtown. Mr. Carsen said Mr. Hawley did an income projection using $13.50/sf rental that equates to a triple net rent of about $9sf for the leasable area compared to the Corporate Center which is renting for $7.25-$8.25/sf. He said in the Corporate Center they are leasing more than just the net area, they are also responsible for some rent in the common areas. He said he believes the rent here is very comparable per square foot to the Corporate Center net rental. He said he has done an analysis using that rental taking off the typical vacancy factor, typical expenses, coming down to net income before taxes of about $378,000/yr capitalizing that into an indicated market value using a 12% cap rate would be about $3.155M. He said they say the cost is about $3.658M so there is a shortfall between the cost and the indicated value of about $502,000. Mr. Carsen said he thinks the City could agree to pay the difference or perhaps a portion of the difference. He said if we agree to pay the full difference it would take about 10 years of the tax increment, if you discount that to present value, to pay total difference. He said he really doesn’t have a recommendation but he thinks it is really critical if you want to pay the total $502,000, a 10 year tax exemption would be proper; but if you decide to pay less you go to a lesser number of years or 50% for 10 years. He added that this building could possibly perform better than this. He said the $9/sf rental is pretty comparable with the Corporate Center rental. He said everyone will want to compare with the Corporate Center so it will be difficult to get more rent than that at least in the foreseeable future. He added that the Corporate Center rental is below market and had to be established at preflood rental which was part of the agreement in using federal money for those buildings. In response to Mr. Hamerlik’s question, Mr. O’Leary explained that the City provided funds for the walkway from the Corporate Center to the old ramp. In response to Mr. Carpenter’s question, Mr. Carsen said on a tax increment exemption the base becomes the last assessed value, which is in this case is 1998 and that value is $263,000. He added if you grant the exemption for the full 10-year period the value stays at $263,000 so if at the end of six years it’s worth $4M instead of the $3.1M stated earlier, they get the benefit of that, and if the mill rate goes up they get the benefit of that as well. Ms. Babinchak said she thinks the project is good for Grand Forks but she is worried about setting a precedent with a 10-year exemption. Mr. Carpenter said as we look at these there is to be greater benefit with this potential exemption than Mr. Carsen’s numbers indicate because value should go up and mill levy may or may not go up but value would go up. He said we need to recognize as we deal with these and there probably will be more coming forward, the ones doing it first should be more likely to be approved than those that come along later because these are the ones who are starting to develop the value back downtown. He said part of why we do this is to encourage buildings to be done but at some point in time encouragement has to quit and it should be happening by itself, so whatever we approve here he will not use as precedent for every future one that comes forward. He said he has a problem with 100% for 10 years. Mr. Lucke said we have to restore tax base in Grand Forks but the problem he has is that it looks like we are creating a tax increment district because of the fire – this building before the fire was on the tax rolls for about $2.5M and was purchased for approximately ten cents on the dollar. He said the first obligation is to restore that property to the original tax base as part of the deal for buying it for ten cents on the dollar. He said he wouldn’t have a problem with a tax increment on the excess after that. Mr. Carpenter said when a district is created it goes off the last assessed value which is 1998 and that becomes the base. Brooks made a motion to grant a 10 year declining tax exemption (100,90,80,70, etc., down to 10% at the end of the 10 year period.) Motion died for lack of a second. Hamerlik made a motion for a 10-year tax exemption 100, 80, 60, 40, 20 for the first five years and 10% for the remaining five. Brooks seconded. In response to Mr. Brooks’ question regarding the span of time in the exemption, Mr. Carsen said the land value may change over the years but the building will not and will not be reevaluated until the exemption is up. Carpenter moved an amendment to do the first six years at 100%, then 80, 60, 40, 20. Babinchak seconded for discussion. Mr. Kobetsky said the first five years are critical to find renters and pass rent down. Babinchak moved an amendment to the amendment of 100 % for five years. Carpenter seconded. Carpenter and Babinchak in favor, Hamerlik and Brooks opposed. Failed. Vote on Carpenter’s amendment failed with Carpenter in favor and Babinchak, Hamerlik and Brooks opposed. Vote on Hamerlik’s motion failed with all opposed. Carpenter made a motion to grant a five-year exemption, the first three years at 100%, and then at 80% and 60% for years 4 and 5. Hamerlik seconded. Carried.

5. Application for abatement of 1997 taxes:
a) Michael J. McEnroe, Lot 9, Blk. 17, Riverside Park Addn. (201 Park Av.)
Mr. Carsen said the damage this home sustained was estimated because inspectors were unable to get in. He said Mr. McEnroe was sent a notice after the fact and did not respond. He said later on they found they had failed to list any main flood damage to the house, which calculates out to be a $24,000 difference, so the abatement asks for the value to be by $24,000 for 1997. Mr. Carsen said he recommends it be approved as submitted. Carpenter made a motion to approve a $24,000 adjustment for Michael McEnroe. Mr. Carsen said Mr. McEnroe took a permit to do some work and that is when the problem was discovered. Mr. Carsen said at that point the Assessor’s Office took the step to make the correction. Hamerlik seconded. Carried.
b) Eric A. and Marnie J. Carlson, Lot T (of Replat), Blk 1, Haake’s 5th Addn. (2413 Glen Cr.)
Mr. Carsen said this was a similar situation and his office made the adjustment and did the paper-work to make the correction and filed the application for abatement. He said he recommends approval. Carpenter moved approval of the $16,300 reduction. Brooks seconded. Carried.

6. Application for 3-year tax exemption for improvements:
a) 2-29 Management Company, L.L.C., 4720 Gateway Dr.
Mr. Carsen said this is the former Big Sioux Truck Stop bought by Simonson Gas and they are in the process of renovating it and are spending $300,000 remodeling it. He said those improvements qualify for the three-year exemption and in all likelihood the value will increase more than 10 percent and that is one of the criteria of the guidelines the City Council put in place. In response to Ms. Babinchak’s question, Mr. Carsen said the law reads that we cannot include the value of the new improvements in our valuation. He said he is going to reappraise the truck stop prior to the exemption going into place, but it will not include any of the remodeling. Mr. Carsen said they think they have found an area where they probably made a mistake on the assessment of this property and the law allows to make the correction. He explained that you can’t add for the additional value that the improvement would have added to the value and it doesn’t become a base or a freeze on the valuation – in practice that is simply what happens but the law does not state that. He said the law states that you cannot add for the additional value from the improvement – you have to look at it as if the remodeling improvements were not in place. Carpenter moved approval for a three-year exemption. Hamerlik seconded. Carried.

7. Matter of up-front monies for various projects in Johnson’s 4th Addn.
This item was pulled since the Letter of Credit has not yet been received.

8. Matter of exercising two-year option of rental agreement (MPO and City Planning Dept.)
Mr. Haugen said on Jan. 1, 1995, the MPO entered into a three-year contract leasing space within the City Planning Office. He said included in that agreement was a two-year option at the current $9/sf rate. He said he is asking to exercise the two-year option with the same parameters as the original agreement. Carpenter made a motion to approve MPO’s request to exercise the two-year option of the rental agreement with the City Planning Department. Brooks seconded. Carried.

9. Matter of excess computer equipment (surplus property)
Ms. Fiala reported the IS Department sold $4,900 in surplus equipment in September. Committee was provided a list for the second round and Ms. Fiala asked that this listing be declared excess equipment and reported the sale would be the second week of November with the bid opening on the 16th - the same process as before. Brooks moved approval to declare these items excess property and put them up for sale. Carpenter seconded. Carried.

10. Budget amendment
Carpenter moved approval of a budget amendment in the amount of $4,810 from sale of surplus property to Equipment. Babinchak seconded. Carried.

Mr. Hamerlik asked Mr. Carsen about the sale of some property south of the 32nd Av. truckstop to pay back taxes. Mr. Carsen said he would check with the County to see if this has been done and report back at the next Finance Committee meeting.

Meeting adjourned at 5:15 p.m.

Respectfully submitted,

Carolyn Kryzsko, Executive Administrative Assistant

Respectfully submitted,

LaVerne Babinchak, Finance Committee Chair