EDA Meeting Date: September 23, 2024
To: Members of the Economic Development Authority
From: Ben Martig, City Administrator
David Bennett, Public Works Director
Jake Reilly, Community Development Director
Nate Carlson, Economic Development Coordinator
Title
Consider Resolution Supporting Lease Revenue Bonds - Debt Financing for New Ice Arena.
Body
Action Requested:
Consider a motion to approve Resolution supporting the use of a lease revenue bond for constructing the new ice arena.
Summary Report:
In the State of Minnesota, Economic Development Authorities (EDA) and Housing and Redevelopment Authorities are granted the statutory authority to issue debt in the form of a bond in order to finance construction of any building/real property that has a public purpose.
This tool is known, generally, as a conduit bond and in this specific case the tool is a “lease revenue bond.” As described in Minnesota State Statue 469.152 - 469.1651 Ch. 462C, lease revenue bonds are initiated by and issued for the benefit of private or public entities by a City or statutory authority, such as an EDA. The proceeds of the bond are directed to the private/public entity, and the private/public entity repays the principal and interest payments on the bonds. The EDA does not pay any debt service or costs related to the transaction.
In anticipation of using this tool to facilitate City-led building projects that have a public purpose, such as a new ice arena or a new liquor store, City staff and financial consultants, Nick Anhut of Ehlers and Jenny Boulton of Kennedy and Graven, will provide a presentation on the financing mechanism. The presentation will also discuss the relationship between the City and any other public, not-for-profit, and private entities involved in the project, specifically addressing how the new ice arena will be financed. The EDA’s role is to be the conduit, only.
The City Council of Northfield, City Council of Dundas, the Northfield Public School Board, in partnership with ice users, have collaboratively agreed to a sale of the existing arena and financial partnership on the construction of a new arena. Construction documents are underway along with other due diligence details. The sale of the arena has been approved by a private buyer that will become taxable. Their interest at this time is that after the City vacates the building when the construction is completed to convert for a private recreation use. The closing of the property is on-track for completion by the end of October.
The EDA may inquire about details of the partnership of the sale and construction of a new arena. However, the EDA’s role in the deliberation of this is only to collaborate with the others by providing the financing mechanism for the project. The policy consideration to consider the resolution for the EDA shall only relate to details of the financing and not the broader policy questions that are the duties of the other partners referenced. This financing tool is very common and is appropriate for this type of project. There are alternative financing options such as the use of a Tax Abatement Bond and a General Obligation bond. There are no risks or costs to the EDA for the use of this tool so the only role is to follow State law to allow for its use for this allowed purpose. The legal counsel on the bond for the EDA and City Kennedy & Graven will be available to explain legal details at the meeting along with the City financial advisor with Ehlers and Associates. Again, the EDA’s deliberation to commit now to this tool that will be used for the bond issuance in 2025 is the policy consideration at this time.
The Tax Abatement Bond is not being pursued as it can be used for other purposes that the City anticipates could be useful as an incentive for future economic development projects, housing projects or other public purposes. There is a statutory limit to the use of tax abatement and thus the intent is to preserve some capacity as a tool for future use. Again, one of the uses for tax abatement is for workforce housing and economic development so it is in the interest of the City and EDA to keep that capacity available.
The General Obligation bond is another alternative but the timing of the project doesn’t allow this tool to be used as it requires additional approvals and timelines including a public vote. The reasons for not including this tool is primarily due to delays that would occur which didn’t allow timelines to meet the buyer interest in acquiring the property (intended to have been completed by the end of 2023 but negotiated to be extended to complete due diligence) and also delays would have also increased construction costs. The certainty of the lease revenue bond provides and related lack of delays is driving that. There have been questions why not to have a public vote with the lease revenue bonds. The standard practice in Northfield, other communities, and other governmental units is to follow the prescribed methods of approvals as outlined in State Law. We are following that process.
The City of Dundas, Northfield School District, City of Northfield and private ice users did pursue a financial plan for a 2-sheet arena a number of years ago which did have a public vote. The financing partnership included the use of a local option sales tax which required a public vote which explains why that tool was used. Although the vote did not pass it was very close and the partners have since modified the proposal including a major reduction by eliminating the second ice sheet. The site does accommodate expansion options in the future that could be for ice or other recreation use. Currently, state law has a moratorium on local option sales taxes so that option for financing is not available.
The attached memo from the City’s Financial Advisor, Nick Anhut of Ehlers, provides greater detail. Additional information will be provided at the meeting.
Alternative Options:
No alternative options at this time.
Financial Impacts:
None at this time.
Tentative Timelines:
See attached tentative timeline.