EDA Meeting Date: February 24, 2025
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
Update on Debt Financing for New Ice Arena.
Body
Action Requested:
No action. The EDA shall hear an update from city staff regarding the future ice arena financing structure.
Summary Report:
City Staff and legal counsel will provide an update on the pending ice arena project bidding, financing and construction. Attached is the most recent City Council presentation update that will be included. Additionally, there was a question from the public on the City Council roles related to serving on Council and EDA. Attached is a memo from the City Attorney explaining the duties of each and requirement to fully participate as members on each body including taking action on all related actions of the pending arena project and financing.
Staff and legal counsel welcome questions or clarifications as it relates to the upcoming debt issuance and approvals scheduled for the EDA to assist in completing the project.
Financing Background
In September of 2024, the EDA approved commitments to provide the financing of debt for the new arena. The new arena financial and legal framework for the new arena was also approved in 2024 through a jointly planned and financed collaborative project between the City of Northfield, City of Dundas, Northfield School District and Economic Development Authority.
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, provided a presentation on the financing mechanism. The presentation discussed 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. That sale has since occurred and the City of Northfield is leasing back the facility from the new owners until construction is completed. Final 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 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 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 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 did not 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 provide and related lack of delays drove the use of that tool. There have been questions why not to have a public vote with the lease revenue bonds. 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 as Northfield has done in the past.
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.
Alternative Options:
No alternative options at this time.
Financial Impacts:
None at this time.
Tentative Timelines:
See attached tentative timeline.