City Council Meeting Date: March 14, 2017
To: Mayor and City Council
City Administrator
From: Melanie Lammers, Finance Director
Title
Discuss Presidential Commons Refunding and Street Bonding for 2017
Body
Action Requested:
The Northfield City Council will discuss the proposed refunding of Presidential Commons TIF bonds, and the street bonds for 2017 project with Nick Anhut from Ehlers.
Summary Report:
Presidential Commons is a tax increment district created in 1999 between the HRA and Northfield WNS Inc. The project was for 84 townhomes, 75 of the units were to be made into affordable housing with income limits for the buyers. The district is not producing enough revenue to cover its bond payments. This has been going on for several years. According to state statute, we are not allowed to let the cash balance of a TIF district go negative. In 2013, Council approved a loan of $50,000 to the Presidential commons district, from the TIF #4 district. Another $50,000 loan was approved in 2014, also from TIF #4 district. A loan in the amount of $15,000 was approved in 2016 from the TIF #4 district. The 2017 increment will also not be enough to pay the bonds, and we do not anticipate the district to be able to pay its debt without assistance for the next several years.
The bonds for Presidential Commons were refunded in 2007, and go through 2022. The interest rate on the current bonds is about 5.5%. The Presidential Commons district is due for decertification in 2026.
The bonds for Presidential Commons are callable in Feb of 2017. If interest rates stay low, we anticipate being able to get a lower rate if we refund the bonds. We are looking at doing a refunding at the same time we issue bonds for our street project, and extending the term of the bonds so the district is able to fully make its payments. At that time, we will also need to discuss the 2017 shortfall, and loan the Presidential Commons district the shortage from the bond payment. We anticipate a portion of the loan will be repaid from the district. Enclosed is a preliminary estimate. Note this will change and is just a work paper we are using to anticipate where we may come out at. The City has changed the current and future TIF districts we use due to the problems we are seeing with the districts like Presidential Commons. There is a clause in the development agreement to collect shortfall from the developer, however, it is not easy to collect. The corporation is no longer in existence, and the owners of the corporation are no longer living in Northfield. We attempted to contact the developer in 2014, with no luck. We believe our best course of action is to restructure the bonds so the district is able to pay them in full.
With this bond refunding, we will also issue bonds for the 2017 street project. We are estimating issuing a little over $800,000 to cover the project costs. Of this, the piece paid back by levy dollars is just shy of $400,000. The remaining bond payments are received in the form of special assessments.
Alternative Options:
Do not refinance and continue to lend money to Presidential Commons to cover the shortfall. This money can be part of the tax levy proposed 2017/payable 2018. We might be able to loan general fund dollars as well.
Financial Impacts:
TIF #4 district has loaned Presidential Commons $115,000 up to this point. If we refinance the bonds to lower payments and stretch it out a few years, Presidential Commons will be able to start paying back district #4 in 2018, and it is anticipated the full $115,000 plus interest will be repaid to TIF #4.
Tentative Timelines:
We would like to bring a resolution to Council authorizing the sale of bonds in May, after the street project is ordered.