ITEM 2 Waterfront East Incentive PaymentsITEM 2
0 tsTe F o
MINNESOTA
MEMORANDUM
TO: Mayor and City Council
FROM: Lori Johnson, City Administrator
DATE: November 19, 2015
SUBJECT: Waterfront East Incentive Payments
With the original approval of Otsego Waterfront and Waterfront East developments and
subsequent agreements, the Council approved development incentive payments that now total
$849,530.80. These incentives are due to owners of Waterfront East lots upon construction of
a building before December 31, 2021, meeting the valuation requirement specified in the
agreement. For instance, the Accurate Home Care building will qualify for an incentive of
$105,762.10 upon certification from the County Assessor that the building is valued at
$1,368,686 or above, which we believe it will meet.
There are currently no funds set aside or identified to pay the incentives as they become due.
Revenue from storm water impact fees on property north of Otsego Waterfront that has not
yet developed was originally expected to be the funding source for these incentive payments.
Since that was not guaranteed revenue and merely contingent upon development, no revenue
was received to meet the $849,530.80 incentive payment obligation. In fact, that watershed
has a deficit cash balance of $301,000. Therefore, staff is requesting direction from the Council
on the funding source for payment of these incentives, both the current incentive due to
Accurate Home Care (upon certification of the value) and future projects.
Staff identified several options to fund the incentive payments:
1. A tax abatement district could be set up for each lot/building project to recapture the
City's share of tax revenue to reimburse the City for the incentive paid to the property
owner. Typical repayment would be approximately 10 years. The Capital
Improvement Revolving Fund would be a likely source to cash flow this method.
2. The Capital Improvements Revolving Fund is one of the only funds with available cash
to pay the incentives. If this fund is used to reserve funding for future payments, the
fund's unrestricted balance drops from $1.8 million to roughly $550,000 (this factors in
funding Quaday, the Accurate Home Care incentive, and Prairie Center parking lot
improvement). While this funds the incentive payments as they become due, it
restricts the City's ability to fund other projects.
3. WAC and SAC payments could be used to offset the incentive payments to the extent
of the WAC and SAC fees applicable to the project with the balance being paid from
another source such as the Capital Improvements Revolving Fund. This shorts the
water and sewer debt funds because they would not receive WAC and SAC payments
that are due when the building permit is pulled; however, the benefit of offsetting
those against the incentive is that it is not a cash payout. The water and sewer funds
could be repaid later if or when the impact fees are collected. This method does affect
cash flow for the water and sewer debt funds because cash that would have normally
been received is not, and therefore is not available to meet debt service payments.
4. Interfund loans could beset up with the North Mississippi Watershed to repay the
WAC, SAC, and Capital Improvement Revolving funds if they are used to fund the
incentive payments.
The current Accurate Home Care project had water and sewer connection charges of
$97,173.20 due at time of permit issuance. Per the development agreement, those were not
required to be paid and were offset against the incentive payment of $105,762.10 leaving an
$8,588.90 cash payment due to the owner. (This is contingent upon meeting the minimum
valuation requirement.) Depending upon the funding mechanism the Council prefers, that
payment could either be paid from the Capital Improvement Revolving Fund or the entire
$105,672,10 could be paid from the Capital Improvement Revolving Fund to make the water
and sewer funds whole.
One other factor to take into account in setting a funding method is whether the entire
$849,530.80 will actually be paid. If development doesn't occur before December 31, 2021, or
if the building values don't meet the minimum threshold, the incentives won't be paid. It's a
gamble, however, to assume that the payments won't be made or that revenue from some
other source will appear in the future to meet this obligation. From a financial planning
perspective, it is better to plan for the worst case, yet realistic, scenario.
Staff will be prepared to discuss this in further detail at Monday's meeting. For your
information, attached is the page from the agreement that lists the minimum valuation and the
corresponding incentive payment.
2
Outlot K, Otsego Waterfront East
8.0781%
Outlot A, Otsego Waterfront East Third Addition
39,5865%
Outlot B, Otsego Waterfront East Third Addition
20,0061%
Outlot C, Otsego Waterfront East Third Addition
6.8530%
Outlot D, Otsego Waterfront East Third Addition
5.9341%
Lot 1, Block 1, Otsego Waterfront East ,Third
Addition
15.1225%
Lot 1, Block 2, Otsego Waterfront East Third
Addition
4,3645%
TOTAL
99.9448%
11) The sum of approximately $11,000,000,00 shall be spread over each
Parcel Percentage to determine the threshold value of land and building
improvements for each Parcel of the Property (the "improved Value
Thresholds"). The Improved Value Thresholds are as follows,
Outlot K, Otsego Waterfront East
$888,591
Outlot A, Otsego Waterfront East Third Addition
$4,354,515
Outlot B, Otsego Waterfront East Third Addition
$2,200,671
Outlot C, Otsego Waterfront East Third Addition
$753,830
Outlot D, Otsego Waterfront East Third Addition
$652,751
Lot 1, Block 1, Otsego Waterfront East Third
Addition
$1,663,475
Lot 1, Block 2, Otsego Waterfront East Third
Addition
$480,095
TOTAL
$10,993,928
iii) The sum of approximately $850,000,00 shall be spread over each Parcel
Percentage to determine the "Incentive Payment" for each Parcel of the
Property. The incentive Payment for each Parcel is as follows:
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Outlot K, Otsego Waterfront East
$68,663.85
Outlot A, Otsego Waterfront East Third Addition
$336,485.25
Outlot B, Otsego Waterfront East Third Addition
$170,051,85
Outlot C, Otsego Waterfront East Third Addition
$58,250.50
Outlot D, Otsego Waterfront East Third Addition
$50,439.85
Lot 1, Block 1, Otsego Waterfront East Third
Addition
$128,541.25
Lot 1, Block 2, Otsego Waterfront East Third
Addition
$37,098.25
TOTAL
$849,530.80
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