2017-01-14 HRA Meeting MinutesMarch 14, 2017
The Mound Housing and Redevelopment Authority in and for the City of Mound, Minnesota, met in
regular session on Tuesday, March 14, 2017, at 6:00 p.m. in the council chambers of the Centennial
Building.
Members present: Chair Mark Wegscheid, Jennifer Peterson, Jeff Bergquist, Ray Salazar, and Kelli
Gillispie
Members absent: none
Others present: City Manager and Director of Public Works Eric Hoversten and Director of Finance and
Administrative Services Catherine Pausche, Director of Community Development Sarah Smith, Field
Officer Stewart Simon, Scott O'Brien, Roger Fink, Pat Buffington, Troy Koopman, Kevin Peterson,
Yuliya Navasialetskaya, Karen Buffington, Nicole Brodzik, Chris Valerius, Stacie Kvilvang, James
Lehnhoff
Public Present:
1. Open meeting
Chair Mark Wegscheid called the meeting to order at 6:00 p.m.
2. Approve agenda
MOTION by Salazar, seconded by Bergquist, to approve the agenda.
All voted in favor. Motion carried.
3. Approve minutes
MOTION by Salazar, seconded by Peterson, to approve the minutes of the Feb 28, 2017
regular meeting. All voted in favor. Motion carried.
4. Stacie Kvilvanq and James Lehnhoff from Ehlers requesting action approving establishment of a
TIF District for Harrison's Bay Senior Living
Kvilvang walked through the Power Point presentation, giving an overview of TIF and why it is used,
and demonstrating how the tax increment is generated. Kvilvang said the property is currently
valued at $646K, with the City portion of the taxes $3,442. Kvilvang noted that it takes about two
years for the full value to be assessed for a project this size. Kvilvang described the "But For" test
criteria, stating that she believes the project meets the test. Kvilvang said Ehlers analyzes the
development costs, ensuring the developer is maxing out the mortgage requirements and looks at
reasonableness of return on investment based on similar market conditions. Kvilvang suggested
having a look -back provision after 3+ years to assess what actually happened to determine
assumptions were correct.
Kvilvang said the majority of TIF in Mound has been a Pay-as-you-go where the developer pays the
taxes, the County pays them to the City and the City passes them on to the developer, versus the
City bonding up front and using the tax increment to pay the debt service.. Kvilvang noted the
project costs are $16.2M but the tax value is estimated at $9.36M based on conversations with the
County Assessor. Kvilvang noted that it not unusual for assisted living projects to cost more than
the market value.
Kvilvang said the City share of property taxes will increase from the current $3,442 to approximately
$55K at the end of the TIF district and noted total taxes on the property are estimated at $158K
which will net to $127K of TIF available, or $0.81 on the dollar. Kvilvang walked the board through
the sources and uses and how Ehlers determined the amount of TIF needed to be $930K. Ehlers
HRA Minutes—March 14, 2017
said the developer is maxing the first mortgage at 75% and that a $225K per unit cost is common
for assisted living and memory care because of the additional common spaces. Kvilvang noted the
$800K developer fee, or 4.94%, is in line with the norm being 2% to 5% and usually contains some
contingency.
Kvilvang said the affordable units will result in $491 K less cash flow per year. Kvilvang had
accounted for service packages reimbursed by Medicaid and Medicare and calculated net operating
income of $900K. Kvilvang pointed out year 3 on the Project Returns spreadsheet that showed
cash on cash returns in pink of 8.36% with TIF and 5.34% without TIF and cash on cost in yellow of
5.44% with TIF and 5.10% without TIF. Kvilvang noted market returns for cash on cost are usually
6.5 — 8%, which would suggest the need for TIF. At year 11 when TIF drops off, they are ata 10%
return, or 9.4% annualized. Ehlers benchmarks returns and compared the developer request and
what Ehlers is recommending. Ehlers suggested 3 options (1) TIF Note for $930K paid over 10
years (2) TIF Note for $930K, a 10 year TIF district with payments to developer over 15 years (pay
60% per year instead of 90%) (3) Developer's counter, which is a TIF Note for $1 M for 10 years
which would have a 2% inflation factor on valuation, which would provide an additional $70K over
the life of the district and the developer would guarantee the affordability for 15 years.
Chair Wegscheid said the current policy is to provide the minimum amount of TIF over the shortest
time period so he thinks Option 1 is really the only option according to the policy.
Roger Fink of Trident Development asked the board to consider that factoring in inflation won't differ
from policy. Fink said they are struggling with whether the affordability can be preserved for 15
years without the higher TIF payments. Fink highlighted that the inflationary factor is a risk borne by
the developer. Fink said if the property increases more than 2% annually, the note gets paid down
faster and the district will expire earlier.
Chair Wegscheid said the policy does not address inflation, and is open to a change in policy, but
that should come first. Peterson asked if this requires a policy change and Gillispie said she would
prefer one.
Kvilvang noted that the original recommendation was for the $1 M but the assessor's valuation was
lower than Ehler's assumptions which then reduced the amount of recommended TIF. Kvilvang
noted policies are not laws or ordinances, but that she understands the concern about deviating
from policy. Kvilvang said it will take up to 90 days to establish the district, so there will be time for
the policy discussion.
Wegscheid agreed and said the board can indicate where they are leaning. Wegscheid said he has
no problem with looking at option 3 and the other board members agreed.
Kvilvang said that no action is necessary tonight as they have the guidance they need and the
action will follow at an upcoming meeting.
5. Adiourn
MOTION by Peterson, seconded by Gillispie, to adjourn at 6:38 p.m. All voted in favor.
Motion carried.
Chair Mark Wegscheid
Attest: Catherine Pausche, Clerk