Memo - Redevelpment Project Public Financing
I Economic Development I
MEMORANDUM
TO: Honorable Mayor and City Council
FROM:--/!L.Jim Kerrigan, Director Planning & Economic Development
DATE: January 18, 2001
SUBJECT: Medica Redevelopment Project Public Financing--Introductory
Discussion
Medica representatives, in their discussions with both the City Council and staff, have
stated that they would require significant public financial assistance to make their
project feasible. Staff has now scheduled a discussion of this item at the January 23,
2001, work session. This is meant to be basically an introductory discussion. There will
need to be additional discussions as the financial aspects of the project become more
detailed.
From Medica's perspective, the tax increment issue is a major aspect in determining
whether they will proceed with the project. Their interest is to have this matter resolved
somewhat early in the process. Staff envisions that once there is a basic agreement on
the financial package, the Council would take formal action on an application prepared
by Medica. The goal is to have a development agreement approved and executed by
Mayor June, which would solidify the specifics of the city financial package.
It had been assumed that the city's assistance would be in the form of pay-as-you-go
tax increment note funded from TIF District 2-11. This district was created in 1999 with
the understanding that it would be used to assist in the redevelopment of the Supervalu
North Annex property. Staff has discussed the probability of also utilizing tax abatement
dollars from the new Supervalu perishable warehouse to address the local match
requirement.
Memo to the Honorable Mayor and City Council, January 17,2001 - Page 2
In discussing the use of tax increment with Medica, staff has detailed the following:
The city will use tax increment to pay for eligible costs, which are required to make
this project financially realistic in today's real estate market. There will need to be a
"but for" analysis completed to clearly demonstrate justification for the level of public
financial assistance being requested.
The City Council, in previous discussion, expressed a desire to limit the number of
years that increment is collected from TIF District 2-11. They would like to return
this property to the tax rolls within a "reasonable" period.
Medica has estimated the total project cost for the first phase (including purchase of the
North Annex property and construction of required structured parking) to be $77 -80
million. At this time they have calculated they will require approximately $16 million in
tax increment. Eligible costs they have identified are as follows:
Land write-down
($11,950,000 purchase price to $5.25 psf [or $7,340,000])
On-site improvement costs & engineering fees
Environmental remediation
Off-site improvement costs
Parking ramp costs (50% of total)
Demolition of existing structures
Park dedication fee
$ 4,610,000
$ 1,300,000 est
$ 1,000,000 est
$ 2,526,500
$ 4,613,500
$ 1,751,200
$ 316,000
Ehlers has estimated that based upon the final market value of the total build-out on the
site, this level of assistance would probably be generated over a 13- to 15-year period.
Both representatives of Medica and Sid Inman of Ehlers & Associates will be present at
the January 23rd work session. Staff proposes the following agenda:
Introduction - Jim Kerrigan
Overview of project financial pro-forma and financing requirements - Medica .
Tax increment issues - Sid Inman, Ehlers
Conclusion: future actions