Memo CTY RD 3 Corridor Study
,
. C I T Y o F HOP KIN S
MEMORANDUM
DATE: July 13, 1994
TO: Honorab)e-' ~~y~r and City Council
FROM: \ . ~. .
Tom Harmenlng, Communlty Development Dlrector
SUBJECT: COUNTY ROAD 3 CORRIDOR STUDY - FINANCIAL ANALYSIS
A component of the County Road 3 Corridor study involves
identifying costs associated with undertaking a County Road 3
Improvement Project, as well as ways in which the project could
be funded. Hoisington Koegler has prepared a preliminary
financial analysis and wishes to discuss it with the Council.
Although the city Council is not being requested to approve a
specific financial approach, the Council is requested to provide
input on fundamental project funding policies. These funding
e policies include the appropriateness of using special
assessments, TIF, general property tax dollars and MSAS funds.
Attached is the funding analysis as prepared by HKG.
TH07124A
e
Ehlers and Associates, Inc.
MEMORANDUM
DATE: July 13, 1994
TO: City of Hopkins
FROM: Rusty Fifield
SUBJECT: Financing the County Road 3 Improvements
This memo begins the discussion of the plan to finance the improvements to the County Road 3
Corridor. In reviewing this memo, it is important to keep in mind that there is no single right
answer. The final plan will ultimately strike a balance between competing factors.
. The information in this memo should be treated as preliminary. The project costs and the
related financial analysis will be refined as more complete information is available. The analysis
with this memo is intended solely to facilitate the discussion of the issues with the City Council.
The creation of a finance plan for the project costs related to the County Road 3 Corridor
Improvements requires the analysis of three issues:
<') What are the basic elements of a finance plan?
... What are the estimated costs of the project (amount and use)?
... How much and what costs make up the local share?
... What is the timetable for the expenditure of funds?
(2) How can the City raise the money needed to finance local share?
(3) What are the financial implications of the using various available revenue sources to
support this debt?
. Ehlers and Associates, Inc.
2950 Norwest Center. 90 South Seventh Street
Minneapolis, MN 55402.4100
(612) 339-8291 . FAX (612) 339-0854
Financing County Road 3 July 13, 1994 Page 2
. Basic Elements of Finance Plan
For the sake of this discussion, the County Road 3 Corridor Improvements will be referred to as
lithe Projectll. The total estimated costs of the Project appears in Table I. For the purposes of
the Corridor Study. County Road 3 was divided into four areas. A map of the study areas
accompanies this memo. The project costs have been estimated individually for each area. A
break down of costs for each area can be found in Attachment I. Table I represents a summary
of the costs for each area.
The costs shown in Table I do not
include the option of a "loop streetll Eslimated Comly C~y
Total Cost Share Share
in Area I. This option would add Conslruction $3,589,348 $3,329,022 $200,326
$700,000 in construction and land U~ing 911,200 120,000 791,200
Sig1als 661,539 426,923 234,616
acquisition costs to the Project. All Remwals 2,315,573 2,181,673 133,900
of these costs would be added to the landscapingi01her 1,140,990 0 1,140,990
Sli:Jtotal 8,618,650 6,057,618 2,561,002
city share of costs. Contingency 2,585,595 1 ,817, 285 768,310
TOTAL CONsrRUCTION 11,204,245 7,874,904 3,329,342
The IICounty Sharell of projects costs h;q.is~ion 2,484,115 1,242,058 1,242,058
Relocation 140,000 70,000 70,000
has been determined by interpreting TOTAL PROPERTY 2,624,115 1,312,058 1,312,058
current county funding policies. It is TOTAL PROJECT $13,B28,3€0 $9.186.961 $4.641.399
e important to note that these
estimates do not include any funding Table 1
from ISTEA or other outside funding Estimated Project Costs
source. ISTEA remains a potential
source of funding for Areas 3 and 4.
Any ISTEA funds would reduce the county and city share of project costs.
The IlCity Sharell can better be called the non-county share. It is likely that Minnetonka will pay
for a portion of costs related to Area I. Likewise, St. Louis Park will bear a portion of the Area
4 costs. These costs have not been allocated for the purposes of this analysis.
Finance Options
The City of Hopkins has the ability to issue bonds to finance the Project. An important part of
the planning process is understanding the options that are available to issue bonds for these
types of improvements and finding the option(s) that are best suited to this situation. Current
State Law gives the City four bask options for financing the Project.
.. General Obligation Improvement Bonds
.. General Obligation Tax Increment Bonds
.. General Obligation State Aid Road Bonds
e .. General Obligation Special Service District Bonds
Financing County Road 3 July 13, 1994 Page 3
. Option Statutory Authority Key Requirements
G,O. Improvement Bonds Minnesota Statutes Chapter 429 Not less than 20% of the costs of the project must be
assessed against benefitted properties
Must meet process and legal requirements for special
assessments,
Revenue lor share not assessed may come lrom any
other source.
G.O. Tax Increment Bonds Minnesota Statutes Sections Not less than 20% of debt service must be paid for wrth
469.174 to 469.179 tax increment reven ues.
Use 01 tax increment revenues on the Project must
comply wrth relevant tax increment financing plans and
State Law.
Revenue lor amount not covered by tax increment may
come from any other source.
G.O. State Aid Road Bonds Minnesota StaMes Section 162.18 Abirrty to incur debt limrted by statutory lonnu la.
Takes state aid funds away lrom future road
improvements.
G.O. Special Service District Minnesota Statutes Chapter 428A Creates special taxing district to pay for construction and
. Bonds maintenance of improvements.
Tax applies only to commercial and industrial property.
Creation of district requires pemion by property owners
and establishing ordinance subject to owner veto.
Table 2
Comparison of Finance Options
The key provisions of each option are explained in Table I.
Each of these options gives the City a viable option for financing the Project. The actual finance
plan for the Project may rely on more than one of these options. The decisions concerning the
finance plan will likely focus on the available sources of revenues. G.O. Improvement Bonds will
require that at least 20% of the costs of the project be assessed. The amount of the assessment
and the perception of benefit will influence the desirability of special assessments as a finance
tool. The potential for assessment may vary across the corridor.
. The City has anticipated the potential use of tax increment financing for County Road 3
improvements. The corridor falls into a qualified tax increment project area. Tax increment
revenues from any of the existing tax increment financing districts may be used in the project
area and, therefore, on County Road 3. The tax increment financing plan for TIF District 2-1
Financing County Road 3 July 13, 1994 Page 4
. (R.L. Johnson) specifically budgets for County Road 3 improvements. City staff indicates that
approximately $120,000 per year in tax increment revenues would be available from this
District. This revenue should be sufficient to meet the 20% threshold needed to issue G.O. Tax
Increment Bonds.
More specific implications of the finance plan are discussed in the following section.
Implications/Preliminary Analysis
Like most projects, decisions about County Road 3 will be determined by need, results and
costs. Previous sections of this memo have described the total cost of the project. We have
determined that the City can borrow the money needed to finance the improvements. A
critical question remains--What can the City afford?
The analysis in the memo begins to answer this question. This analysis is preliminary and
intended to illustrate issues. It is not a firm plan of finance.
The analysis is based on several assumptions:
I> The Project will be built in phases. The timetable used in the analysis is Area I - 1996,
Area 3 - 1998, Area 4 - 1999, and Area 2 - 2000. (The analysis does not include
. undertaking Area 2 landscaping improvements as part of the Area I portion of the Project.)
The phased timing requires a separate bond issue for each Area.
I>
I> Costs of issuance and capitalized interest are added to the estimated project costs to
create the amount of debt.
I> All bonds are structured with level annual payments, maturing over a fifteen year period.
The average interest rate on the bonds is assumed to be 6.00%.
I> Special assessment are structured to match the debt and carry an interest rate of 8.00%
The preliminary analysis attempts to make best use of all of the available sources of revenues.
The complete analysis can be found in Attachment 2. The flow of funds represents the
combined plans for each of the project areas. The key implications of the analysis are as follows:
I> The only tax increment revenue used is the $120.000 per year discussed earlier. It is
assumed that any other increment is or will be used for development projects. This
revenue is only available through the year 20 I O.
I> In Areas 1,3. and 4,250/0 of the costs are assessed. No assessments are levied in Area
e 2.
Financing County Road 3 July 13, 1994 Page 5
. ~ Property taxes are set at 300/0 of debt service.
Estmated Tax Additional
This matches the proposed approach for use on Market VakJe ~ Gross Taxes
Main Street between 5th Avenue and 169. The $50,000 $500 $4.22
property tax levy over the life of the finance plan 70, OCIO 700 5.00
eo, OCIO 880 7.42
averages $122,619 per year. Using current tax 00,000 1,080 9.11
100,000 1,280 10.79
capacity values, this levy requires an additional tax 125,000 1,780 15.01
rate of 0.8434%. Table 3 shows the estimated 150,000 2,280 19.23
increase in gross property taxes from this tax rate.
Table 3
~ All remaining funds comes from the City's annual Estimated Tax Impacts
state aid road maintenance and construction funds.
The average contribution of state aid is $1 05,000/year.
Conclusions
This memo begins the process of shaping a finance plan for the improvements to County Road
3. The information in this memo addresses three key points:
(I) The costs of the project and the share that will be financed begin to take form. These
e costs will be refined as the scope of the project and financial contributions from other
sources become clearer.
(2) The City has the tools needed to finance its share of the project.
(3) The City has the fiscal resources to undertake this project. The plan of finance will
require careful use of these resources.
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