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CR 99-36 Resolution Setting Fees - Westbrooke Patio Homes CITY OF February 9, 1999 ~ Council Rpt #99-036 HOPKINS . RESOLUTION SETTING FEES - WESTBROOKE PATIO HOMES Proposed Action Staff recommends approval of the following motion: Adopt resolution number 99-005 approving housing improvement fee for Housing Improvement Area NO.2 - Westbrooke Patio Homes and authorize staff to prepare development agreement. With this motion, the 45 day veto period will begin and a development agreement will be prepared for Council consideration. Overview The City of Hopkins has the authority to establish housing improvement areas under the Housing Improvement Act (1994 Minnesota Laws, Chapter 587, Article 9, Section 22 through 31). Within a housing improvement area, the City can sell bonds to pay for various improvements to individual housing units and common areas. Those bonds are then repaid through fees imposed on the owners of the units. In 1997, the City of Hopkins created a Housing Improvement Area for the Westbrooke Patio Homes and financed a $2.3 million improvement project. This project, considered phase I of a two-phase capitol improvement project, involved redesigning and replacing the roofs, insulating and constructing draft stops in the attics. The Westbrooke Patio Homes Board of Directors has identified the phase II improvements proposed again to be financed through a housing improvement area and has held a series of informational e owner meetings. In November 1998, the Association members voted on the proposed program and in December submitted the required petitions to hold a public hearing regarding setting fees for the proposed project. Petitions were signed by more than 37 percent of the owners. The first step in providing financing to the Westbrooke Patio Homes was amending the Ordinance which established Housing Improvement Area No.2, to include an updated list of improvements. The next step is a public hearing on the proposed fees for the area and the adoption of a resolution setting the fees. The City's involvement in the project can be stopped if vetoes are filed by at least 35 percent of the owners. Primanr Issues to Consider . Have the legal requirements been met? . What are the proposed improvements? . What is the fee? . How are the fees paid? . What is the risk to the City? . What is the timeline for the project? Supportin2 Information . Resolution 99-005 . Letter from Ehlers & Asso s Patio Homes Fees Council Rpt. 99-036 . Page 2 Analvsis of the Issues . Have the legal requirements been met? The Westbrooke Patio Homes Association has submitted the Long-term Financial Management Plan, required by State Law. The Plan was reviewed by staff and the financial consultant for the project and was found to be acceptable. Through the development agreement, the City should have adequate assurances that the plan will be updated and followed for the term of the district. There are no significant compliance issues as relates to the phase I development agreement. . What are the proposed improvements? The improvements that have been identified by the Westbrooke Patio Homes Association for the capital improvement project include the following: Street and drive replacement, including parking areas Curb, gutter and concrete Drainage and utility, including storm drains, retaining wall replacement, silt fencing, sanitary sewer work e Landscaping repairs and corrections Residing building exteriors Fencing, including privacy and patio fences, deck railings Replace gas meter bollards Furnace duct chasing modifications Contingency, including wall repairs, insulation and sheathing . What is the cost of the project and the associated fee? The following is a breakdown of the costs of the project: Improvement Costs $3,037,800 Professional Services $ 133,500 Interim Interest $ 15,000 Reserve $ 20,000 City Administration $ 10,000 F inancelLegal $ 41,280 Underwriter's Discount $ 65,300 Capitalized Interest $ 106,110 Other $ 10 Total Costs $3,429,000 Less Reserve from Phase I ($ 164,000) . Balance $3,265,000 This results in a total fee per unit of $9,954 and an estimated annual fee of$956. Patio Homes Fees Council Rpt. 99-036 . Page 3 At this time, it does not appear that the City of Hopkins will be able to provide a subsidy for low income home owners through the City's Community Development Block Grant (CDBG) program. This is due to a determination that Federal Labor Standards would have to be inforced, increasing the project cost approximately 11 % and offsetting any benefit in using the funds. Staff is also waiting on a decision from the Federal Home Loan Bank regarding our eligibility to apply for additional grant funds for the Patio Homes project. At this time, it does not look favorable. . How are the fees paid? Upon successful passage by the City of the resolution setting the fees, owners will be given 90 days to prepay a portion or the entire amount of the fee. If an owner chooses not to prepay, payment of the fee will then be made twice annually for the term of the district. This will be accomplished through a fee on an owner's property tax statement (including interest and associated financing costs). Once the annual fee has been certified to the County the fee cannot be "paid off" rather it must be paid annually for the term of the district. The fee has been structured in this manner so that the cash flow of the bonds is more predictable and because it contributes to making the fee appear tax deductible. Also, administratively it saves a significant amount of time and money. . . What is the risk to the City? The source offunds for the project is City-issued general obligation bonds, backed by the full faith and credit of the City of Hopkins. However, the financing has been structured to reasonably assure that the City is protected against compensating for any delinquencies that may be experienced in the collection of the fees. This is being accomplished by setting the fees at 105 percent of what is required to retire the bonds and by requiring the Association to cover any delinquencies. Additionally, there is a reserve of $20,000 which can be used to supplement bond payments if needed. The delinquency rate for the first year collection on the Phase I fee was approximately 3%. . What is the timeline for the project? The following is the anticipated timeline for the project: February 16, 1999 Public hearing before the City Council on setting the fees for the housing improvement area Resolution setting fees adopted April 2, 1999 45-day objection period expires, the ordinance amending the housing improvement area and the resolution setting the fees go into effect if not vetoed by a minimum of 3 5 percent of the owners . AprilS, 1999 - July 1, 1999 Prepayments accepted Patio Homes Fees Council Rpt. 99-036 . Page 4 April 5, 1999 Construction begins May 15,2000 First installment of fee is due, as shown on property tax statement This timeline is subject to change. Alternatives: Following the public hearing, the Council has the following alternatives: o Adopt resolution 99-005 establishing fees for Westbrooke Patio Homes - PhaseIl o Amend resolution 99-005 prior to adoption. o Take no action. Delaying action will affect the construction schedule. e . . CITY OF HOPKINS RESOLUTION NO. 99-005 RESOLUTION APPROVING A HOUSING IMPROVEMENT FEE FOR HOUSING IMPROVEMENT AREA NO. 2, PURSUANT TO 1994 MINNESOTA LAWS, CHAPTER 587, ARTICLE 9, SECTIONS 22 THROUGH 31 BE IT RESOLVED by the City Council of the City of Hopkins as follows: Section 1. Recitals. 1.01. The City of Hopkins ("City") is authorized under 1994 Minnesota Laws, Chapter 587, Article 9, Sections 22 through 31 (the "Housing Improvement Act") to establish by ordinance a housing improvement area within which housing improvements are made or constructed and the costs of the improvements are paid in whole or in part from fees imposed within the area. 1.02. By Resolution No. 94-55 adopted June 7, 1994, the Council approved the Housing Improvement Act. 1.03. By Ordinance No. 97-796 adopted February 4, 1997 (the "Enabling Ordinance"), the . Council established Housing Improvement Area No.2 in order to facilitate certain improvements to property known as the "Westbrooke Patio Homes," all in accordance with the Housing Improvement Act. 1.04. By Ordinance No. 99-824 adopted February 16, 1999, the Council amended the Enabling Ordinance in connection with certain Phase IT housing improvements to be constructed and fmanced under the Enabling Ordinance. 1.05. In accordance with Section 23 of the Housing Improvement Act, owners of at least 25 percent of the housing units within Housing Improvement Area No.2 have filed a petition with the City Clerk requesting a public hearing regarding imposition of a Phase II housing improvement fee for Housing Improvement Area No.2. 1.06. The Council has on February 16, 1999 conducted a public hearing, duly noticed in accordance with the Housing Improvement Act, regarding adoption of this resolution at which all persons, including owners of property within Housing Improvement Area No.2, were given an opportunity to be heard. 1.07. Prior to the date hereof, Westbrooke Patio Homes Association, Inc. (the "Association") has submitted to the City a financial plan prepared by Dunbar Strandness, Inc., an independent third party, acceptable to the City and the Association, that provides for the Association to fmance maintenance and operation of the common elements in the Westbrooke Patio . Homes, including the Phase II improvements, and a long-range plan to conduct and finance capital improvements therein, all in accordance with Section 25 of the Housing Improvement Act. SJB-154009 HPI10~58 . 1.08. For the purposes of this Resolution, the tenn "Housing Improvement Area No.2" has the meaning provided in the Enabling Ordinance, and the tenn "Phase IT Housing Improvements" means the improvements specified as Phase Two in Section 4.01 of the Enabling Ordinance. Section 2. Housing Improvement Fee hnposed. 2.01. The City hereby imposes a fee on each housing unit within Housing Improvement Area No.2 (the "Phase IT Housing Improvement Fee"), as specified in Exhibit A attached hereto, which Phase IT Housing hnprovement Fee is imposed on the basis of the total cost of the Phse II Housing hnprovements to be financed by the Phase II Housing Improvement Fee divided by the number of housing units in Housing Improvement Area No.2 as of the date of this Resolution. 2.02. The owner of any housing unit against which the Phase II Housing Improvement Fee is imposed may, at any time within ~ days after the effective date of this Resolution, pay all or a portion of the total Phase II Housing Improvement Fee imposed against such housing unit as specified in Exhibit A hereto to the City Treasurer, without interest thereon; provided that if only a portion is prepaid the prepayment amount must be at least 25% of the total fee for that unit Any Phase II Housing Improvement Fee (or a portion thereof) not prepaid in accordance with this Section shall be payable solely in accordance with Section 2.03 hereof. 2.03. If not prepaid in accordance with Section 2.02 hereof, the Phase IT Housing Improvement Fee (or unpaid portion thereof) shall be payable in equal annual installments . extending over a period of 20 years, the first of the installments to be payable in calendar year 2000, which annual payment shall be deemed to include interest on unpaid Phase II Housing Improvement Fee from the date of this Resolution at an annual interest rate that will produce total fee revenue collected from all units in Housing Improvement Area No.2 in an amount that equals 105 percent of the debt service payable each year on bonds to be issued by the City issued to finance the Phase II Housing Improvements (the "Bonds") in accordance with the Enabling Ordinance and the Housing Improvement Act. Upon issuance of the Bonds, the City Clerk shall cause to be prepared a schedule indicating the annual payment for each housing unit for which the Phase IT Housing Improvement Fee has not been prepaid, which schedule shall be attached as Exhibit B to this Resolution in the City's official records. 2.04. The Phase II Housing Improvement Fee, unless prepaid in accordance with Section 2.02 hereof, shall be payable at the same time and in the same manner as provided for payment and collection of ad valorem taxes, as provided in Section 26 of the Housing Improvement Act. 2.05. The Phase II Housing Improvement Fee imposed against each housing unit shall not exceed the amount specified in Exhibit A hereto; provided, however, that the Phase IT Housing Improvement Fee may be reduced at any time before issuance of the Bonds, which reduction shall be applied pro rata to each housing unit's Phase II Housing hnprovement Fee on the basis described in Section 2.01 hereof; and further provided that if any housing unit owners have prepaid the Phase II Housing Improvement Fee prior to any reduction in that fee, the City shall promptly reimburse such housing unit owner in the amount of the pro rata share of any reduction in the fee amount. Upon any reduction in the Phase II Housing Improvement Fee, the City Clerk shall cause to be . prepared a revised copy of Exhibit A hereto, which shall be attached to this Resolution in the City's official records and shall be promptly mailed to all housing unit owners within Housing Improvement Area NO.2. Within 30 days after issuance of the Bonds the City Clerk shall mail to SJB-154009 HPllO-58 . each housing unit owner a copy of Exhibit B to this Resolution showing the [mal annual fee imposed against each housing unit for which the Housing Improvement Fee has not been prepaid. Section 3. Notice of Right to File Obiections. 3.01. Within five days after the adoption of this Resolution, the City Clerk is authorized and directed to mail to the owner of each housing unit in Housing Improvement Area NO.2: a summary of this Resolution; notice that owners subject to the Phase IT Housing Improvement Fee have a right to veto this Resolution if owners of at least 35 percent of the housing units within Housing Improvement Area No.2 file an objection with the City Clerk before the effective date of this Resolution; and notice that a copy of this ordinance is on file with the City Clerk for public inspection. Section 4. Effective Date. 4.01. This Resolution shall be effective 45 days after adoption hereof. Section 5. Filing of Phase IT Housing Improvement Fee. 5.01. Within 30 days after issuance of the Bonds, but it no event later than November 15, 1999, the City Clerk shall file a certified copy of this resolution together with a [mal update of Exhibits A and B hereto to the Hennepin County Director of Taxation to be recorded on the property tax lists of the county. e Approved by the City Council of the City of Hopkins this 16th day of February, 1999. Charles D. Redepenning, Mayor ATTEST: City Clerk . SJB-154009 HP110-58 . EXHIBIT A TO RESOLUTION NO. 99-005 Total fee per housing unit: $9,954 . . SJB-154009 HPI10-58 - . EXHmIT B TO RESOLUTION NO. 99-005 [Description of annual fee for each housing unit; to be inserted upon issuance of the Bonds in accordance with Section 2.05 of this Resolution.] Annual fee per Housing Unit: $ . . SJB-154009 HPI10-58 ..-------..- -- -... . FEE 09 '99 03:18PM EHLERS & ASSOCIATES P.2/6 . . EHLERS & A.SSOCIATES INC February 9, 1999 Kersten Elverum City of Hopkins 10 10 1 Sf Street Hopkins, MN 55343 Dear Kersten: Over the past several months, we have worked with City Staff and representatives of the homeowner's association for the Patio Homes to create a viable finance plan for Phase n of their improvement project. This letter provides a brief summary of the plan to finance the improvements. Additional information on financing can be found in me plan report for Housing . Improvement Area #2. The plan will be sent for distribution prior to the public hearing on February 16. Plan Summary Creating a finance plan for these improvements requires balancing several factors: . financial interests of the City . affordability for the property owners . ability to sell the bonds. In the planning process, we evaluated a variety of alternatives. For the City. it is important that the finance plan be self-supporting. OUf analysis has focused on the ability of the plan to deal with potential delinquencies in fee payment. Bear in mind that increasing the cash flow protection for the City adds to the cost for the homeowners. We believe that the proposed finance plan does the best job of protecting the City and providing a viable option for the homeowners. Given the basic assumptions for the project, the proposed plan provides enough money to retire the bonds even if up to 3.5% of all revenues are not collected. Several features of the finance plan act to protect the City from fee delinquencies: . E~U;l;1 Opl,l~rlurli!v ErH:P1oyef LEA D E R S I N PUBLIC FINANCE ChiHter Memb~r Dr t~e NEli,rlJl1al A'550cl~tlcrl of fnl't1:,H~rld..~nf P\lbli,~: rin.:Jrlcl: Adl.rc~;or!; 3060 Cenrre POln,e Drille, nosevli1e, MN 55113,1 ]05 651.697,8500 filx 651.697,8555 www, e II'er~.i n C.C om FEE 09 '99 03:18PM EHLERS & ASSOCIATES P.3/6 . Kersten Elverum Fe bruary 9, 1999 Page 2 . $20,000 from bond proceeds will be used to start an initial cash flow reserve. Other unused bond proceeds and investment income will add to this amount. . The first paymenr of principal is delayed for one year. This structure allows the City to build the cash flow reserve from fee revenues collected in 2000. This reserve gives the City the financial capacity and time to solve nonpayment problems. . The development agreement obligates the Association to compensate tbe City for any delinquencies_ These factors combine to minimize the potential need for other City funds to support the finance plan and bonds. Attachment 1 contains the projected flow of funds for Housing Improvement Area #2. These projections combine debt and revenues for both phases of the improvements. Total Costs . The finance plan calls for the issuance of general obligation housing improvement area bonds in the amount of $3,265,000_ The proceeds of the bond issue will be used as follows: . $3,171,300 to pay for the costs of improvements to the Patio Homes. . Costs of issuance, underwriter's discount and a $10,000 administrative City fee. . Reimbursement to the Association for up to $15,000 in construction loan interest expense. . $20,000 of bond proceeds will be placed into the debt service fund to help build cash flow protection. . Funds to make the first bond interest payment due February 1, 2000. Attachment 2 summarizes the components of the bond issue. Fees The bond issue becomes the basis for calculating the fees to be collected from properties in the housing improvement area. Each of the 328 units in the Area will pay an equal share of the total cost. Properry owners will be allowed ninety (90) days from the expiration of the veto period to . prepay the Total Fcc. Fees not prepaid will be paid in equal annual installmems of principal and FEE 09 '99 03:19PM EHLERS & ASSOCIATES P.4/6 . Kersten Elvenun February 9, 1999 Page 3 interest over twenty years, with the first payment due in 2000. The interest rate will be based on the actual interest rates on your bonds. The rate used to determine the Annual Fee will be the rate needed to produce annual fee revenue equal [0 105% of the average annual debt service on the bonds. This rate is currently estimated to be 7.23%. The following table contains the estimated fees for the plan and hearing notice. Item Estimated ArnouD[ Total costs subject to fees $3,265,000 Total fee per unit $9,954 Annual $956 I hope that this letter provides a sufficient explanation of the finance plan. Do not hesitate to call me with any questions. .