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HRA Report 2012-08 (Resolution Modifying the Tems of an Interfund Loan in Connection with Tax Increment Financing District NO. 2-6)June 5, 2012 M HRA Report 2012-08 City of Hopkin RESOLUTION MODIFYING THE TERMS OF AN INTERFUND LOAN IN CONNECTION WITH TAX INCREMENT FINANCING DISTRICT NO. 2-6. Proposed Action Staff recommends adoption of the following: Move to approve Resolution 487 modifying the terms of an interfund loan in connection with Tax Increment Financing District No. 2-6. Adoption of this motion will amend the loan terms on this interfund loan to allow interest of 4% to be charged and to ensure that the loan will be repaid in full to the Economic Development Fund by identifying other eligible TIF revenues that will be available to repay this loan. Overview As stated in the attached memo from Ehlers at the conclusion of this district there will be a principal shortfall remaining on the interfund loan of approximately $119,000. To ensure that the Economic Development Fund's investment in this project is repaid Ehlers and staff have identified other eligible TIF funds that will be available to repay this loan with interest. The shortfall in repayment resulted from ambitious market projections in the value of this property that did not hold up. As a result of lower market value the property did not generate the projected revenues. The developer has made all payments as required by the TIF plan, however when combined with TIF revenues will not be sufficient to retire this interfund loan obligation. By identifying other eligible TIF revenues the Economic Development Funds investment will be repaid in full allowing for future development efforts. Primary Issues to Consider • This resolution gives the HRA the ability to recapture its investment in the TIF 2-6 project to potentially provide funds for future redevelopment. Staff Recommendation Finance recommends approval of Resolution 487 Supporting Information • Memo from Ehlers dated June 5, 2012. • Resolution 487 Christine Harkess, CPA, CGFM Finance Director Memo To: Christine Harkess — Finance Director From: Stacie Kvilvang Date: June 5, 2012 Subject: Interfund Loan — TIF District 2-6 (Hopkins Barrier Free Housing) On February 2, 1993, the City approved an interfund loan (the "Loan") from TIF District 1-1 to TIF District 2-6 in the amount of $566,500. On August 31, 1992, the HRA entered into a development agreement with Hopkins Barrier Free Housing and agreed to provide the upfront TIF funds to assist in writing down the costs of land acquisition, relocation and demolition of the existing single-family homes within TIF District 2-6. In 2000, this Loan was assigned to the City's Economic Development Fund. The Loan bears no interest and the annual principal payment is $19,024. The Loan is repaid from 100% of the TIF generated from the District and to the extent that the District does not generate this amount, then Hopkins Barrier Free Housing makes up the difference (shortfall payments). First payment was made in 1994 and the final payment is expected on February 1, 2020 (second half of 2019 increment), when the TIF District expires. To date, the amount of TIF generated within the District has not been sufficient to make the principal payments and Hopkins Barrier Free Housing has been making the required shortfall payments. After the February 1, 2012 payment, the principal balance of the Loan is $268,463. Based upon the annual payment of $19,024 there will be a principal balance of approximately $119,000 when the District expires. To assure that the Economic Development Fund can be repaid in full, we have identified funds from TIF District 2-9 (the Oaks of Mainstreet) and TIF District 2-11 (Excelsior Crossings/Super Valu) that can be utilized to make payments on the Loan. It should be noted that the funds available from these two (2) districts are available after paying the required obligations of the respective TIF districts. Since there are more than adequate funds within these two (2) Districts, we are recommending that the HRA amend its interfund loan to charge interest on the funds that were advanced. Currently, the maximum interest that can be charged is 4% and we recommend that the interest start accruing from the February 1, 2012 payment through the remaining term of the District. It is anticipated that not only will the entire principal amount of the loan will be repaid but that the total interest that will be realized by the amended interfund loan resolution will be approximately, $48,000 (total of approximately $170,000 that the HRA would not have recovered otherwise). Please contact me at 651-697-8506 with any questions. EHLERSMinnesota phone 651-697-8500 300 Centre Pointe Drive LEADERS iN FUSUC FINANCE Offices also in Wisconsin and lttndis fax 654-697.8555 Roseville, MN 55113 -1122 toll free 800-552-1171 HOUSING AND REDEVELOPMENT AUTHORITY IN AND FOR THE CITY OF HOPKINS CITY OF HOPKINS COUNTY OF HENNEPIN STATE OF MINNESOTA Council member introduced the following resolution and moved its adoption: RESOLUTION NO. 487 RESOLUTION MODIFYING THE TERMS OF AN INTERFUND LOAN IN CONNECTION WITH TAX INCREMENT FINANCING DISTRICT NO. 2-6. BE IT RESOLVED by the Board of Commissioners (the "Board") of the Housing and Redevelopment Authority In and For the City of Hopkins, Minnesota (the "Authority"), as follows: Section 1. Background. 1.01. The Authority and the City of Hopkins have heretofore approved the establishment of Tax Increment Financing District No.2-6 ("TIF District No. 2-6") within Redevelopment Project No. 2 (the "Project"), and have adopted a Tax Increment Financing Plan (the "TIF Plan") for the purpose of financing certain improvements within the Project. 1.02. To finance certain costs in connection with TIF District No. 2-6, the Authority loaned and advanced certain funds from its Tax Increment Financing District No. 1-1 (the "Interfund Loan"), with the understanding that the amounts advanced would be repaid using tax increment generated from TIF District No. 2-6. District 1-1 has been decertified and the amounts loaned and advanced are now payable to the Authority's development account. 1.03. No interest was ever charged on the principal amount of the Interfund Loan made to TIF District No. 2-6 and the Authority desires to modify the terms of the Interfund Loan to include interest as described in this resolution. 1.04. Because the tax increment projected to be generated from TIF District No. 2-6 will be insufficient to repay the Interfund Loan to TIF District No. 2-6, and the Authority has identified two other tax increment districts, Districts No. 2-9 and 2-11, from which it has decided to use available tax increment to repay the Interfund Loan. Section 2. Modification of Terms of Interfund Loan. 2.01. The outstanding balance of the Interfund Loan shall accrue interest at the rate of 4.0% per annum commencing on February 1, 2012 and continuing until the principal amount of the loan and all accrued interest has been paid in full. Payments on the Interfund Loan shall be applied first to accrued interest and then to the principal amount of the loan. The interest rate is no more than the greatest of the rate specified under Minnesota Statutes, Section 270.C40 and Section 549.09, both in effect for calendar year 2012. The interest rate will, without further action by the Authority, be adjusted on January 1 of each year to reflect the greater of the rate specified under Minnesota Statutes, Section 270.C40 and Section 549.09 in effect for that calendar year. 2.02. Principal and interest ("Payments") on the Interfund Loan shall be paid semi-annually on each August 1 and February 1 (each a "Payment Date"), commencing on the first Payment Date on which the Authority has Available Tax Increment (defined below), or on any other dates determined by the Authority's Executive Director, through the date of last receipt of tax increment from TIF District No. 2-6 or the tax increment districts specified in Section 1.04 above. 2.03. Payments on this Interfund Loan are payable solely from "Available Tax Increment," which shall mean, on each Payment Date, all of the tax increment which may be legally spent for such purpose generated in the preceding six (6) months with respect to the property within TIF District No. 2-6 and the tax increment districts specified in Section 1.04 above and remitted to the Authority by Hennepin County, all in accordance with Minnesota Statutes, Sections 469.174 to 469.1799, all inclusive, as amended. Available Tax Increment also includes unencumbered fund balances in said tax increment districts. Payments on the Interfund Loan are subordinate to any outstanding or future bonds, notes or contracts secured in whole or in part with Available Tax Increment, and are on parity with any other outstanding or future interfund loans secured in whole or in part with Available Tax Increment. 2.04. The principal sum and all accrued interest payable under the Interfund Loan are pre- payable in whole or in part at any time by the Authority without premium or penalty. No partial prepayment shall affect the amount or timing of any other regular payment otherwise required to be made under the Interfund Loan. 2.05. The Interfund Loan is evidence of an internal borrowing by the Authority in accordance with Minnesota Statutes, Section 469.178, Subd. 7, and is a limited obligation payable solely from Available Tax Increment pledged to the payment hereof under this resolution. The Interfund Loan and the interest hereon shall not be deemed to constitute a general obligation of the State of Minnesota or any political subdivision thereof, including, without limitation, the City and Authority. Neither the State of Minnesota, nor any political subdivision thereof shall be obligated to pay the principal of or interest on the Interfund Loan or other costs incident hereto except out of Available Tax Increment, and neither the full faith and credit nor the taxing power of the State of Minnesota or any political subdivision thereof is pledged to the payment of the principal of or interest on the Interfund Loan or other costs incident hereto. The Authority shall have no obligation to pay any principal amount of the Interfund Loan or accrued interest thereon, which may remain unpaid after the final Payment Date. 2.06. The Authority may amend the terms of the Interfund Loan at any time by resolution of the Board of Commissioners, including a determination to forgive the outstanding principal amount and accrued interest to the extent permissible under law. Section 3. Effective Date. This resolution is effective upon the date of its approval. The motion for the adoption of the foregoing resolution was duly seconded by Board Member and upon a vote being taken thereon, the following voted in favor thereof: and the following voted against the same: Dated: June 5, 2012 Secretary (Seal) ATTEST: Chair