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Home My WebLink About13.B.1. Discussion of Street FundingTO: Mayor & City Council Mark McNeill, City Administrator FROM: Bruce Loney, Public Works Director SUBJECT: Discussion of Street Funding DATE: December 20, 2011 INTRODUCTION: At the November 22, 2011 Council meeting, the Council requested street overlay funding be placed on the December 20, 2011 agenda for discussion. BACKGROUND: CITY OF SHAKOPEE Memorandum 1 On June 15, 2010, the City Council reviewed an Assessment Policy change for street overlay projects. At that meeting, it was decided to change the policy and not assess any cost of overlay projects in the future. Previously, the policy allowed for approximately 30 % of the project cost to be assessed. On August 17, 2010, Council adopted Resolution No. 7025 amending the Special Assessment Policy to not assess bituminous overlay projects. With this policy change, street overlay projects for 2010 and 2011 were not assessed. On October 19, 2011, City council discussed the Capital Improvement Plan (CIP) and future tax levy. One item mentioned in the memo to Council is that street overlay projects could not be bonded unless at least 20% of this project can be assessed. Staff had proposed to use existing fund balance in the Capital Improvement fund (CIF) with an increasing tax levy for funding overlays. Attached are two memos issued to Council regarding the determination not to assess for special assessments as well as the potential impact on future property tax levies. These memos are dated October 14 and November 18 2010. There has been discussion at the Council level of re- instating the special assessment practice for overlays. The apparent inconsistencies in the practice of assessing should be considered, as there needs to be application of a process for a period of more than one or two years, before changing the practice. These types of issues are discussed at the time of bond issuance and bond rating, and these practices need to be considered in establishing or changing a policy, Another item proposed on December 7, 2010 is to fund certain projects by issuing bonds and by adopting a 5 -year street reconstruction plan based on the 5 -year CIP. Conducting a public hearing and adopting a resolution enables the City to bond but does not require the City to bond or approve a project. In order to address Council concerns on future funding of street projects, the Finance Director received a memorandum from Springstead on the various options available to the City. This memo lists the different bonds available and the criteria on when a City can issue improvement bonds, based on current bond issuance criteria. In past years, the City of Shakopee has utilized MSA 429 Improvement Bonds by assessing a portion of the project. Statute requires at least 20% of the cost of the improvement to be assessed for this bond to be utilized. Typically, cities will assess between 20 % and 40 %, to provide sufficient revenue coverage, for official statement preparation, and bond sale review. One area that may allow the City some flexibility is the MSA 475.58, Street Reconstruction bond which was initiated last year. In the bonding scenario, the City adopts a 5 -year street reconstruction plan that lists the street projects to be considered which are as follows: • Street reconstruction including utility replacement • Turn lanes and other improvements having a substantial public safety function • Realignments and other modifications with State and County roads • Local share of State and County road projects • Street overlays where one inch of existing road is removed with the overlay On Item No. 5, if the bituminous overlay removes one inch of pavement considered bituminous milling and then places a bituminous overlay, this type of project could be eligible for Street Reconstruction Bonds. Staff would recommend the City to consider this option in the 5 -year to allow for bonding if necessary. The extra c ost of milling one inch of pavement is estimated to be less than $3,000.00 per mile of overlay. It should be noted in the Springstead memo, the cost of bonding is shown which is substantial and can be further addressed by the Finance Director as to the future cost of borrowing. If debt is issued, rather than utilizing cash position, the debt service payment requires both principal and interest, over the term of the issue, typically 10 years. This interest payment is an additional charge that needs to be borne by the City. If the City continues to cancel the existing debt service levies, the revenue flow to fund the payment of principal and interest is paid through the use of existing fund balance. Finally, an updated CIF summary is included which includes an updated analysis of the fund with an estimated 2011 general fund balance transfer included for 2012 and County road projects /street reconstructions being funded out of debt service levy. These two items will restore significant funding to the CIF and not require the need to bond for street overlays. For this item of street funding, staff would recommend the following policies: 1. Incorporate street overlays as part of street reconstruction bonds utilizing one inch removals of pavement. This policy would give the City financial flexibility in funding street projects. This would also require the Council to consider the addition of debt service levies to the annual property tax certification, which will result in an increased property tax levy. 2. Incorporate a significant portion of general fund balance transfer each year. The fund balance is increased in years where the budget is greater than actual expenditures. These available funds could be transferred to the CIF for street improvement projects. 3. Utilize the CIF to the extent possible before bonding due to the cost of bonding. The annual debt service levy also to be considered before debt issuance. ALTERNATIVES: 1. Discuss the street overlay funding policy and provide direction on the policy statements as proposed by staff. 2. Discuss the street overlay fund policy and provide direction on the policy as determined by City Council. 3. Table for additional information. RECOMMENDATION: Alternative No. 1 is recommended by staff which will give the City flexibility in financing its pavement program and provides for a potential funding source and direction on the use of the CIF including bonding ACTION REQUESTED: 1. Discuss the street overlay funding policy and provide direction on the policy statements as proposed by staff. ENGEl 2011PROJECTS /S011- COUNCIL(DISCUSSION- STREET - FUNDING nice Loney, P.E. Public Works Director I3.�6• l. � � � � ��,��, ' ��w��a�� n , �, �� , k T '# � 2§"t ' � N. • s r � �� 'P :. ¢ � . ��s�� a s� � �� "�� , nv�, k 5'��' �1 w �s.��,� _ _- � ��` ��' ��-t� �� ;„� , � � + ar� �;,�� ^ �� . ��i � � ��,� Q�� ' �� _ � ' 1 � � "5 ��U � x ' � i _ �' � d`�� le�� _ ,s i �". � �� I�� n . . � � 9 , : ., ..;,� . . _. . . - ; . ;::,�.� �... . �, 2 �, .�tu. i �, v , �' , „ �t , , �,..�� „ .".� , ;> � .� .. , �a 7 � �e... . a; u. ... . . . . � � ■ �� ► 2006 Pavement Management System Report � Outline expenditures for bituminous overlays of $ 780,000 per year � 45% of Shakopee Streets built from 1995 to 2005 � Average of 6.5 miles of streets per year � Pavement Report recommended at some point to concentrate on overlays versus reconstructions ► Overlay "Bubble" � 1995-1999 33.76 miles of street constructed � 2000-2004 31.76 miles of street constructed k A 0 �� p � ��l � �� S ��C9 t 'v . �'.� � 5 i�� '�� x� fi� . g ,� > � t � ' ��" s � j,. . `e1 � _ �.' .�, '�.� , t `� � � ��r� �' . . � `'v' C'{i �,�+ S y} � �i � . , t.ss .� � it;>s":. ., ,. ��`.�*=tr n"'�.J,eP��'.I�.n f.x�. �. _ _ . . .___ . . . ; z �� € ` �= .; m. a; � �� --°� � �� t, „ a . � � � � � . � T � ° ` �*� ,� ..�� M, � ""`�"��€ � �i' r , „ - ,�„ a ? «�, � , � � r , �` � � ( n„ . . � ` �� '`'�� .�ew.ru -�.., . <� ,. � q.:.. � � 0 °'4,;.� ....... � � � � � a � } � ��w�� S� � � � ��. �� ,� � � �� t �� r � � i .� �� ; � � �� x � � � : . . ..,� } � �� _ �s „ �. ar � � . . � � ��i ( i � � � � � F �F� ��+� "�� ",,"` � � a �' &� £_ � '� '� � �,y: �"�'� , ��:x� � � ` ��" "'"s��. � ,��•-�.� � :-.. , .x�� ; � � � ,Nra..., �; 9 � � jy � . � � t �� r ,,�a,� �� .� �� ( � � z A .. 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" � -; _ , . . _-.... . ■ � ■ �� ► Pavement Management Strategies � Seal Coati ng - $ .1 1 � Bituminous Overlays - $1.00 � Remove and Replace Pavement - $2.34 � Total Reconstruction of street -$ 5.00 ► The above figures are ratios to one other with overlays being the base cost of $1.00 ��. � , � � � �� ; �� ,� �' �� <� � x� � � � 5a�� k � '`'�a�� a �� i � : � �� , � �' �=.: � • >. ,� � , , �. a a � � �' �"��. � �, � � � � � ■ ■ ■ �� ► BACKG ROU N D: ► �une 1 5, 2010 Council voted to not assess Bituminous Overlay Projects - 2010 & 201 1 Projects not assessed ► August 17, 2010 Council adopted Resolution No. 702 5 amending the Assessment Policy ► 2010 & 201 1 Overlay Projects were not assessed ► Cou nci I d iscussed futu re tax lev on October y 19 and November 18, 2010 for Ca ital p Improvement Fund (CIF) � �� : �� ;��a � . .,...; � - �� a ;� t�.� � �. . , �� ,�� ` �.4,;�,, �� ::� ■ ■ w �r�� n �r� �s��n ► December 7, 2010, Council considered fu nd i ng certai n projects based on a 5 year Ca ital Im rovement Program (CIP) plan p p ► �anuar 18, 201 1 council adopted Resofution v No. 7073 Adopting a Five year Street Reconstruction Plan ► February 1& 1 5, 201 1, Council discussed lon term ca ital financin and street overla g p g y fu nd i ng �� - � �. � ,� � � � ::,, � �� x � �: ' „ � � . � � ��.�� ... � M ' �— . .-�� 'f a9" x,� .,.k =^�%. w:� f ..cu.:G �.Ck �i : , . . i ■ ■ ■ �� ► October 19, 201 1 Council discussed the CIP and futu re tax Iev y ► Discussions had been centered on the need to have add itional fu nd i n for the CI F g ► November 22 201 1 council ask for staff to , discuss street overlay fundin g ► Staff has attached Springsted memo on Fundin of Street Im rovements g p � � �` � �� , � �, � �, �� f�� . „ . .. a� a .�� ,�.� �� "f,��%�. M..e. . o . . _ _ ,_... � � � M � � � � � � � � � � � � � � � � � � ► Funding Options � MSA 475, General Obligation Bonds - need referendum � MSA 429, Improvement Bonds - need 20% assessment � MSA 475.58, Street Reconstruction Bonds - need adoption of 5 year street plan � MSA 162.18, MN State-Aid Road Bonds � MSA 428A, Special Service District/Housing � MSA 469, Tax Increment Bonds � MSA 469, Tax Abatement Bonds � , .� , �� `'�� p � ��,#� i f,4y ��1��;� ( � � �J �� 4 ��. � ,� � .. �.� �� '?�L :.�'��t'�'$��S��t�}��r`�� " . ,� " �'�' � �°� ��.�"Y�tr�:4a�`"",�r� ' 's ' z '.; ;, , ` �. . � < .. . ....< ,d. aa .,�. . �.. ,_� ., , R ,.s -.,. ..4 a ., �, a�x re 50�� ., :, . .. . � .., . . ' . t �"�' ��l ■ � ■ . � � t� � � � � t� l� S � � � ► MSA 429 Improvement Bonds need at least 20% of the ro'ect cost assessed. p J ► MSA 475.58 Street Reconstruction Bond � Street reconstruction including utility replacement : � Turn lanes and other improvements having a public safety function � Realignments and other modifications with State and County roads � Local share of State and County Road Projects � St re et Ove r I ays where one inch of existing► road is removed with the overlay � �� M � a. . � � � �� , . . ,n , �� -...„� � �� x �� 6 ��, ,��, �� :�K . � s,.w� � �. e�� ■ ■ ■ �r�� r� �� c�us�� _ Revised 12 20 2 1 1 Gapi#a! lrnprovemen�k'Proje�i�s = Fund Positiort �ash Po sitiam 3.2/`1J $4,8€�7,933 . _____.__�._ .....�.....�._ ��_._.�._ __ a ____�. ..__ _.__ FteVertu Sau r�es: 2C��.2 2U13 � �3.4 201� �v�mmWe� �,..�.__� �_�� _�m..__._._��..e�m��.A�..., .:. ..��_�� eee��w.��a.��ee�m��,�.�.___..�a�m.�� ...�.w.��.�,a. .�a,��„u..,,._.�. �roperty Ta,x_Levy - proposed and Not Established $Cl $C? $L7 �� Bond Issue Pro ceeds ._-- -____ _ .... m.,._ .__._ _____._ --- __ � ,.� .__._. _ � '----- -:.__ _ ---__.._._.._. ____ _ __�_._ �.� .�.__ �..._ T _._ _ __ __ State AidJMSA {c�n struct:} (per en�. Estimate� $74Q ,Oflq $74 Q,(10� $74q,UCld $74�,Q __. ��_ .._ �....�. _ .___ ��__-__�,�,.��. _ ��._ . �___ -�--__ .�,, Countyr Share Vierling C7r. tntersect. �3E)Q,Qt30 ______ ______ __, _� TH 101 Trail Ext. $4-U,CIClO VaileyView — $' Grants�- ��de�a1 �h11SP� � � ��, $Ct , S1,q8t3,0�0 �rriay be'rece�ved �Ol3f��"i14j _�. _. �_ __...� �. �._.. �.__.. . _� �. � ..._. � me. � — ___. ___ __. , __ __� ... .��. ..._.._..._. w. ��.,. .._..._....... �. � ._._ . _._�. _._.�....._.._ _�.� L7�IR Gc�ntribut�on5 $25t7,t7ftU � � _ � �_.._ .._�......_.. *rr,�ns��r- �ener�r� �u�� _� � _ — S�oo�;oc�c� ��aa,000 ��oo,QOr� _ �svc�,o�o Interest $Si�,C10f3 $SC�,C�() �SU,Q�?� �5Cl,tJt5f1 ._.. _....._..� .._ "1'cs�a[ �e�r�nues: ____�.�. �... __ W _ .______.�__ ., � w.._ �... �_ _..e. ,.....� __ _.. W.. _ ��.,��,�c�€� ��,o�c� �s,,��a,�cx� � ��.,s�a,o�o Expen ' : ' _.� ;.� �.�.s..____� .�.. .� a_�.� � � ._. �_.._ _ ��:._.._�,..__.._._..�.__ _.__.,_. .�..,.o _..�e ._..__�� :.�____ $_ a_� _M.,�_ _ �.. _� �.... _. ....._4 n �_ P�Eturninc�us c�ver3a � $1,�6 Ll,flt}t� 1 t 7 St3,ClOt7 $1,O5 S3,CI(J� $1, 3�C?,Clt7U �. e_ o .� �� _ _ ._.� _ � - �._. Bituminc�u� Re�l�rrtatidn ;$17�,Q00 $23t1,C3t3(l 5#reet Re�arist ructia�n' ��9Cl,t)t7�7 --__�. �.T �: _ __ : _ � � .. Wo9 Duck Tra�l ��_-- $2�0,(70� �� .. �� W .. ��. � , _,. _ ___._ __ _.. ._ � _� _,. _.__ _ _ � _ � � � �..�me�m_ �W ._ ._.___� n� �.. Count f3o�d 69 Im ro�t�rr►�nts $10t3 Oflf3 GS 1 7 #nt�rsec#ion lmprcau. $16Q,00� $3Q�J,C1Dt7 $ 1,28Q,U (}� ___. .� .____�. �. __________�_� . � � � � _._. � � �� . � � _ � ,,� �� .� �_�____ _ � _ __�� _ _._� _ �e � .�� __ _ �_�..... � V�(3 Viei Road lmpr ' $25(),tl�! --____.. _ --- � � _ � , Mern. Park Ped. Bridge _ $25C7��C} CR 18 Trai1 �x#en sion (CIP� $ 70,(7CJt� _ ______...._._� __-__._.,.�_.__....�_�.__ _�___W a_. � __�� ___ . a .__,__.. .� ______. _..__w._ _..�._..._.e. _ Shenat�dc>ah Bus: Park � �R 301 Trai) Extension $S�M,OQ£) {nnoue�i frarn 2�D�37 �' rail Ex �20U,(X�U � TQtaf �xpendituresz � ` $2,13Cl,CltlE7 � .�2,475;0�)C! �3,10E1,O(3t1 $1,��1,Of30 C�5� P4S1�1i3k1:, ',�`�r��t�� '�� r J�� y �� r�42�,�� '.�� --- - --- � � '"""'""" �� ..�...�..., .�,..,��.....��_ �.,�,,,�.�,,.�, '��., ��A,m �� ,-»��,.,..�.n_.w �� .�.r�,� ,u � .».m,,,,. .�.�... ..�M � * 7rans€er from Generai fund wilt xefl�ct the tase af th�e genera! propert� tax levy-annua) trar�sfer d�finec! f€�r CIF expenditures � ,��= � � � � � � °:: � �� _� - -, . -� ': �� _� ��..« � ._ ,�„�a„ u<<� :. �� ...b�.� _�� ■ ■ ■ �� ► In the 5 year 2012-2016 CIP the overlay ro'ect costs are ro'e�ted as follows: p J p J ► 2012 $1,400,000.00 ► 2 013 $1, 7 5 0, 000.00 ► 2014 $1,050,000.00 ► 201 5 $1,330,000.00 ► 2016 $ 930,000.00 ► Average $1,292,000.00 � �� . �� .� �� ., . �,c�'3 ' . � � � , �� ,�rr�� •:. �� , � �� '�� '�'-a� 9 � � ' � ' �r . ` � . , . . ,.,.R��. ...,.k»,m. ..., ■ r �r �� ► Staff wou Id recom mend the fol Iowi ng policies: � Incorporate street overlays as part of street reconstruction bonds utifizing one inch removal of pavement � incorporate a significant portion of general fund balance transfer each year to CIF � Utilize the CfF to the extent possible before bonding due to the cost of bonding. The annual debt service levy needs to be considered before debt issuance. �� i�a� � �"#�� 4 � . , 1 � ... , � ��'�'� s� �+�� ,� �� ,, � : a�� s �s� � �� - „ Y . ��7 ,sE; �� -: ,�� , . � _ r ■ r � �� ► Questions???? . � . �� .�� , � � � �. . �� * * �� ,'�� , � � �� : , �� , 3 � �� ; �^ ' ,. , "�y +� � � , .... �, . � � �5��d+� �'� �a�^�. , ... r. .��,-�. � ' TO: Mayor and Council Mark McNeill, City Administrator CITY OF SHAKOPEE Memorandum FROM: Gregg Voxland, Finance Director SUB.!: Capital Improvement Plan (CIP) and Future Tax Levy Update DATE: October 14, 2010 Introduction & Background This is a brief review of the current status of the 2011 — 2015 CIP and the impact of the decision not to assess for overlays. The impact of the overlay decision is that the city pays for the share of the project that would have been assessed. Plus, because at least 20% of the project is not assessed, bonds cannot be sold to finance the project and spread the cost (tax levy) out over several years. Previously, the tax levy for overlays was spread over ten years but recently shifted to five years to match the shorter assessment period. With a fairly consistent overlay schedule, it was the intent to transition the levy to a current operating levy instead of a debt service levy over several years. The decision not to assess forced an immediate change instead of transitioning a debt service levy over time. Instead, staff has put together a budget that uses the fund balance in the Capital Improvement Fund (CIF) to transition to the operating levy for overlays. Attached are the front pages of the five year CIP. Page 14 is the CIF showing an increasing operating levy starting in 2012 and the fund having a projected balance in 2015 of about $3 million. On page 15 is the projected debt service levy based on the CIP. The levies for pay 2011 and 2012 are reduced to draw down the cash balances in the Debt Service Funds. The increasing levies in 2012 - 2015 amount to about a 2% annual increase in the total levy. / J Additionally, projecting ahead for the General Fund operating levy shows a similar picture. If total expenditures are held to less than a 3% annual increase, there could need to be an annual levy increase in the 2 to 3% range. Total tax levy increases needed could be 4 to 5% range annually for the next few years. In summary, the 2011 budget was fairly easy to balance but it involved some "one time" type changes that cannot be repeated. Council did not spend much time discussing the 2012 budget but the 2012 and following years budget may prove more difficult in balancing service costs versus increasing the tax levy. CITY OF SHAKOPEE Memorandum TO: Mayor and Council Mark McNeill, City Administrator FROM: Gregg Voxland, Finance Director SUB.!: Capital Improvement Plan Public Hearing DATE: November 18, 2010 Introduction In order to fund certain projects by issuing bonds, Statutes require that a public hearing be held. Background Generally, projects that are not for recreation facilities, are not special assessments projects under MSA 429, but are for other public buildings and street reconstruction can be funded by issuing bonds without an election but require a public hearing on a Capital Improvement Plan or a Street Reconstruction Plan. The Plan and issuance of bonds has to be approved by all Council members present. The issuance of bonds under MSA 475.58 for street reconstruction is subject to petition of 5% the votes cast in the last municipal general election filed within 30 days of the public hearing. It the petition qualifies, the question has to go to a vote by the citizens. It is planned to have one bond issue in 2011 to fund the special assessment share of the TH 300 _reconstruction project, the 2011 street recon project and the city share of the county project for reconstruction of HWY 101 Fillmore to Marschall. Based on the CIP, there are no plans to issue bonds in 2012. Attached is the 5 year street reconstruction plan for which bonds would be issued under MSA 475.58. Council needs to hold a public hearing and adopt the plan in order to issue bonds for those projects. Items to be covered in the hearing are; 1. The streets to be reconstructed. 2. The estimated cost. 3. The planned reconstruction of streets over the next 5 years. Action Open the public hearing. Presentation Public comment Close the hearing Offer Resolution No. - - -- A RESOLUTION ADOPTING A FIVE YEAR STREET RECONSTRUCTION PLAN and move its adoption. MEMORANDUM DATE: SUBJECT: November 29, 2011 Funding of Street Improvements Springsted Springsted Incorporated 380 Jackson Street, Suite 300 Saint Paul, MN 55101 -2887 Tel: 651 - 223 -3000 Fax: 651 - 223 -3002 www.springsted.com Minnesota Statutes provide a number of options to municipalities for the financing of street improvements. This memorandum will discuss some of the more prevalently used statutory provisions that are available. MSA 475, General Obligation Bonds. Statutory cities have a wide range of things for which they are authorized to issue bonds and streets are among those purposes authorized. Unless specifically provided for otherwise, if a city intends to secure repayment of bonds with its general taxing powers, the issuance of the bonds is subject to authorization by referendum. Elections for street bonds are seldom held due to the additional authorizations that cities have to issue debt for street improvements that do not require an election. MSA 429, Improvement Bonds. Under the provisions of Chapter 429, a city can issue bonds to fund public improvements where all or a part of the cost is assessed against benefited properties. The statute details a specific process for proceeding with this type of project and filing assessments. Unless a petition of 100% of the benefited properties is received, the process includes several public hearings which allow for input on the project itself and the amount of the assessments projected to be levied against each property benefited. Bonds which are paid in whole or in part from assessments against benefited property do not fall under the city's general debt limit. Provided that at least 20% of the cost of the improvement (20% - 40% is common) is being assessed against benefited property, no election is needed to use the city's general obligation pledge to provide credit for the bonds. In other parts of the country, improvement revenue bonds are issued; however, this is seldom the case in Minnesota where the statute permits use of a general obligation credit backing. This dramatically reduces the cost of borrowing for this type of project from what would otherwise be the case if a pure revenue bond was issued instead of a general obligation. MSA 475.58, Street Reconstruction Bonds. A city can issue street reconstruction bonds for utility replacement and relocation and other activities incidental to the street reconstruction, turn lanes and other improvements having a substantial public safety function, realignments, other modifications to intersect with state and county roads, and the local share of state and county road projects. Except in the case of turn lanes, safety improvements, realignments, intersection modifications, and the local share of state and county road projects, street reconstruction does not Public Sector Advisors Funding of Street Improvements November 29, 2011 Page 2 include the portion of project cost allocable to widening a street or adding curbs and gutters where none previously existed. As further clarification our clients have been advised that certain activities such as cleaning out road cracks and filling them in, and seal- coating do not qualify as permitted activities to be financed by street reconstruction bonds. Adding an inch or so of overlay also would not qualify unless done in conjunction with removal of an inch of existing road. Street reconstruction projects funded under this statute must be included in an adopted five year street reconstruction plan that lists the reconstruction projects to be completed in the next five years and the cost of the improvements. Both the plan and the issuance of bonds must be unanimously approved following a public hearing on the plan. The issuance of the bonds is subject to a reverse referendum if a proper petition is filed within 30 days of the public hearing. Absent a petition being filed, this debt can be issued without election. The bonds will count against the general debt limit of the city. MSA 162.18, Minnesota State -Aid Road Bonds. A city with a population of 5,000 or more can issue bonds for the purpose of establishing, locating, relocating, constructing, reconstructing, and improving municipal state -aid streets. The city council must pledge its allotment of state aid street funds for repayment of the bonds. The average annual amount of principal and interest due in any calendar year on all state -aid bonds outstanding in aggregate cannot exceed 90 percent of the amount of the last annual allotment preceding the bond issue received by the municipality from the construction account in the municipal state -aid street fund. (This percentage was previously set at 50 percent, but was changed recently by the Legislature.) The'statute prescribes that interest on the bonds is paid from the maintenance account; however in the event funds are not adequate from that source, the construction fund can be used to make interest payments as well. The bonds can be issued as general obligation bonds without election and do not count against the city's general debt limit. MSA 428A, Special Service District/Housing Improvement Area. When the needs of a specific part of a city are unique to that area, a special service district or a housing improvement area can be established. Within the district or area, special charges are levied against the properties to generate revenue to provide for the unique needs of the properties. A district or area is formed by ordinance following due notice of property owners and a public hearing. Services to be provided in the district or area and charged for through a special benefit charge must be at a level above that generally provided throughout the city. Special service districts are specifically for commercial, industrial, or public utility purposes and residential uses within a special service district cannot be required to pay the service charge. Housing improvement areas are specifically for housing areas. A property owner can object to the inclusion of their property in a district or area by virtue of 1) the property not receiving services other than those provided to the same degree throughout the city, 2) the property being exempt from taxation, or 3) the property not being benefited by the proposed special service. If the objection is not supported by the city, the owner can appeal to district court for exclusion from the district or area. A hearing is required to impose service charges on property in a district or area. The charges can be spread based on net tax capacity or by a number of other means. The things to be paid for by the charges must be established in the ordinance creating the district or area. In the case of either a special service district or housing improvement Funding of Street Improvements November 29, 2011 Page 3 area, service charges can be used to support principal and interest payments on bonds issued to fund improvements. The bonds can be issued as general obligation bonds without an election and do not count against the city's debt limit. A petition from the property owners representing 25% of the land area of the district and owners representing 25% of the net tax capacity of property in the proposed district is required to establish a special service district. In the case of either a district or an area, property owners can block the levying of a service charge if property owners of 35% of the land area or the owners of 35% of the net tax capacity of property in the district/area (or 35% of the owners, in certain cases) object to the charge. Housing improvement area ordinances themselves can be vetoed if residents of 35% of the housing units object prior to the ordinance's effective date. The ability to establish a new special service district or a housing improvement area both sunset on June 30, 2009 and establishment of either after that date will require special legislation. MSA 469, Tax Increment Bonds. Tax increment financing (TIF) uses the increased property taxes generated by new real estate development within a defined geographic area (the Tax Increment District) to pay for certain eligible costs associated with the new development. Eligible costs include such things as land acquisition, demolition, public and site improvements, and related consulting and administrative costs. Although TIF can be used for public improvements, such as streets, the formation of a 'Tax Increment District is subject to stringent statutory requirements. In particular, a city must be able to demonstrate that without the TIF assistance, new development would not have occurred. A budget for the anticipated use of TIF must be established and as a general assumption, a majority of the tax increment revenue used must be spent within the Tax Increment District itself. A Tax Increment District can only be established after a public hearing is conducted and appropriate findings are made. There is frequently a considerable lag between when a district is established and when tax increment revenue starts becoming available. The complexities and restrictions on the general application of tax increment revenue offers only limited application for its use to finance street projects, particularly if the projects are outside of the context of the new development that is generating the tax increment revenue. In the event that it is available, it can be pledged to repay debt and provided that tax increment revenue provides for repayment of at least 20% of the bond issue, the city's general obligation can be pledged without an election. Debt issued under these provisions is not subject to the.city's general debt limit. MSA 469, Tax Abatement Bonds. Minnesota law provides that certain taxes paid can be collected and used for prescribed development purposes, which can include financing streets. The collected taxes are defined in statute as "tax abatements ". Tax abatement can be captured from existing properties as well as new improvements and is less restricted in its use than tax increment. The taxes abated can include city, county, and /or school district taxes, with each entity having the ability to decide if it participates or not. Funding of Street Improvements November 29, 2011 Page 4 To use tax abatement, it must be determined that the benefit being gained is equal to or more than the cost to the political subdivision and that the project will do one of the following: (i) increase or preserve tax base; (ii) provide employment opportunities in the political subdivision; (iii) provide or help acquire or construct public facilities; (iv) help redevelop or renew blighted areas; (v) help provide access to services for residents of the political subdivision; (vi) finance or provide public infrastructure; (vii) phase in a property tax increase on the parcel resulting from an increase of 50 percent or more in one year on the estimated market value of the parcel, other than increases attributable to improvement of the parcel; or (viii) stabilize the tax base through equalization of property tax revenues for a specified period of time with respect to a taxpayer whose real and personal property is subject to valuation under Minnesota Rules, chapter 8100. The abatement approval process consists of calling for a public hearing, publishing a notice of hearing, conducting the hearing, and passing an abatement resolution. Abatement, like tax increment, has the effect of removing part of the tax base from general purpose uses. If done where no new development is occurring, it will have the effect of increasing taxes throughout the city. In any given year, the aggregate amount of tax abatement collected cannot exceed 10% of the current net tax capacity or $200,000, whichever is greater. The tax abatementcan be pledged to the repayment of bonds which can be sold without an election and backed by a general obligation pledge in a principal amount not to exceed the amount of tax abatement expected to be collected over the years authorized. Bonding Costs There are one -time costs associated with borrowing money. Using a $2,500,000 GO Improvement Bond size as an example, these costs would typically include the following: • Springsted $15,500 • Bond Counsel $ 7,500 • Rating Fee $ 7,500 • Official Statement Printing /Distribution $ 1,000 • Registrar $ 725 • Miscellaneous $ 500 Total $32,725 There are also annual costs associated with borrowing money, including Continuing Disclosure ($600 /yr - $1,500 /yr in years that bonds are not issued, $200 /yr - $300 /yr otherwise), and Arbitrage /Rebate ($3,100 in the 5th year after the bonds are issued, and each 5th year thereafter plus a final calculation at refunding or maturity - cost varies depending upon when refunded or matured). Type of Bond Election Required Procedural Steps Specific Size Limitation Under 3% MV General Debt Limit* GO Street Bonds Yes None None Yes GO Improvement Bonds Not if at least 20% of the improvement cost is assessed. (Most cities assess greater than 20 %) Feasibility report prepared, hearing conducted, project ordered, hearing on assessments conducted before they are filed in final amounts. None. No, if at least partially supported by special assessments. Special Service District/Housing Improvement Area No Ordinance process to establish district/area; public hearing to establish charges, subject to veto by property owners None. No State -Aid Street No Vote of Council 90% of construction allocation No Street Reconstruction Not unless a petition is filed Five year reconstruction plan, public hearing, unanimous approval, 30 day petition period for request of reverse referendum. None Yes Tax Increment Financing Not if at least 20% of the improvement cost is assessed. Public hearing required to establish a tax increment district. A complex set of rules and restrictions apply. No. No Tax Abatement No Public hearing required, as is adoption of an abatement resolution. Annual collection of tax abatement can't exceed greater of 10% of net tax capacity or $200,000 and principal amount of bonds can't exceed total of all abatements. No Funding of Street Improvements November 29, 2011 Page 5 Summary Table * Statutory provisions limit the outstanding amount of debt to 3% of taxable market value unless a type of debt is specifically excluded from the limit. H: \2012 -2015 CIP Fund Review and Cash overview Capital Improvement Projects - Fund Position Cash Position: 11/1 /2011 $4,807,933 Revenue Sources: 2012 2013 2014 2015 Property Tax Levy - Proposed and Not Established $0 $0 $0 $0 Bond Issue Proceeds State Aid /MSA (construct.) (per eng. Estimate) $740,000 $740,000 $740,000 $740,000 County Share Vierling Dr. Intersect. $300,000 TH 101 Trail Ext. $40,000 ValleyView $100,000 Grants - Federal (HISP) $0 $1,080,000 (may be received 2013/2014) DNR Contributions $250,000 *Transfer - General Fund $500,000 $600,000 $700,000 $800,000 Interest $50,000 $50,000 $50,000 $50,000 Total Revenues: $1,290,000 $3,060,000 $1,590,000 $1,590,000 Expenditures /Projects: Bituminous Overlay $1,460,000 $1,750,000 $1,050,000 $1,330,000 Bituminous Reclamation $175,000 $230,000 Street Reconstruction $290,000 Wood Duck Trail $290,000 County Road 69 Improvements $100,000 CSAH 17 Intersection Improv. $160,000 $300,000 $200,000 Valley View Road Improvements $250,000 Mem. Park Ped. Bridge $250,000 CR 18 Trail Extension (CIP) $70,000 Shenandoah Bus. Park CR 101 Trail Extension $50,000 (moved from 2013) Trail Extension $200,000 Total Expenditures: $2,130,000 $2,475,000 $2,020,000 $1,530,000 Cash Position: $3,967,933 $4,552,933 $4,122,933 $4,182,933 * Transfer from General fund will reflect the use of the general property tax levy- annual transfer defined for CIF expenditures H: \2012 -2015 CIP Fund Review and Cash overview