DRAFT – These minutes are not official until approved at the next regular City Council meeting.

City of Bigfork

Special Meeting July 18, 2005 5:00 P.M.

Members Present: Mayor Amy Tendrup, Jean Lexvold, Bob Zimmer, Amy Pifher and Richard Salmi

Absent: None

Also Present: Dick Grabko, Nick Skarich, Steve Gilbertson, Robin Custer

Mayor Tendrup called the meeting to order at 5:02 p.m. and stated that the purpose of the meeting was to discuss TIF financing with Legacy Development.

Steve Gilbertson from Legacy Development gave a brief background of the Scenic Estates project. He reviewed that they started this process over a year ago and ran into wetland issues with the property. They did a re-design of the project and have now gone through the process of approving the preliminary and final plats. The project consists of 25 housing units, 24 of which will comprise a senior housing association, and the remaining four will be considered affordable housing units. When the original plans were presented last year, the Council gave preliminary approval for a Tax Increment Financing (TIF) district to be created for the project. Due to the wetland related delays and the new plans for the project, Legacy is back in front of the Council for re-approval of the TIF district. Gilbertson stated that they are prepared to get started as soon as possible with the installation of the infrastructure. They may be ready to build units as early as this fall, but more likely won’t be doing that until early next spring. Their construction company is capable of building all units in one year, however they will build as the need arises. This makes the specifics of the TIF district somewhat difficult to determine. City Engineer Julie Kennedy has done a cost estimate of $508,457 for infrastructure for the project. This is $20,000 per lot just for infrastructure. There will be some horizontal borings through wetlands, and other obstacles that have driven the prices higher. Legacy Development is currently selling lots in Grand Rapids that are similar to the ones planned here $25,000. They need the TIF for help to make this project happen and to lower the selling prices and move project along. Legacy is proposing a pay as you go TIF which means that they, as the developer, come in and pay for all of the improvements up front. They are reimbursed for these costs through the increase in tax dollars generated from the project. The risk to the City of Bigfork is very minimal. Legacy is projecting tax revenues of about $2,000 per year per unit which amounts to $50,000 total for the property.

Salmi asked how many lots there will be and Gilbertson repeated that there will be 25 total. Salmi wanted to know the average lot size. Gilbertson answered that they are 75 x 150-160.

Dick Grabko was present representing the City’s engineering firm, SEH, and stated that he has done many TIF projects and was available to answer questions that the Council may have. He introduced Nick Skarich of Northland Securities who will serve as the City’s financial advisor for TIF. Skarich explained that TIF is a gap financing tool set up by Minnesota statutes that is meant to come in on the backside of the project. This means that the developer has excessive costs for one reason or another, and looks to get reimbursed through TIF to make the project more cost effective. The premise of TIF is based on the “but-for” test, meaning the project would not happen “but-for” the tax increment financing. Skarich stressed that there is no increase in taxes. TIF uses the increase in taxes generated from the improvement of the property for the reimbursement to the developer. If the developer is unable to sell any units, the risk is completely on them. The City’s bond counsel, Mary Frances Skala, of Fryberger, Buchanen, Smith and Frederick would write a development contract for the TIF financing. Typically a cap is set for both the time frame and the amount. If the project doesn’t work, the City has infrastructure installed at no cost to them. TIF would not kick in until some improvement has been made. Skarich will work with Legacy to determine appropriate time frames and maximum cost amounts.

Salmi asked if the City would be responsible to bring water and sewer to the property. Gilbertson answered that they are planning on tying into the system where it currently ends and the City will not have any costs associated with that. Salmi asked if the $2,000 in new taxes would go back to Legacy. Gilbertson clarified that the City would continue to get what they are getting right now on the property for taxes and that only the new taxes created by the development of the property would go back to the developer. Salmi stated that he understood there was minimal risk to the City. Gilbertson agreed that there was definitely more risk to the developer. Salmi asked what the downside for the City might be in doing this. Skarich answered that there is really no downside to the City. All risks are to the developer because infrastructure will stay with the City even if the project fails. Salmi wanted to know if we have to put in a new well, would the new people assist with that. Skarich answered that yes, the new homeowners would be susceptible to any new assessments as well as increases in water and sewer rates. Gilbertson added that the new homeowners are indifferent to this set up. It does not change what their tax rates or water and sewer rates are.

Grabko gave another point of comparison for the City by referring to the proposed TIF agreement with the HRA’s WilderNest project. The HRA is asking for the City to bond for $100,000 and then pay ourselves back with a TIF district. The City does assume minimal risk in this situation but also has minimal cost into it and the assurance of another public entity rather than if a private developer wanted the City to do up-front costs for them. Grabko also referred back to the community development survey and its emphasis on housing needs.

Gilbertson stated that his only concern is that if another developer comes in and the City would do a bond to give them up-front money rather than requiring them to do a pay as you go TIF. He clarified that the WilderNest development would not affect him since it is rental housing rather than home ownership. He asked that the Council would treat any future development proposals consistently with how he has been treated. Salmi asked if Legacy Development would be interested in some property on the north end of town if this project goes well. Gilbertson stated that he may be if this project goes well and added that there is more property adjacent to what they already have that he may look into as well if it goes well. Gilbertson feels that their timing is good and that the houses will sell quickly. Skarich adds that the City prioritizing housing is a great thing but it doesn’t mean that you will get it. The City has to work to bring projects in and this is a great opportunity. Zimmer asked if they give the option between a few different floor plans. Gilbertson stated that they usually try to make them the same and take a lot of the building traumas out of it. Custom projects get much stickier. The siding will be all the same so they know what this will look like. Some people like this and some don’t but it is done this way for simplicity of building and to control the look of the community. The affordable housing units are not as strictly regulated. Gilbertson would like to bring money up to this area from the Greater Minnesota Housing Finance Agency and possibly the Blandin Foundation for gap assistance for qualified buyers. They are hoping to keep the cost of the affordable housing units to about $140,000. Gap money would keep the mortgage at a little over $100,000. Zimmer asked if Legacy also controls the look of the affordable housing. Gilbertson stated that they have to be careful in developments in setting the tone. If one wrong building gets out there, a lot more will quickly follow. Legacy lets people know up front what type of situation this is and what they are buying into. Zimmer asked what the price is on the senior units. Gilbertson answered that they are trying to keep them under $200,000. He feels that the age group they are targeting is willing to trade properties. They will sell 80 acres with a house or a lake lot with a house in order to get a property in this type of housing community. Zimmer wanted to know if the senior lots don’t sell as quickly as they would like, would they intersperse affordable units. Gilbertson answered that they could but it’s harder to keep the costs down and keep your marketability. Experts say that there have never been sales of houses in this price range but Gilbertson feels this is because this market has not been there in the past. Zimmer wanted to know how they advertise. Gilbertson stated that word of mouth is the best advertising you can get. Legacy has not advertised at all in Grand Rapids and has sold 60-some units and recently opened up 30 more. They will likely do more advertising up here either with a realtor or on their own. The first few sales are the hardest and then word of mouth takes over. Salmi asked if they will put up two homes first before any are sold. Gilbertson stated that is still to be decided, but they typically build one model home right away. Salmi asked if people have to buy the home before they build it and Gilbertson said that they do.

Zimmer asked what does Gilbertson needed from Council today to move on with the project. Gilbertson wants the go ahead for Nick Skarich of Northland Securities to look into the details of the TIF and work with the City and Legacy to come to an agreement on the terms of the TIF. Grabko noted that we hadn’t yet talked about costs to the City. He stated that the City needs to anticipate the fee from Northland Securities, and legal counsel for development agreements. Skarich added that typically they have developer put money up front for the financial fees and administrative costs to the City, however Gilbertson is asking City to cover those costs. Skarich noted that up to 10% per year of the TIF income can be used to reimburse the City for their costs incurred due to the project. He did not feel that it should be a problem to end up with a zero cost to the City. Up front TIF costs typically are about $10,000 and the City would be able to reimburse itself for those costs over the life of the TIF district. Skarich reviewed that the timeline for the next step is about 45-60 days to meet requirements for notification to Itasca County and the school district, as well as publication and public hearing requirements. Skarich noted ant another potential upside is that the base value gets locked in along with tax rate, so if our rate jumps, the extra won’t come back as increment, it comes back as base increment to the City, county, school district, etc.

Grabko asked Skarich if the City could, in anticipation of participating in HRA project, set up the TIF for both properties at one time in order to save costs. Skarich felt that it was possible that there would be ways to do this.

Motion to have Northland Securities go ahead and start the process of drawing up the TIF was made by Zimmer and seconded by Lexvold, MCU.

Mayor Tendrup adjourned the meeting at 6: 00 p.m.

Angie Storlie

City Clerk

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