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HomeMy WebLinkAboutCOUNCIL - AGENDA ITEM - 11/05/2013 - SECOND READING OF ORDINANCE NO. 154, 2013, APPROPRAgenda Item 17 Item # 17 Page 1 AGENDA ITEM SUMMARY November 5, 2013 City Council STAFF Megan Bolin, Economic Health Analyst SUBJECT Second Reading of Ordinance No. 154, 2013, Appropriating Funds from the City's General Fund Reserves for Transfer to the Fort Collins Urban Renewal Authority for the Purpose of URA Reimbursements for the Capstone Redevelopment Corporation Summit on College Project, and Approving a Loan Agreement for that Purpose. (Option A or Option B) EXECUTIVE SUMMARY This Ordinance, adopted on First Reading on October 15, 2013 by a vote of 5-2 (Nays: Cunniff, Overbeck) approves a Loan Agreement between the City of Fort Collins and Fort Collins Urban Renewal Authority that will fund the approved $5 million tax increment financing reimbursement to Capstone Development Partners. On the same agenda as Second Reading of the Ordinance, the City Council will consider Resolution 2013-090, to approve a preamble to the Financial Management Policies that recognizes that exceptions to the Policy may be made by Council ordinance or resolution (see Agenda Item No. 13). A revised version of Ordinance No. 154, 2013, to reflect the adoption of Resolution 2013-090 is provided for Council consideration in the event that Resolution 2013-090 is adopted. STAFF RECOMMENDATION Staff recommends adoption of the Ordinance on Second Reading. ATTACHMENTS 1. First Reading Agenda Item Summary, October 15, 2013 (without attachments) 2. Powerpoint presentation Agenda Item 27 Item # 27 Page 1 AGENDA ITEM SUMMARY October 15, 2013 City Council STAFF Megan Bolin, Economic Health Analyst SUBJECT First Reading of Ordinance No. 154, 2013, Appropriating Funds from the City's General Fund Reserves for Transfer to the Fort Collins Urban Renewal Authority for the Purpose of URA Reimbursements for the Capstone Redevelopment Corporation Summit on College Project, and Approving a Loan Agreement for that Purpose. EXECUTIVE SUMMARY The purpose of this item is to approve a Loan Agreement between the City of Fort Collins and Fort Collins Urban Renewal Authority that will fund the approved $5 million tax increment financing reimbursement to Capstone Development Partners. STAFF RECOMMENDATION Staff recommends adoption of the Ordinance. BACKGROUND / DISCUSSION In September 2011, the Fort Collins Urban Renewal Authority (URA) approved a Redevelopment Agreement with Capstone Development Partners (Developer) for The Summit on College, a mixed-use student housing project in the Prospect South Tax Increment Financing (TIF) District. The Redevelopment Agreement obligated the URA to reimburse the Developer up to $5 million in a lump sum for eligible project costs. Knowing that the URA would not have sufficient fund balance to make this payment outright, it has been anticipated that the URA would seek a loan from the City of Fort Collins, repaid using tax increment revenue generated by the project over the life of the Prospect South TIF District. Per the Redevelopment Agreement, the $5 million reimbursement obligation is due to the Developer upon completion of the project, subject to verification of eligible costs by URA staff. The Developer obtained a Certificate of Occupancy for the project in August 2013, and subsequently submitted its reimbursement request to the URA. Although URA staff is awaiting additional documentation from the Developer to verify several of the costs, once received, the agreement requires the URA to make the reimbursement within 45 business days. The City and URA have negotiated a Loan Agreement, which requires adoption of an Ordinance by City Council and a Resolution by the URA Board; however, this Agreement deviates from the current City interagency loan policy because several estimates made at the time of the Redevelopment Agreement have proven inaccurate, details described below. Estimates vs. Actuals When the amount of tax increment generated by The Summit was estimated in 2011, the URA used a methodology based on project costs and assumed 1% appreciation each year, for a total of approximately $8 million. It was anticipated that the URA would have to borrow from the City to pay the reimbursement to the Developer, and at the time, the financing charge on a $5 million loan was estimated to be $2.4 million. Based on the most recent August 2013 preliminary valuation from Larimer County, the project is estimated to generate $7 million of tax increment, creating a $1 million revenue shortfall from the original projection. Agenda Item 27 Item # 27 Page 2 Additionally, a combination of rising interest over the past two years (adding 71 basis points) and the City’s new interagency loan policy (adding 25 basis points), have increased the expected interest rate on the loan from the City from 4.0% to 4.96%, increasing interest cost from $2.4M to $3.8M. Table 1 summarizes the difference between the original estimates and actual numbers: Table 1 2011 Estimates 2013 Actuals Total Tax Increment $8 million $7 million Reimbursement Obligation $5 million $5 million¹ Financing Cost to URA $2.4 million $3.78 million Balance $0.6 million ($1.78 million) ¹ Subject to final verification by URA staff. Between the decrease in tax increment revenue and increase in financing charge, the URA would be unable to afford the full debt obligation of a $5 million loan from the City under current investment policy interest rates. Consequently, City and URA staff have negotiated a loan agreement that allows the URA to uphold its reimbursement obligation to the Developer and remain financially solvent, while making a concerted effort to uphold the City’s interagency loan policy. Proposed Loan Agreement Terms The URA cash flow does not support a $5 million loan from the City, based on current interest rates and the current interagency loan policy. A new loan structure was developed that assigns an interest rate based on the known revenue stream and term, which turns out to be 2.68%. Since City policy would require 4.96% interest, this leaves a gap of $1.78 million. To fill this gap, the URA commits to pledge 50% of future unencumbered revenue from the Prospect South TIF District to the City. For example, assume the URA collects $1 million in revenue from the Prospect South TIF District in a given year, and owes the City a $400,000 payment (principal and interest) on the Capstone loan; 50% of the remaining $600,000, or $300,000, would be paid to the City to help pay down the $1.78 million interest rate gap. This revenue share structure would continue for the life of the Prospect South TIF District, or until the $1.78 million is paid in full, whichever happens first. While City and URA staff support the negotiated loan terms, the variation from current policy is duly acknowledged. Several practices have been put into place since approval of the Capstone Redevelopment Agreement to prevent the need for additional policy exceptions, including:  Tax increment estimates are based on Larimer County’s estimate of valuation that the Developer provides to the URA; the estimates assume 1% appreciation over the life of the associated TIF District.  Establishing a maximum percentage of tax increment that would be available to reimburse a project that includes a combination of both reimbursable costs to the developer and URA financing costs.  Establishing a maximum tax increment contribution percentage of the total project cost. These items, particularly the last two bullets, have been the topic of recent discussions between the City and URA, and staff is scheduled to present more detail to the Finance Committee on October 21, 2013 for further vetting. Next Steps Second Reading of this Ordinance is scheduled for November 5, 2013. Also on that night, the URA Board is scheduled to consider a Resolution approving the Loan Agreement, as well as a Resolution that would appropriate the loan revenue to reimburse the Developer. Agenda Item 27 Item # 27 Page 3 FINANCIAL / ECONOMIC IMPACT Adopting this Ordinance would approve a $5 million loan from the City of Fort Collins to the Fort Collins Urban Renewal Authority (URA). Funding from the City will come from the General Fund reserves. The URA would be charged an interest rate of 2.68%. Principal and interest payments will be made to the City from tax increment revenue generated by the Prospect South TIF District through 2037. Additionally, the URA will pay the City 50% of the annual unencumbered revenue collected from the Prospect South TIF District, up to $1.78 million, to repay the difference between agreed-upon 2.68% interest rate and the City's current policy interest rate of 4.96%. ENVIRONMENTAL IMPACTS There are no direct environmental impacts resulting from this Ordinance. BOARD / COMMISSION RECOMMENDATION The URA Board Finance Committee discussed the Loan Agreement on September 16, 2013. The Committee supported the proposed terms and bringing forward this Ordinance to execute the Agreement. ATTACHMENTS 1. URA Finance Committee Minutes, September 16, 2013 2. Powerpoint presentation 1 The Summit URA-City Loan Agreement City Council November 5, 2013 ATTACHMENT 2 2 Tonight’s Action •2nd Reading, Ordinance approving a loan agreement between the City and Fort Collins Urban Renewal Authority (URA) to reimburse The Summit project 3 The Summit – Before and After • Vacant since 1997 flood • Deteriorating structures • Overhead power lines • 676 beds student housing • 8,000 sq. ft. retail • Removed from floodplain • Street and utility improvements 4 Redevelopment Agreement • Redevelopment Agreement approved Sep. 2011 • $5 M tax increment financing (TIF) reimbursement upon completion of project • Developer obtained Cert. of Occupancy Aug. 2013 and submitted reimbursement request for eligible costs • URA does not have fund balance for reimbursement and seeks loan from the City 5 Loan Agreement Term 24 years Loan amount $5M Adjusted interest 2.68% = $2M Total cost to URA $7M City policy interest* 4.96% = $3.78M Interest rate difference ($1.78M) • URA agrees to share future unencumbered revenue to repay $1.78M interest shortfall * Interest rate will be set when Agreement is executed 6 Recommendation and Next Steps • Council approved 1st ready, 5-2 vote • Finance Committee supported bringing the loan forward • Staff recommends adoption of the Ordinance November 5, 2013 • URA Board Resolution approving Agreement • URA Board Resolution appropriating loan proceeds 7 Thank you - 1 - OPTION A ORDINANCE NO. 154, 2013 OF THE COUNCIL OF THE CITY OF FORT COLLINS APPROPRIATING FUNDS FROM THE CITY’S GENERAL FUND RESERVES FOR TRANSFER TO THE FORT COLLINS URBAN RENEWAL AUTHORITY FOR THE PURPOSE OF URA REIMBURSEMENTS FOR THE CAPSTONE REDEVELOPMENT CORPORATION SUMMIT ON COLLEGE PROJECT, AND APPROVING A LOAN AGREEMENT FOR THAT PURPOSE WHEREAS, on June 6, 1978, the City Council adopted Resolution 78-49, adopting findings and establishing the Fort Collins Urban Renewal Authority (the “Authority”) as an urban renewal authority, pursuant to Colorado Revised Statutes, Part 1 of Title 31, Article 25, as amended (the “Act”); and WHEREAS, by Resolution 2011-080, adopted and approved on September 6, 2011, the City Council found and declared that the area described in such Resolution (the “Midtown Area”) is a blighted area as described in the Act and appropriate for an urban renewal project; and WHEREAS, by Resolution 2011-081, adopted and approved on September 6, 2011, the City Council adopted an urban renewal plan for the Midtown Area in Fort Collins, which established a tax increment district referred to as the Prospect South Tax Increment District that includes the site of the Summit on College Redevelopment Project (the “Project”); and WHEREAS, by Resolution 2013-043, adopted and approved on May 7, 2013, the City Council adopted amendments to the previously adopted urban renewal plan for the Midtown Area (as amended, the “Urban Renewal Plan” or the “Plan”); and WHEREAS, the purpose of the Urban Renewal Plan is to eliminate blight and otherwise implement and further the above-referenced resolutions, and the purposes, policies, goals, and objectives of the Authority and the Plan, pursuant to the Act; and WHEREAS, on September 13, 2011, the Urban Renewal Authority Board approved a Redevelopment Agreement (the “Redevelopment Agreement”) between the URA and Capstone Development Corporation (“Capstone”) to provide financial assistance for certain improvements and enhancements required by the Project; and WHEREAS, the Project is located within the boundaries of the Plan and will generate an estimated $7,000,000 in tax increment funds over the life of the Project; and WHEREAS, on August 15, 2006, the City Council adopted Resolution 2006-082 authorizing an intergovernmental agreement between the City and the URA which provides that - 2 - the City would provide support services to the URA and advance funds to the URA in connection with URA redevelopment projects; and WHEREAS, on July 5, 2011, the City Council adopted Resolution 2011-055, requiring that the intergovernmental agreement between the City and the URA expressly state that all loan arrangements between the City and the URA must be documented by a loan agreement and promissory note; and WHEREAS, the URA does not anticipate having sufficient tax increment revenues in 2013 to fund its contribution to the Project under the Redevelopment Agreement and City staff therefore recommends that the City lend the URA sufficient funds for that purpose in the amount of $5,000,000; and WHEREAS, there are sufficient prior year reserves in the General Fund to fund a loan to the URA for the purpose of reimbursing Capstone for the improvements and enhancements as described in the Redevelopment Agreement; and WHEREAS, City staff has prepared a proposed promissory note and loan agreement titled “Loan Agreement between the City of Fort Collins and the Fort Collins Urban Renewal Authority for Funding the Capstone Redevelopment Corporation Summit on College Project” (the “Loan Agreement”), attached hereto as Exhibit “A” and incorporated herein by this reference; and WHEREAS, the City Manager recommends funding the loan to the URA from the General Fund prior year reserves; and WHEREAS, on December 18, 2012, the City Council adopted Resolution 2012-119, adopting an updated City Investment Policy describing the City’s Inter-Agency Loan Program, to outline terms and requirements for City loans to outside agencies such as the URA; and WHEREAS, the adopted Inter-Agency Loan Program calls for interest on loans with a term greater than 16 years to be the higher of the Treasury Note or Municipal Bond rate plus 0.5 percent, with a floor of 4.00 percent, and pursuant to this provision, the rate of interest for the proposed loan, based on early October rates, would be 4.96 percent; and WHEREAS, the Loan Agreement states that the URA will instead pay interest to the City at a rate of 2.68 percent per annum on the loaned funds, but will provide additional repayment by pledging 50 percent of future Prospect South property tax increment revenues, to the extent such revenues are unencumbered by URA obligations for the Project or other redevelopment projects in the Prospect South tax increment district, up to a maximum of $1,780,000; and WHEREAS, Article V, Section 9, of the City Charter permits the City Council to appropriate by ordinance at any time during the fiscal year such funds for expenditure as may be available from reserves accumulated in prior years, notwithstanding that such reserves were not previously appropriated. - 3 - NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF FORT COLLINS as follows: Section 1. The City Council hereby finds and determines, pursuant to the Constitution, the laws of the State, the Charter and the Code of the City, and in accordance with the foregoing recitals, that adopting this Ordinance, entering into the Loan Agreement and performing all obligations set forth therein, are necessary, convenient, and in furtherance of the City’s purposes and are in the best interests of the inhabitants of the City, and will serve the important public purposes of remedying blighted conditions within the Plan area and the Prospect South tax increment district pursuant to the Urban Renewal Plan, providing a catalyst for redevelopment in the Midtown Area, increasing sales tax revenues and job opportunities, and providing other economic and social benefits to the City and surrounding community, and the City Council hereby authorizes and approves the same. Section 2. That there is hereby appropriated from General Fund Reserves the sum of FIVE MILLION DOLLARS ($5,000,000) for transfer to the Fort Collins Urban Renewal Authority and appropriated therein as an interest-bearing loan, to provide the Fort Collins Urban Renewal Authority with the necessary financial support to carry out its purposes and obligations under the Redevelopment Agreement for Capstone Development Corporation Infill Development, dated September 13, 2011, in accordance with the Loan Agreement. Section 3. That the Loan Agreement is hereby approved as an exception to the City’s Investment Policy, and the City Manager is authorized to execute said Loan Agreement on behalf of the City, subject to such modifications in form or substance, not inconsistent with the purposes or specific terms of this Ordinance, as the City Manager may, in consultation with the City Attorney, deem desirable and necessary to protect the City’s interests. Introduced, considered favorably on first reading, and ordered published this 15th day of October, A.D. 2013, and to be presented for final passage on the 5th day of November, A.D. 2013. _________________________________ Mayor ATTEST: _____________________________ City Clerk - 4 - Passed and adopted on final reading on the 5th day of November, A.D. 2013. _________________________________ Mayor ATTEST: _____________________________ City Clerk - 1 - OPTION B ORDINANCE NO. 154, 2013 OF THE COUNCIL OF THE CITY OF FORT COLLINS APPROPRIATING FUNDS FROM THE CITY’S GENERAL FUND RESERVES FOR TRANSFER TO THE FORT COLLINS URBAN RENEWAL AUTHORITY FOR THE PURPOSE OF URA REIMBURSEMENTS FOR THE CAPSTONE REDEVELOPMENT CORPORATION SUMMIT ON COLLEGE PROJECT, AND APPROVING A LOAN AGREEMENT FOR THAT PURPOSE WHEREAS, on June 6, 1978, the City Council adopted Resolution 78-49, adopting findings and establishing the Fort Collins Urban Renewal Authority (the “Authority”) as an urban renewal authority, pursuant to Colorado Revised Statutes, Part 1 of Title 31, Article 25, as amended (the “Act”); and WHEREAS, by Resolution 2011-080, adopted and approved on September 6, 2011, the City Council found and declared that the area described in such Resolution (the “Midtown Area”) is a blighted area as described in the Act and appropriate for an urban renewal project; and WHEREAS, by Resolution 2011-081, adopted and approved on September 6, 2011, the City Council adopted an urban renewal plan for the Midtown Area in Fort Collins, which established a tax increment district referred to as the Prospect South Tax Increment District that includes the site of the Summit on College Redevelopment Project (the “Project”); and WHEREAS, by Resolution 2013-043, adopted and approved on May 7, 2013, the City Council adopted amendments to the previously adopted urban renewal plan for the Midtown Area (as amended, the “Urban Renewal Plan” or the “Plan”); and WHEREAS, the purpose of the Urban Renewal Plan is to eliminate blight and otherwise implement and further the above-referenced resolutions, and the purposes, policies, goals, and objectives of the Authority and the Plan, pursuant to the Act; and WHEREAS, on September 13, 2011, the Urban Renewal Authority Board approved a Redevelopment Agreement (the “Redevelopment Agreement”) between the URA and Capstone Development Corporation (“Capstone”) to provide financial assistance for certain improvements and enhancements required by the Project; and WHEREAS, the Project is located within the boundaries of the Plan and will generate an estimated $7,000,000 in tax increment funds over the life of the Project; and WHEREAS, on August 15, 2006, the City Council adopted Resolution 2006-082 authorizing an intergovernmental agreement between the City and the URA which provides that - 2 - the City would provide support services to the URA and advance funds to the URA in connection with URA redevelopment projects; and WHEREAS, on July 5, 2011, the City Council adopted Resolution 2011-055, requiring that the intergovernmental agreement between the City and the URA expressly state that all loan arrangements between the City and the URA must be documented by a loan agreement and promissory note; and WHEREAS, the URA does not anticipate having sufficient tax increment revenues in 2013 to fund its contribution to the Project under the Redevelopment Agreement and City staff therefore recommends that the City lend the URA sufficient funds for that purpose in the amount of $5,000,000; and WHEREAS, there are sufficient prior year reserves in the General Fund to fund a loan to the URA for the purpose of reimbursing Capstone for the improvements and enhancements as described in the Redevelopment Agreement; and WHEREAS, City staff has prepared a proposed promissory note and loan agreement titled “Loan Agreement between the City of Fort Collins and the Fort Collins Urban Renewal Authority for Funding the Capstone Redevelopment Corporation Summit on College Project” (the “Loan Agreement”), attached hereto as Exhibit “A” and incorporated herein by this reference; and WHEREAS, the City Manager recommends funding the loan to the URA from the General Fund prior year reserves; and WHEREAS, the City Investment Policy describing the City’s Inter-Agency Loan Program, was updated in December 2012 to outline terms and requirements for City loans to outside agencies such as the URA, and was further updated through the adoption of Resolution 2013-XX, of even date herewith, to reflect the City Council’s intent to allow for exceptions to the Policy with express Council approval; and WHEREAS, the adopted Inter-Agency Loan Program calls for interest on loans with a term greater than 16 years to be the higher of the Treasury Note or Municipal Bond rate plus 0.5 percent, with a floor of 4.00 percent, and pursuant to this provision, the rate of interest for the proposed loan, based on early October rates, would be 4.96 percent; and WHEREAS, the Loan Agreement states that the URA will instead pay interest to the City at a rate of 2.68 percent per annum on the loaned funds, but will provide additional repayment by pledging 50 percent of future Prospect South property tax increment revenues, to the extent such revenues are unencumbered by URA obligations for the Project or other redevelopment projects in the Prospect South tax increment district, up to a maximum of $1,780,000; and WHEREAS, Article V, Section 9, of the City Charter permits the City Council to appropriate by ordinance at any time during the fiscal year such funds for expenditure as may be - 3 - available from reserves accumulated in prior years, notwithstanding that such reserves were not previously appropriated. NOW, THEREFORE, BE IT ORDAINED BY THE COUNCIL OF THE CITY OF FORT COLLINS as follows: Section 1. The City Council hereby finds and determines, pursuant to the Constitution, the laws of the State, the Charter and the Code of the City, and in accordance with the foregoing recitals, that adopting this Ordinance, entering into the Loan Agreement and performing all obligations set forth therein, are necessary, convenient, and in furtherance of the City’s purposes and are in the best interests of the inhabitants of the City, and will serve the important public purposes of remedying blighted conditions within the Plan area and the Prospect South tax increment district pursuant to the Urban Renewal Plan, providing a catalyst for redevelopment in the Midtown Area, increasing sales tax revenues and job opportunities, and providing other economic and social benefits to the City and surrounding community, and the City Council hereby authorizes and approves the same. Section 2. That there is hereby appropriated from General Fund Reserves the sum of FIVE MILLION DOLLARS ($5,000,000) for transfer to the Fort Collins Urban Renewal Authority and appropriated therein as an interest-bearing loan, to provide the Fort Collins Urban Renewal Authority with the necessary financial support to carry out its purposes and obligations under the Redevelopment Agreement for Capstone Development Corporation Infill Development, dated September 13, 2011, in accordance with the Loan Agreement. Section 3. That the City Council hereby finds that extraordinary circumstances exist which warrant making the proposed loan to the URA at a lower interest rate than that specified in the City Investment Policy and, accordingly, the Loan Agreement is hereby approved as an exception to the City’s Investment Policy, and the City Manager is authorized to execute said Loan Agreement on behalf of the City, subject to such modifications in form or substance, not inconsistent with the purposes or specific terms of this Ordinance, as the City Manager may, in consultation with the City Attorney, deem desirable and necessary to protect the City’s interests. Introduced, considered favorably on first reading, and ordered published this 15th day of October, A.D. 2013, and to be presented for final passage on the 5th day of November, A.D. 2013. __________________________________ Mayor ATTEST: _______________________________ City Clerk - 4 - Passed and adopted on final reading on the 5th day of November, A.D. 2013. __________________________________ Mayor ATTEST: _______________________________ City Clerk