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Commuinity Development Authority- MINUTES - 10/4/2004 CITY OF MUSKEGO APPROVED 10/25/04 COMMUNITY DEVELOPMENT AUTHORITY (CDA) Audio recording of meeting MINUTES is also available. Monday, October 4, 2004 CDA Chairman Frank Waltz called the meeting of the Community Development Authority to order at 7:02 p.m. Those in attendance recited the Pledge of Allegiance. The meeting was posted in accordance with the Open Meeting Law. PRESENT: Commissioners Rob Glazier, Suzi Link, Gail Miles, Frank Waltz, Ald. Schroeder and Ald. Nancy Salentine ABSENT: Commissioner Dave Lidbury Also in attendance were Mayor Slocomb, Finance Director Dawn Gunderson, Ald. Borgman, Mr. Dave Anderson from Ehlers & Associates, Developer Dave Jorgensen and Attorney Dick Frederick GUESTS: 14 APPROVAL OF MINUTES May 20, 2004 Ald. Salentine moved to accept the minutes for the May 20, 2004 meeting of the CDA. Commissioner Glazier seconded. Upon a voice vote, the motion carried unanimously. OLD BUSINESS None. NEW BUSINESS Status of Appraisal and Geotechnical Report CDA Chairman Waltz recapped that on May 17, 2004, Beacon Square LLC submitted their proposal for the development of the property at the corner of Lannon Drive and Janesville Road and on May 20, 2004, it was presented to the CDA. At that time, the CDA authorized an appraisal of the property. During the appraisal process, some subsurface ground conditions surfaced that required some professional evaluation. On September 2, the city received from the engineering firm the Geotechnical Engineering Exploration analysis report. On September 17, the summary appraisal report was received. Copies were provided to the CDA members and the developers. He stated that any questions relative to these reports should be directed to Interim Plan Director Jeff Muenkel. Commissioner Link pointed out that the north single family house was still being listed and last she heard, there was no agreement in place so she concluded that the appraisal was including a piece of property that is not within the scope of control of the developer at this point. CDA Minutes October 4, 2004 - page 2 She was concerned why the appraiser did it that way. CDA Chairman Waltz explained that in the May 17 Beacon Square LLC proposal that property was included in their site plan. It was the decision, along with Attorney Baxter’s, to include that in the appraisal whether or not the developer concludes the deal with the present landowner or not. In order to establish a financial basis for the plan submitted, they chose to have the property included. If need be, the property can be excluded. Resolution #CDA 002-2004 Approval of Physical Site Plan for Redevelopment of the Former Parkland Mall Site located in the NW ¼ of Section 10 (Tax Key No. 2198.984) and Three (3) Adjacent Properties (Tax Key Nos. 2198.990.003, 2198.986 and 2198.987) CDA Secretary Gail Miles read Resolution #CDA 002-2004 in its entirety. Ald. Salentine moved to accept the resolution. Commissioner Gail Miles seconded. Commissioner Link called for a clarification. She was aware that the owner of the former Parkland Mall owns the southernmost single family property contiguous to it, however, she has not heard that there was a bona fide formal agreement to sell the St. Francis property and last she heard, that was still in negotiations. Has that been resolved, is it under the control of the development group? CDA Chairman Waltz could not say. Commissioner Link summed up that two of the three properties in the resolution as part of this plan, are not under the control of the development group. She proposed an amendment to the resolution to the effect, Now therefore be it resolved that the CDA approves the physical site plan as proposed subject to the property rights of the owners of the two properties not currently under the control of the Beacon Square development group. Ald. Schroeder seconded the amendment. Commissioner Link did not want it to appear that the CDA was encroaching on the rights to those property owners. CDA Chairman Waltz asked if the amended resolution was passed and in the future, they were unable to secure the properties, they would have the right to modify their plan accordingly? Commissioner Link stated that was correct. Commissioner Glazier said that if the resolution is adopted as written then it goes on to the Plan Commission and they are possibly going to add contingencies related to those properties and if they don’t secure those properties, the site plan is dead; in which case, the CDA would be looking at another site plan. CDA Chairman added that there is nothing contained in the resolution that imposes any burden on the property owners. It’s a separate business negotiation. If they choose not to sell, that would modify the plan and it’s up to the Plan Commission to assure the plan stays consistent with the concept approved. Ald. Salentine stated it should be moved on to the Plan Commission. It was approved by the CDA and the Council so move it on to the Plan Commission because if their private negotiations fall apart, the plan would have to come back to the CDA anyway. At a point in the discussion, Mr. Jorgenson was asked the status of their negotiations on these properties. Mr. Jorgenson said they have not done anything on purchasing the two sites since May. With the appraisal being conducted, they are in a holding pattern. In May, with St. Francis bank, they are in agreement to sit down and talk once they had a firm plan and a firm proposal with the City of Muskego as far as how, with a partnership, they are going to put the proposal together. With the Hink residence, they were exchanging offers but weren’t pursuing them very hard until they had a game plan and a timetable. The property owner, also, didn’t have a timetable so weren’t making a commitment. Commissioner Glazer questioned if they were waiting to have an approved site plan before continuing negotiations with the property owners? Mr. Jorgenson indicated that was one of the factors as well as the TID money, a whole package deal before they moved forward. Upon a roll call vote, the amendment to the resolution was defeated, 5-1 (Commissioner Link voting yea). Upon a roll call vote, the motion to accept the resolution carried unanimously. CDA Minutes October 4, 2004 - page 3 Discussion of Public Participation CDA Chairman Waltz asked Mr. Anderson and Finance Director Gunderson to address the CDA members. Mr. Anderson had prepared an analysis of the maximum amount of project costs, which could be supported by the proposed Beacon Square Development. The analysis was driven by assumptions as listed:  The total value of the new development, based upon the city appraiser’s opinion of April 24, 2004, will be $29,105,000. This is in addition to the value in Tax Incremental District #8 as of January 1, 2004.  The new value will be added to the district equally over a four-year period of time beginning in 2005 (first valued as of January 1, 2006).  The equalized value of the property will increase by 1% per year.  The total equalized tax rate will remain constant over the life of the district.  The city will be able to finance projects at a 5% interest rate. He reviewed with the CDA members a chart on the proposed project. The chart showed the value for three years…construction year, valuation year, and revenue year. As of January 1, 2004, there’s a value of $1,272,300 of increment revenue and that is generating $25,985 for 2005 if the tax rate stays the same. In each of the next four years, the increment revenue would be $7,276,250 which means the revenues over the length of the district will be $10,644,597. Because the money has to pay both principal and interest on debt, you can’t spend it all on projects. The total dollar amount of projects you could have would be $6,387,773. He cautioned that the existing project plan for the TIF district provides for $2,688,000 so any amount over this approved amount, will need an amendment to the project plan. He reviewed the amendment process again with the CDA members. Commissioner Link asked if the $29,105,000 amount included residential and commercial. Mr. Anderson stated it includes everything. Ald. Schroeder inquired how they arrived at the $2.6 million? Mr. Anderson went back to the year 2000 and the creation of TID #8. Then, there was a different plan on the table with much less value. The city then identified projects that could be done with the $2.6 million. Ald. Salentine questioned if the $6,387,773 was inclusive of existing $2.6 million TID? Mr. Anderson said that was right, it’s not additional money. Ald. Schroeder asked if there was any borrowing and how much? Mr. Anderson responded there was a small amount borrowed for the storm water portion of the project. Finance Director Anderson stated about $800,000 for the Freedom Square ponds project. This was a project the city decided to move forward regardless of the TID. Commissioner Miles noted the difference between the $2.688,000 and the $6, 387,773 and what were the ramifications the higher and higher you go? Mr. Anderson said unless you have a developer’s agreement with guarantees, don’t spend the money? If you spend the money and can’t force the developer’s agreement, then the taxpayers would make up for the shortfall. He cautioned not to spend the money until the developer’s agreement is in place. Finance Director Gunderson reviewed the developer’s request for TIF support for their project costs. The city needed other things to be done and accomplished on the site; the Freedom Square pond work to alleviate storm water issues, the costs associated with improvements to Janesville Road including intersection work for the project to succeed. The staff looked at the development plan and felt the number one priority was the city’s policy that it would not support CDA Minutes October 4, 2004 - page 4 residential development in the City of Muskego with any city participation in terms of financing TID dollars or otherwise. The staff went through the process of how much of the development was residential versus commercial. Commercial development came to 55% of the project plan. Referring to the developer’s budget, it showed the condo portion was 46% of the development costs. Based on these rough estimates, they concluded that 55% of the project is commercial- based and the balance is residential. Using that number in the formula, the eligible financing would be in the area of $1.05 million for site work and other supportable costs. In the developer’s plan, there is $610,000 for the acquisition and demolition of the St. Francis building and $410,000 for acquisition and demotion of the two home sites. The September 17, 2004 appraisal gives the properties a combined value of $435,000. The difference between the acquisition and demotion and appraised value appears supportable from the city’s standpoint and comes to $585,000. She also indicated that infrastructure costs are also needed and some were included in the TIF district in 2000. The scope of the project has enlarged since then and the costs total $3.5 million. In addition, there has been $270,000 in land acquisition for the Freedom Square pond project. In summary, the proposed Beacon Square development has city supportable costs of $5.405 million. A letter on the staff’s recommendation and authorized by the Mayor was provided to the CDA members and the developer. Ald. Salentine inquired if they would be looking for a motion supporting the $5,405 million? CDA Chairman Waltz said they would want to have a motion to set this value as a value to work its way forward through the process as this would require a public hearing and a number of other actions. Some additional discussion with the developers as this number is different than what they had requested. Part of the motion would be to direct city staff to continue discussion with developers. Finance Director Gunderson clarified the $5,405 million is a combination of what the city would be willing to support in the developer’s cost in addition to the city’s infrastructure costs. The developer’s proposal came in with their request for their support of $6.9 million and that did not include the $3.5 million of the city’s. That would have been above and beyond taking it to a dollar amount far greater than what the TID could ever conceivably support. The $6.9 million is being requested by the developer, the city staff has recommended that the high end of that number be $1,635,000 so that would be the amount that would be passed on to support the developer’s cost of the project. Ald. Schroeder summed up on the staff recommendation of $5.4 million minus $1.6 million to the developers, leaves about $3.8 million and the $3.8 million includes the $800,000 already borrowed and that was included in Director McMullen’s estimates. Finance Director Gunderson said the only piece not included in Director McMullen’s estimates was the acquisition of property for the project a few years ago to allow for the expansion of those ponds and that figure is in addition to what he presented. Commissioner Miles inquired what the relationship was between the $5.4 million and the $2.6 million, would they have to go through the review board? Finance Director Gunderson said the project would have to be amended and go through the process. Commissioner Glazier inquired if the staff is supporting the $5.405 million, is that to say the $2.6 million probably not a realistic number to work with any more? Finance Director Gunderson said the $5.405 million is more realistic for this type of project. Mr. Anderson added working with the numbers that the developer has presented,if they are higher or lower, it changes the numbers. Commissioner Link moved that the CDA accept the recommendation of city staff and the CDA proceed forward with the process and that the city staff go back and work with the developers with numbers of the type presented this evening. Commissioner Glazier seconded. Commissioner Miles said given the number is substantially different than the developer’s, when do you make the decision to move forward with the process if, in fact, it isn’t CDA Minutes October 4, 2004 - page 5 enough money? When do we get the input if it’s worth going through the process? Mr. Anderson replied that they would schedule a meeting with the developers as soon as practical and come up with something. Commissioner Link clarified that the number was a not to exceed number. If it goes over that number, then they should come back to the CDA. Upon a roll call vote, the motion to accept the staff recommendation carried unanimously. Annual Election of Chair, Vice-chair and Secretary Commissioner Link nominated Commissioner Waltz to serve as Chairman of the CDA. Ald. Salentine seconded. No other nominations proffered. Upon a voice vote, the nomination carried. Ald. Salentine nominated Commissioner Link to serve as Vice-chairman of the CDA. Commissioner Glazier seconded. No other nominations proffered. Upon a voice vote, the nomination carried. Ald. Salentine nominated Commissioner Miles to serve as Secretary of the CDA. Commissioner Link seconded. No other nominations proffered. Upon a voice vote, the nomination carried. PUBLIC INPUT Gentleman asked what piece of property was acquired for the Freedom Square condominiums, was it the Freedom Square tennis courts? Mayor Slocomb said the property that was purchased was formerly known as the Kotnik property and located east of the existing pond structures and needed to provide the storm water quality and quantity aspect to handle the water from all of the developing areas. Lady inquired if her property was included? Commissioner Waltz said her property was okay. Attorney Frederick addressed the members of the CDA. They had just received today the letter from the Mayor’s office and the city’s analysis and what was surmised was the developer and the city are so far apart in their concept of how this development can go forward that he did not know if there was a way to mend the fences. The developer had set forth a plan which they showed to the city required a level of support. This plan was the metamorphosis of the plan adopted by the CDA approximately a year ago. It was what the city wanted for this site. The developer went with that and initially showed the CDA that it did not make economic sense to go forward with that development from a developer’s point of view without the subsidy that was indicated in their projections. He stated they had done several variations of the plans and spent huge amounts of money in putting the plans forward for the CDA. Two years later, there is not any development close to fruition. One of the critical issues was the appraisal process. They did not see a need for the appraisal though they did respect the right of the CDA to have the appraisal. Five months was too long for the appraisal to take place. They did everything they could to expedite the appraisal process. The soil study, they felt, should have been in the engineering and development phase rather than the appraisal. He shared that construction costs have gone up since 2003 and the project will cost more for the developer. When they received the letter, it just looked like no way to mend the fences. They have the infrastructure to put the deal together with the $26 million bank commitment. What they have is a $5 million shortfall in making the project work. You have to come to the table with the right amount of money for the right development. If the CDA and the city want to come forward with the financial commitment necessary to make this project go forward for these developers at this time, they need to do so. Failing that, probably the solution to this is that the CDA needs to buy the parcel and develop it themselves. They can then be responsible for the CDA Minutes October 4, 2004 - page 6 losses, investments or other subsidies which will be necessary to bring this project forward. These gentlemen cannot come forward with a project that would lose money. Ald. Salentine asked if the property was for sale? Attorney Frederick believed it was. CDA members discussed if it was feasible and financially how it could be accomplished. Lady said she was disappointed, but not overly surprised. She was very glad that the city has the CDA that worked along on the project. Without the CDA, there could have been a lot of problems not needed. NEXT MEETING: The next meeting was scheduled for Monday, October 25, 7:00 p.m. ADJOURNMENT: There being no further business, Commissioner Glazier moved for adjournment, seconded by Commissioner Link. Upon a voice vote, the motion carried. Meeting adjourned at 8:32 p.m. Stella Dunahee, CPS Recording Secretary