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HomeMy WebLinkAboutCity Council - 10/04/1972TO: 11, FROM: DATE: SUBJECT: It Mayor and Members of Village Council Village Manager, Robert P. Heinrich P October 4, 1972 MUNICIPAL INDUSTRIAL DEVELOPMENT BONDS I have spent several hours of research attempting to arrive at a recommendation regarding Eden Prairie issuing Municipal Industrial Development Bonds. There are many who disapprove of using tax-free investments for this purpose. Others may say why bother, because we are getting industry anyway and Eden Prairie will retain only 60% of the new assessed valuation plus the redistributed share of the seven-county-wide pooled valuation. If we adopt the philosophical position of approving the use of tax-free investments in O financing industry and desire a balanced tax base for Eden Prairie, we will have overcome the first major objections. The major benefits in issuing these bonds are as follows: I. Aids the community in developing a broad tax base. 2. Increases the tax base without substantially increasing service requirements and without adding a burden to the school district. 3. Provides a nearby place for local residents to work. Additional REC's will assist in the financing of our utility systems. I have talked with representatives of municipal financing consulting firms, certified public accountant firms. Dun and Bradstreet, banks, as well as city managers of communities that have issued M.I.D.B.'s. As a result of this e .e Municipal Industrial Development Bonds October 4, 1972 Page Two research, the following guidelines are suggested in considering an industry's request to issue M.I.D.B.'s: 1. Only new construction or plant expansion amounting to $500,000 or more would be eligible for financing through M.I.D.B.'s. 2. Complete set of audits for two previous years must be provided. 3. A copy of Dun and Bradstreet's most recent Rating Report must be provided. 4. There must be "minimum coverage" of 2 X the Principal and Interest due earned annually the previous year before taxes. For example, a $1,300,000 bond issue requires approximately $125,000 in annual III principal and interest. Therefore, $250,000 must have been earned before taxes by the company the previous year. There must also be a demonstrated record of yearly increases in earnings before taxes. 5. The fair market rental value of the building must be equal to or exceed the total amount of bonds and interest due. An appraisal may be required to verify fair market rental value. 6. Administrative and legal costs to issue the bonds will be paid by the applicant industry. Hopefully this information will be useful to the Village Council in considering this very interesting policy matter. RPH:kg RESOLUTION GIVING PRELIMINARY APPROVAL TO 430. A PROJECT UNDER THE MUNICIPAL INDUSTRIAL DEVELOPMENT ACT, REFERRING THE PROPOSAL TO THE DEPARTMENT OF ECONOMIC DEVELOPMENT FOR APPROVAL, AND AUTHORIZING PREPARATION OF NECESSARY DOCUMENTS BE IT RESOLVED by the Village Council of the Village of Eden Prairie, Minnesota, as follows: It is hereby found, determined, and declared as follows: 1.1 The welfare of the State of Minnesota requires active promotion, attraction, encouragement and development of economically sound industry and commerce through governmental acts to prevent so far as possible emergence of blighted lands and areas of chronic un- employment, and the state has encouraged local government units to prevent such economic deterioration; 1.2 Crown Auto Stores, Inc. (hereinafter, Crown), a Minne- sota corporation, is considering acquisition of a tract or parcel of land within the Village and construction thereon of a building designed, suitable and to be used for handling, storing, warehousing, processing and shipping products of manufacture, consisting primarily of automo- bile parts, supplies, tires and accessories, together with related office space and incidental facilities; 1.3 The existence of such a facility in Eden Prairie would add to the tax base of the Village and overlapping taxing authorities, would increase employment and add to the level of economic activity in the area, and enhance the reputation or image of the Village as a desirable location for suitable industries; 1.4 The Village has been advised by representatives of Crown that conventional, commercial financing to pay the capital cost of the project is available only on a limited basis and at such high costs of borrowing that the economic feasibility of operating the project would be significantly reduced, but Crown has also advised this Council that with the aid of municipal financing, and its resulting low borrowing cost, the project is economically feasible; f,Wr'r 1.5 This Council has been advised by a representative of Dain, Kalman & Quail, Incorporated of Minneapolis, Minnesota, invest- ment bankers and dealers in municipal bonds, that on the basis of information submitted to them and their discussions with representa- tives of Crown and potential buyers of tax-exempt bonds, industrial development revenue bonds of the Village could be issued and sold upon favorable rates and terms; 1.6 The Village is authorized by Minnesota Statutes, Chapter 474, to issue its revenue bonds to finance capital projects consisting of properties used and useful in connection with a revenue producing enterprise, such as that of Crown, engaged or to be engaged in handling, storing, warehousing, processing and shipping products of manufacture and the issuance of such bonds by the Village would be a subsequent inducement to Crown to locate its proposed facility within or near the Village. 2. On the basis of information given the Village to date, it appears that it would be in the best interest of the Village to issue its industrial development revenue bonds under the provisions of Chapter 474 to finance the capital project of Crown, consisting primarily of acquisition or installation of items of equipment, at a cost presently estimated to be approximately $1,300,000. 3. The project above referred to is hereby given preliminary approval by the Village, subject to approval of the project by the Commissioner of Economic Development and to the mutual agreement of this body, Crown and the initial purchasers of the bonds as to the details of the bond issue and provisions for their payment. In all events, it is understood, however, that the bonds of the Village shall not constitute a charge, lien or encumbrance legal or equitable upon any property of the Village except the project, and each bond, when, as, and if issued, shall recite in substance that the bond including interest thereon is payable solely from the rentals received from the project and property pledged to the payment thereof, and shall not constitute a debt of the Village, 4. In accordance with Minnesota Statutes, Section 474.01, Subdivision 7, the Mayor is hereby authorized and directed to submit the proposal for the project to the Commissioner of Economic Develop- ment, for his approval of the project. The Mayor, Village Manager, Village Attorney, and other officers, employees and agents of the Village are hereby authorized to provide the Commissioner with any preliminary information he may need for this purpose, and the Village Attorney is authorized to initiate and assist in the preparation of such docu- ments as may be appropriate to the project, if it is approved by the Commissioner. Mayor Attest: Village dila ARNPIPEPAC sipsoa~wilimmarlIMINEws ,....- • 4rnawommopinweigi AGENDA ITEM Council Date El Planning & Zoning Date Name of Person Making Request Address Phone Amber Person, Fine or Group Location or Address Spokesman Address Phone Walther FULL INFORMATION TO SUPPORT REQUEST TO BE PUT ON AGENDA: /ff Taken By Date Time Set Up On Agenda as It