HomeMy WebLinkAboutFinancing Data Annexation Area Extended Imprs.-Preliminary Report 3-17-93 #TATGES, REDPATH & CO., LTD,
CERTIFIED PUBLIC ACCOUNTANTS
March 17, 1993
To the Honorable Mayor
and Members of the City Council
City of Oak Park Heights
14168 North 57th Street
Stillwater, MN 55082
RE: PRELIMINARY REPORT - FINANCING DATA
ANNEXATION AREA EXTENDED IMPROVEMENTS
Pursuant to your request, we have been working with the City Administrator, Engineer and
Attorney relating to the ongoing financing of Municipal Services to the Annexation Area
Extended. The contents of this report are based upon unaudited City information plus
projections based upon estimates of final costs by the City Engineer and City Attorney. The
purpose of this report is to: (1) identify committed construction costs; (2) to determine available
financing from the various developer agreements; and, (3) to provide any required additional
financing for each of the various projects.
HISTORY
The "Annexation Area Extended" has been defined (by the City Engineer) as the area bounded
on the east by Oakgreen Avenue, on the north by State Highway 36, on the west by State
Highway 5, and on the south by the southern boundary of Section 5 and 6. This area extends
approximately one mile south from State Highway 36 and excludes any property annexed to the
City prior to July 29, 1988.
4810 White Bear Parkway • White Bear Lake, Minnesota 55110 • 612/426 -7000 • FAX /426 -5004 • Member of HLB International
To the Honorable Mayor
and Members of the City Council
City of Oak Park Heights
Page 2
During 1989 and 1990, the City developed an overall plan of action to finance TRUNK
FACILITIES to meet the future needs of undeveloped property which may jig annexed to the
City at some future date (i.e. property which HU = then part of the city). The trunk facilities
included are: distribution/collection systems for sanitary sewers, water and storm sewers, plus a
water tower and well.
During 1991, the City established a series of "connection charges" to finance the above described
TRUNK FACILMES as follows:
A.A.E. Connection Charges Amount
Sanitary Sewer $2,110
Waterworks 3,670
Storm Sewer 4,650
Total $10,430
The above A.A.E. - Connection Charges are levied against current and future development on a
per -acre basis. Additionally, these charges are payable (by the property owner /developer) only
as development actually occurs. As such, the City (rather than existing or future property
owners/developers) is "at risk" for the timing of such future development. Accordingly, property
owners/developers =r = forced (by levied special assessments) to develop such property.
The primary risk for the financing of such improvements by this process is timing. Such
improvements, to a great extent, are constructed before development actually occurs. For
example, the City's second water tower was started in 1991 before any substantial development
had occurred in this area. Waterworks connection charges will belshould be collected over the
next decade (or longer) to finance the cost of this improvement. Similarly, a substantial portion
of these trunk facilities will be constructed prior to the receipt of A.A.E. Connection Charges.
Additionally, should full development of this area never occur, the City will need to provide
alternative financing for these projects.
To the Honorable Mayor
and Members of the City Council
City of Oak Park Heights
Page 3
The City's strategy for addressing the timing problem described above is two fold. First, the City
issued the $1,250,000 Water and Sewer Revenue Bonds of 1991 to finance the first A.A.E.
construction project. This first project was the 1991 Utility Improvements which included the
City's second water tower. These bonds (and ultimately this project) will be finance by 1992 and
future A.A.E. Connection Charges.
Second, the City committed a substantial portion of its construction and utility reserve balances
to finance both construction costs and debt service requirements pending receipt of sufficient
A.A.E. Connection Charges. The Closed Bond Fund had a reserve balance of $784,900 at
December 31, 1990. This balance was committed for A.A.E. purposes. The City's Water and
Sewer Utility Fund had a total balance/retained earnings of $1,024,500 at December 1, 1990. A
portion ($661,765) of this balance is water committed for A.A.E. purposes.
The balance of this Report will detail the need for the City to use some of its reserve balance to
finance A.A.E. projects approved by the City in 1991 and 1992.
To the Honorable Mayor
and Members of the City Council
City of Oak Park Heights
Page 4
A.A.E. CONNECTION CHARGES FUNDS (#771, #772, #773)
A.A.E. Connection Charges for sanitary sewers, waterworks and storm sewers are intended to be
the ultimate source of financing for all (TRUNK) system improvements within the Annexation
Area Extended. Such connection charges are intended to be used to finance ongoing
construction projects subject to sufficient amounts being put aside to finance current debt service
requirements (1991 Water and Sewer Revenue Bonds). A summary of the sources and uses of
such charges (since 199 1) is as follows:
Actual Actual Projected
1991 1992 1993 Total
FINANCIAL RESOURCES
A.A.E. Connection Charges:
River Hills $5,516 $47,375 $52,891
Hwy 36 Improvements 13,455 $6,165 19,620
Wal -Mart 162,507 162,507
School District 498,132 397,930 896,062
Interest Earnings 11 7,003 7,014
Total Financial Resources 5,527 728,472 404,095 1,138,094
FINANCIAL USES
A.A.E. Construction Costs:
Wal -Mart Project 45,000 45,000
School District Project 289,348 289,348
58th Street Improvements 27,885 338,488 366,373
Transfers to Debt Services:
1991 Revenue Bonds 135,500 56,500 192,000
Total Financial Uses 0 497,733 394,988 892,721
FUND BALANCE - December 31, $5,527 $236,266 $245,373 $245,373
Fund Balance By Type:
Sanitary Sewer $1,421 $39,226 $32,726
Water Works 2,313 159,705 169,147
Storm Sewer 1,793 37,335 43,500
Totals $5,527 $236,266 $245,373
To the Honorable Mayor
and Members of the City Council
City of Oak Park Heights
Page 5
As clearly shown above, A.A.E. Connection Charges received in 1992 and to be received in 1993
have been substantial. The projected 1993 amounts reflect solely those connection charges
assessed (Highway 36 properties) and those to be received from the school district. No
additional or future connection charges have been projected herein.
The cash transfers to debt service are designed to set aside sufficient amounts to meet debt
service requirements for two future years. Hence, the 1992 cash transfers relate to 1993 and
1994 bond principal and interest payments. The projected 1993 cash transfers relate to 1995
bond principal and interest payments.
To the Honorable Mayor
and Members of the City Council
City of Oak Park Heights
Page 6
1991 WATER AND SEWER REVENUE BONDS (#703)
The 1991 Water and Sewer Revenue Bonds were issued in 1991 to provide financing for the
City's first Annexation Area Extended construction project prior to the receipt of A.A.E.
Connection Charges. This first project was the 1991 Utility Improvements which included the
cost of the City's second water tower. Total debt service requirements for this bond issue is as
follows:
Year Principal Interest Total
1991 $45,322 $45,322
1992 77,695 77,695
1993 $50,000 77,695 127,695
1994 55,000 75,145 130,145
1995 55,000 72,258 127,258
1996 60,000 69,287 129,287
1997 65,000 65,928 130,928
1998 70,000 62,190 132,190
1999 75,000 58,060 133,060
2000 80,000 53,560 133,560
2001 90,000 48,640 138,640
2002 100,000 42,970 142,970
2003 115,000 36,570 151,570
2004 130,000 29,095 159,095
2005 145,000 20,515 165,515
2006 160,000 10,800 170,800
Total $1,250,000 $845,730 $2,095,730
As shown above, debt service payments are skewed towards the later years of this bond issue.
This was done by design to allow the City maximum options for the use of A.A.E. Connection
Charges for both construction purposes and debt service purposes, depending upon actual,
current and future A.A.E. Connection Charges revenue.
To the Honorable Mayor
and Members of the City Council
City of Oak Park Heights
Page 7
The use of A.A.E. Connection Charges for construction purposes is strongly contingent upon
first meeting the debt service requirements of this bond issue. Accordingly, A.A.E. Connection
Charges will first be used for debt service purposes; and second be used for construction
purposes. Towards this goal, we recommend the following cash transfers from the City's A.A.E.
Connection Charges funds to the 1991 Water and Sewer Revenue Bonds Debt Service Fund:
A.A.E. Connection Charge Fund Amount
Sanitary Sewer $17,500
Waterworks 118,000
Total $135,500
The above cash transfers (along with other assets committed to debt service) will provide
sufficient monies for 1993 and 1994 debt service payments for these bonds. The City Council
should approve the above cash transfers effective December 31, 1992.
1991 UTELITY IMPROVEMENTS (#713)
The 1991 Utility Improvements include the City's second water tower plus sanitary sewer and
water improvements along State Highway 36. This project was approved by the City Council in
1991 and should be completed in 1993. This project was financed by the 1991 Water and Sewer
Revenue Bonds.
The total estimated final cost of this project is approximately $1,250,000 at February, 1993.
Bond proceeds plus investment earnings will provide $1,175,000 leaving $75,000 to be financed
from other sources. This additional financing requirement relates to sanitary sewer and water
facility construction costs. Accordingly, we recommend that the City provide this additional
financing by a $75,000 cash transfer from the City's Utility Fund. City Council action should
approve this cash transfer effective December 31, 1992.
To the Honorable Mayor
and Members of the City Council
City of Oak Park Heights
Page 8
WAL -MART ADDITION (#714)
The Wal -Mart Addition project includes the initial construction of Norell Avenue from State
Highway 36 to the site of the City's second water tower plus sanitary sewer, water main and
storm sewer utilities therein. This project was approved by the City Council in 1992 and should
be completed in 1993.
The Wal -Mart development agreement has generated fees and charges to the City totaling
$406,529 as follows:
Description Amount
Park Fee $36,750
A.A.E. Connection Charges
1. Sanitary Sewer $38,751
2. Waterworks 67,088
3. Storm Sewer 56,668 162,507
Special Assessments - 1991
Utility Improvements 32,103
Other Charges 1,445
Norell Avenue Improvements 170,661
Total $403,466
An additional $46,176 of A.A.E. Connection Charges has been assessed against four separate
parcels to be collected over the next ten years. Two of these parcels have been "consumed" by
the MN DOT redesigned Norell Avenue/Highway 36 connection. Accordingly, the ultimate
collection of this additional amount is and/or will be subject to continuing negotiation.
To the Honorable Mayor
and Members of the City Council
City of Oak Park Heights
Page 9
The total estimated cost of the Wal -Mart Addition project is approximately $255,000 at
February, 1993. Developer (i.e. Wal -Mart) charges (for this project only) will provide $170,661
leaving $80,000 to be financed from other sources. This additional financing requirement relates
to storm sewer construction costs of $45,000 plus street construction costs of $35,000.
Accordingly, we recommend that the City provide this additional financing by cash transfers as
follows:
Fund/Description Amount
A.A.E. Connections Charges - Storm Sewer/
Trunk Storm Sewer Construction Costs $45,000
Closed Bond Fund/Non- assessable
Street Construction Costs 35,000
Total $ 80,000
The above $45,000 recommended cash transfer from the A.A.E. Storm Sewer Connection
Charge Fund is (in reality) a partial appropriation of the Wal -Mart A.A.E. Storm Sewer
Connection Charge - see above. The $35,000 recommended cash transfer from the City's Closed
Bond Fund represents non - assessed street construction costs for the west side of Norell Avenue.
These costs should ultimately be financed by future assessments /charges when the west side of
Norell Avenue is developed. At such time, the cash transfer recommended herein may be
returned to the City's Closed Bond Fund. The City Council should approve the above cash
transfers effective December 31, 1992.
To the Honorable Mayor
and Members of the City Council
City of Oak Park Heights
Page 10
HIGH SCHOOL IMPROVEMENTS (#715)
The High School Improvement project includes the construction of various trunk storm sewer
improvements at the site of the new high school and to the south thereof. This project was
approved by the City Council in 1992 and should be completed in 1993. The storm sewer
improvements being constructed by this project will benefit the School District plus additional
areas to the south and east of the new high school site. Accordingly, developer charges from the
School District will = completely finance this project.
The storm sewer improvements represent only a portion of the total improvements to be built to
extend city utilities to the new high school site. More important, developer (School District)
charges include fixed and variable charges for street, sanitary sewer and water improvements as
follows:
Description Amount
A.A.E. Connection Charges (Fixed Amounts)
1. Sanitary Sewer $201,372.60
2. Waterworks 405,341.00
3. Storm Sewer 289,348.20
Estimated 58th Street Improvements 182,586.60
Estimated Extra 161,797.26
Fixed/Estimated Total $1,240,445.66
As shown above, the only storm sewer monies to be received from the School District is the
A.A.E.. Storm Sewer Connection Charge. The remaining amounts represent amounts for
sanitary sewer, waterworks and/or street improvements. As such, those amounts are committed
to and for those purposes. More important, most of the above amounts are committed for debt
service and for the City's 58th Street Improvement project ($710,000). Accordingly, only
$289,348 of developer financing is available for direct financing of this project.
To the Honorable Mayor
and Members of the City Council
City of Oak Park Heights
Page 11
The total estimated cost of this project is approximately $650,000 at February, 1993. Developer
(i.e. School District) charges will provide approximately $290,000 leaving an estimated
$360,000 to be financed from other sources. This additional financing requirement relates to
storm sewer construction costs. Accordingly, we recommend that the City provide this
additional financing by a $360,000 cash transfer from the City's Closed Bond Fund. City
Council action should approve this cash transfer effective December 31, 1992.
The ultimate financing for this project (and other trunk storm sewer projects within the
Annexation Area Extended) is expected to be provided by A.A.E. Storm Sewer Connection
Charges. However, the cost and timing of this project (compared to the timing of existing
A.A.E. Storm Sewer Connection Charges) necessitates the need to use existing City reserve
balances at this time. The reserved balance of the City's Closed Bond Fund were earmarked for
this purpose when the City approved the A.A.E. Connection Charge method of financing these
trunk facilities. When future A.A.E. Storm Sewer Connection Charges become available, this
cash transfer can be returned to the City's Closed Bond Fund. In the interim, this cash transfer
will provide the needed additional financing for this project.
To the Honorable Mayor
and Members of the City Council
City of Oak Park Heights
Page 12
NORELL AVENUE/MN DOT (#716)
The Norell Avenue/MN DOT improvement project is the second phase of the Wal -Mart Addition
project. This project was approved by the City Council in 1992 and should be completed in
1993.
This project was precipitated by MN DOT's design change to the Norell Avenue/Highway 36
connection. The total estimated cost of this project is approximately $600,000 as of February,
1993 representing approximately $300,000 of construction costs plus approximately $300,000 of
land acquisition/right -of -way costs. None of such costs will be financed by developer charges.
Ultimate financing for this project is being "negotiated" between the City and MN DOT. Current
estimates (by the City Attorney) indicate that a minimum of $400,000 will be "reimbursed" by
MN DOT during 1993. The remaining $200,000 May bQ reimbursed in 1993 or some later date
depending upon current future "negotiations."
We recommend that the City provide temporary (and possibly permanent) financing of $200,000
by a cash transfer from the City's Closed Bond Fund. This cash transfer /financing is necessitated
by the uncertainties of MN DOT financing and/or the timing thereof. Should ongoing
negotiations with MN DOT provide full financing for this project, the $200,000 cash transfer can
be returned to the City's Closed Bond Fund. The City Council should approve this cash transfer
effective December 31, 1992.
To the Honorable Mayor
and Members of the City Council
City of Oak Park Heights
Page 13
58TH STREET IMPROVEMENT (#717)
The 58th Street Improvement project involves the extension of sanitary sewer and water lines to
the site of the new high school, preliminary street grading from Norell Avenue to the site of the
new high school, and a completed street from the new high school site to State Highway 5. This
project was approved by the City Council in December, 1992 and is expected to be completed in
1993 or early 1994.
The total estimated cost of this project is approximately $800,000 as of February, 1993.
Developer (i.e. School District) charges will provide approximately $705,000 leaving an
estimated $95,000 to be financed from other sources. This additional financing requirement
relates to sanitary sewer construction costs. Accordingly, we recommend that the City provide
this additional financing by a $95,000 cash transfer from the City's Utility Fund. City Council
action should approve this cash transfer effective December 31, 1992.
SUMMARY
Since 1991, the City has approved five major construction projects for the Annexation Area
Extended as follows:
Total
Estimated
Projects Costs
1991 Utility Improvements $1,250,000
Wal -Mart Addition 255,000
High School Improvements 650,000
Norell Avenue/MN DOT 600,000
58th Street Improvements 800,000
Total Estimated Costs $3,555,000
To the Honorable Mayor
and Members of the City Council
City of Oak Park Heights
Page 14
Financing for the above projects has been/will be provided as follows:
Source/Description Amount Percent
Bond Proceeds $1,150,000 32.30%
Developer Charges:
Wal -Mart 170,000 4.80
School District 995,000 27.90
State - MN/DOT 400,000 11.20
Investment Earnings 39,000 1.10
Sub -total 2,754,000 77.30%
Cash Transfers:
A.A.E. Connection Charges: 45,000 1.30%
Closed Bond Fund: 595,000 16.70
Utility Operations: 170,000 4.70
Total Cash Transfers 810,000 22.70%
Total Financing $3,564,000 100.00%
The above cash transfer from the A.A.E. Connection Charge Fund is (in reality) a re- allocation of
Wal -Mart storm sewer connection charge.
The above cash transfers from the Closed Bond Fund are required to meet the City's financial
commitment to these projects. The Closed Bond Fund has a balance of approximately $975,000
prior to these cash transfers and will have a balance of approximately $380,000 after such cash
transfers. Additionally, the Closed Bond Fund will receive approximately $230,000 in 1993
after the financial maturity of three 1980 bond issues. Accordingly, this balance should increase
to approximately $610,000 by December 31, 1993 even after the above recommended cash
transfers.
To the Honorable Mayor
and Members of the City Council
City of Oak Park Heights
Page 15
The above cash transfers from the Utility Operating Fund are also required to meet the City's
financial commitment of these projects. The Utility Operating Fund has a reserved balance of
$661,765 at December 31, 1992. This reserved balance is reserved as back -up financing (if
necessary) for the City's 1991 Water and Sewer Revenue Bonds. The above recommended
transfer will = effect this reserved balance. The Utility Operating Fund has an additional
balance of approximately $630,000 prior to these cash transfers. Accordingly, sufficient
balances are on hand in the Utility Operating Fund to provide this required additional financing.
All of the above recommended cash transfers (plus the additional cash transfers to debt services)
should be approved by the City Council effective December 31, 1992. Such approval will allow
the City's 1992 financial reports to properly reflect the status of the various funds of the City.
The following schedule will summarize all of the cash transfers recommended herein:
Source/Destination Amount
1. Sanitary Sewer Connection Charges:
1991 Water and Sewer Revenue Bonds $17,500
2. Waterworks Connection Charges
1991 Water and Sewer Revenue Bonds 118,000
Total Debt Service $135,500
3. Storm Sewer Connection Charges:
Wal -Mart Addition $45,000
4. Utility Operating Revenues:
1991 Utility Improvements 75,000
58th Street Improvements 95,000
5. Closed Bond Fund:
Wal -Mart Addition 35,000
High School Improvements 360,000
Norell Avenue/MN DOT 200,000
Total Construction $810,000
Total Cash Transfers $945,500
To the Honorable Mayor
and Members of the City Council
City of Oak Park Heights
Page 16
The purpose of this report is to identify committed construction costs and provide any required
financing needed. Each of the projects identified herein should result in additional future A.A.E.
Connection Charges as additional development occurs. This additional revenue has not been
projected nor for the financing of these projects. Accordingly, such future revenue will be
available to finance future projects and/or re -pay the cash transfers identified herein. We are
available to discuss the contents of this report at a future date.
Respectfully submitted,
TAUTGES, REDPATH & CO., LTD.
Certified Public Accountants
c: LaVonne Wilson, City Administrator
Judy Holst, Finance Director
Mark Vierling, City Attorney
Joseph Anderlik, City Engineer