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Home My WebLink About~Master - General Obligation Urban Renewal Loan Agreement - Downtown Reinvestment District Urban Renewal and Indoor Aquatics Center MEMO AkMI€° 0F., ,Fly Ames. Caring People•oQualio Programs•Exceptional Service Date: July 13, 2021 To: Steve Schainker, City Manager From: Duane Pitcher, Finance Director Subject: Summary of Cashflow and Estimated Tax Impact of Aquatic Center with Iowa Reinvestment District Program Award of $10,000,000 and without the Reinvestment District revenues. With recent notice from the Iowa Economic Development Authority of a "provisional award" under the Iowa Reinvestment District, we have done some analysis of the impact of the reduced award on property taxes and cashflow for the Aquatic Center funded with or without the district funds. Though the City and taxpayers would have benefited from a larger award, the decreased award greatly increases the likelihood that the district will generate the award amount expected and will generate it sooner. Additionally, the reduced award will allow additional flexibility in the bond structuring to match the expected cashflow more closely from the state award. Financial Information on the Proiect Item number 26 on the July 13, 2021 City Council agenda provides an update to the City Council on the status of the reinvestment district project. The project impacted by reduction in the award amount is the Aquatic Center since the total amount of these State funds that are received have been earmarked to this one project. The following table reflects this same information along with the current estimated property tax impact on residential property owners. It should be emphasized that all information highlighted in this table will have to be updated prior to the City Council taking action to issue General Obligation Bonds to reflect updated cost projections, donation amounts, Reinvestment District revenues, interest rates, tax rates, etc. 2 �s � L -"ka� r( ` ESx�,ti! a 4 s E1ji ! t NEI 7 t• w � „!P .t ` a " �¢ r f '�esy�S - � Ira+ �r ` sSs 33�5 € 5 r t P s rr.: TABLE 1 Assumption#1 Assumption#2 No Reinvestment Receipt of District Funding $10,000,000 Reinvestment District Funding Current Estimated Cost of Aquatics Center(2022 $27,494,000 $27,494,000 Dollars) Sources of Fundinq: Goal For Donations $10,000,000 $10,000,000 Current Estimated Amount of General Obligation $17,494,000 $17,494,000 Bonds to be Issued Current Estimated Annual Debt Service Payments $1,096,037 $1,096,037 (Principal + Interest) Current Estimated Annual Amount Applied to Property $1,096,037 $596,037 Tax Levy Current Estimated Annual Amount Allocated to the $0 $500,000 Reinvestment District Funds Current Estimated Annual Property Tax Cost for $18.51 per $10.07 per Residential Properties for the Principal and Interest $100,000 of $100,000 of Payments on G.O. Bonds assessed valuation assessed valuation $0.33 increase in $0.18 increase in property tax rate per property tax rate per $1,000 of taxable $1,000 of taxable valuation) valuation) Current Estimated Annual Property Tax Subsidy for the $400,000 $400,000 Operating Expenditures Current Estimated Annual Property Tax Cost for $6.92 per $6.92 per Residential Properties for the Operating Expenditures $100,000 of $100,000 of assessed valuation assessed valuation $0.12 increase in $0.12 increase in property tax rate per property tax rate per $1,OOOoftaxable $1,OOOoftaxable valuation) valuation) Annual debt service (principal and interest payments) to repay the bonds is expected to be approximately$1,096,037 with a final maturity of 20 years after the date of issue. With an award of $10,000,000 in Reinvestment District funds, the debt service would be allocated annually at $500,000 to the Reinvestment District funds and the remainder of $596,037 paid through the Debt Service Levy of our property taxes. It should be remembered that the Aquatic Center is also expected to require an operating subsidy of approximately$400,000 annually which will have to be funded also by property taxes raised through the General Levy. Cashflows for Debt Service There is a difference in timing between when the GO bonds will be issue d and when Reinvestment District will be generating revenue to repay the bonds. Currently bonds are expected to be issued in earl FY 22/23 and the Reinvestment District current) is not p Y Y expected to be generating revenue until FY 24/25. This means that there will be two fiscal years when debt service payments are due, but no reinvestment funds will be available to contribute to debt service. With the $10,000,000 award amount, the City Council will have options to consider to cover the cashflow to repay the bonds. These options include: Structuring bonds to match cashflow. The portion of the bond payment that will be paid by the debt service property tax levy will cover interest and some amount of principal for the bonds issued to fund the Aquatic Center. The bond repayment could be structured to have less principal due in the early years and more in the later years. This would increase the overall cost of funding due to higher interest costs. Carry cost in the reinvestment district fund. The City consolidates cash and investments and can carry the cost of the early debt service with no impact on other funds. The Reinvestment District rules require that a separate fund be established for the reinvestment district revenue, this fund could be allowed to carry a negative balance in the early years of the project and be charged with interest. GO bonds could be amortized with equal payments throughout the term and paid from proportionally from the property tax levy and the reinvestment district fund. In later years the reinvestment district revenue is expected to exceed the debt service amount and will cover the deficit. This is similar to how cities account for TIF debt, however with TIF we can claim addition TIF funds to cover interest costs while the reinvestment district revenue is fixed at the award amount. f The decision on how to address cashflow will likely be clearer after the City has entered into developers' agreements the private development project. We do not anticipate that there will be any issues related to cashflow for the project. Conclusions City staff has been clear in all communication that using the Iowa Reinvestment District Program to fund a city facility carries some level of risk. With the award amount being just under half the amount requested and also less than half the revenue projected by our consultants to be generated by the Reinvestment District, the risk of the district not generating planned revenue is significantly reduced. The first phase of the reinvestment district development includes the aquatic center, the Onadoga properties, and the Lincoln Way development are expected to generate $16,660,397 in reinvestment district revenue, far in excess of the award amount. Further developments within the district will generate additional revenue. With the reduced award amount and a little over half of the debt service cost planned to be paid with the property tax levy, the reinvestment district revenue could fall short of anticipated amounts and still meet the planned award amount.