2024 COR Infrastructure Improvements

PURPOSE:
To provide final direction to staff on the 2024 COR Infrastructure improvements, specifically the improvements that are TIF eligible expenses.  The waterfront park improvements will come to a future meeting.

BACKGROUND:
Since late 2022, the city has placed the build out of COR infrastructure as a high priority.  The purpose was first due to the time frame allowed to incur eligible expenses against TIF 14 would expire November 28, 2023.  Through special legislation in 2023, the deadline to incur expenses was extended to November 28, 2026.  The district itself is set to run through 2040. In other words, the city is allowed to capture tax increment through 2040 to repay eligible expenses that have occurred.

The current focus is on the western portion of the COR given that is where the development interest is currently the highest.  Three construction projects were awarded in 2023 within the TIF 14 district.  First, was a utility extension and road reconstruction/extension of Ferret St NW in a commercial/industrially zoned area west of Armstrong Blvd and south of Bunker Lake Blvd.  Second included a tree clearing project on city-owned parcels west of Center St.  The third project was the excavation of a storm water pond within the future Waterfront Park area, and subsequently using that material to mass grade the same area as the tree clearing efforts to prepare shovel ready sites.  A last component to work completed in 2023 was the full design of the remaining roadways (Center St. realignment, West Ramsey Parkway, Zeolite St.)  These expenses were funded through the issuance of a $7 million bond.

On July 18, 2023, the City Council began reviewing 2024 priority projects for the COR.  The early consensus was to construct the full length of Zeolite St NW and the section of West Ramsey Parkway between the round about and Zeolite.  The factors behind this direction are due to the active developments of Aldi and Hilton Home 2 Suites, as well as executed purchase agreements with Norhart (market rate apartment with first floor commercial) and Centra Homes (100+ detached townhome project).  It should be noted that both Norhart and Centra Homes will be contributing $256,000 each towards the construction of West Ramsey Parkway, west of Zeolite St.  Further direction at the time was to update the financial analysis of TIF 14 to better recognize committed projects, thus impacting future tax revenue.  The updated analysis is attached.

Staff have been working with Bolton & Menk throughout this process on the design of the roadways.  Attached is a concept showing the nearly finalized road design and estimated costs.  Minor adjustments between now and bidding on the projects for construction in 2024 will have minimal impact on the cost estimate.  These costs are TIF eligible expenses and have been included in the updated financial analysis. The 2024 project timeline is as follows:

• December 13, 2023 Staff relay decisions made by City Council to Bolton & Menk
• January 13, 2024 Bolton & Menk Finalize Plans
• February 23, 2024 Staff Completes final Review
• February 27, 2024 Council Approves Plans & Orders Bids
• March 28, 2024 Open Bids
• April 9, 2024 Council Awards Bid

Other low priority improvements that will be required when development occurs are located on the eastern portion of the COR near Ramsey Blvd.  This includes the connection of Veterans Drive to Ramsey Blvd (a right in right out access point will be constructed as part of the Ramsey Gateway Project) and Peridot St NW.  A high level estimate for these improvements is $2.6 million.

Ehlers financial analysis is based on actual dollars spent to date and 2024 tax revenues.  It further makes assumptions of future expenses based on engineer estimates for road projects and assumes future development growth, thus generating more tax revenue.  The analysis is also predicated on the City receiving special legislation to allow repayment of expenses that occurred without interfund loan resolutions.  See the last section of the analysis for a more detailed explanation.  A summary of the financial analysis is as follows:

Expenses:

• $44.2 million - spent to date
  • $6.952 million must be paid back (paygo notes and 2023A bond)
  • $37.248 million is highly desired to be paid
    • $26.5 million worth of eligible expenses which includes interfund loans with necessary resolutions
    • $10.7 million worth of eligible expenses that the city needs special legislation due to not having interfund loan resolutions
• $4 million of road improvements proposed in 2024
• $2.6 million of road improvements remaining on the eastern side of the COR

If we look at the expenses under two scenarios, we are left with different totals that can be repaid through tax increment.  This is due to the special legislation previously noted.

• $50.8 million in expenses (actual and estimated proposed) with special legislation approval
  • $43.848 million when netting out the required paygo and 2023A bond expenses
• $40.1 million in expenses (actual and estimated proposed) without special legislation approval
  • $33.148 million when netting out the required paygo and 2023A bond expenses

Revenue:
If development does not occur beyond what is currently being constructed or under purchase agreements, then the projected revenue through 2040 is $22.8 million.  Development is likely to occur, and therefore, Ramsey staff provided Ehlers with assumptions on future development and tax revenue.  If we use these assumptions, the tax revenue to the City that could be applied back to the eligible expenses is $45 million.  Both the $22.8 million and the $45 million in revenue netts out the required payment of the paygo notes and 2023A bond.

Other non-TIF Eligible Expenses:
The city has incurred $5.1 million in various park improvement, admin and marketing costs.  The intent by the city has been to repay those amounts through land sale proceeds.  To date, and included in the financial analysis, this has not been able to occur.  There is an opportunity for the city to capture some of that through future land sales.

Up to 30 Minutes for tonight's discussion

The estimated construction costs of Center St, West Ramsey Parkway and Zeolite St. total $4,058,000, plus 3% indirect costs for construction related services including construction staking and administration, and preparing as-built plans. Staff will inspect construction.

Previously committed 2024 improvements (July 18, 2023):

• $950,000 West Ramsey Parkway (west of Zeolite)
• $819,000 Zeolite Street
• $53,000 Indirect costs (3%)
  • $1,822,000 estimated total costs

Additional 2024 improvements to consider:

• $1,649,000 West Ramsey Parkway (east of Zeolite)
• $640,000 Center St
• $69,000 Indirect costs (3%)
  • $2,358,000 estimated total costs

Available funding sources for these improvements:

• $512,000 developer contribution
• $1,134,000 TIF 1 Fund Balance
• $2,250,000 TIF 2 Fund Balance
• $674,000 TIF 14 Fund Balance
  • $4,570,000 total funding source

Interfund loans would be created for the purpose of paying back the TIF 1 and 2 proceeds from future tax increment.

Brian Hagen, City Administrator
Bruce Westby, City Engineer/Public Works Director
Diana Lund, Finance Director
 

Provide direction on 2024 COR Infrastructure Improvements.  Staff is recommending the council authorize bidding and award a contract in 2024 to construct Center St, West Ramsey Parkway, and Zeolite St.  Funding is available for cash payment by utilizing available funds in TIF Districts #1, 2, & 14.  An added benefit would also be to reduce the number of summer construction seasons impacting residents and business in the area.