Introduce Ordinance to Amend City Subdivision Code Related to Financial Sureties for Required Improvements

The City has been asked by a developer to explore opportunities for other forms of surety to ensure that required improvements as defined in City Code are completed in a timely manner consistent with approved plans.  Currently, the City's Subdivision Ordinance requires a cash surety or letter or credit in the amount of 125% the cost of required improvements.  For projects petitioned under the Minnesota Statute Chapter 429 process, City Code requires a financial guarantee of 20% the cost of the project over the life of the assessment.

No notification is required for amendments to City Code Chapter 117 Article II entitled "Subdivisions".

Cash sureties or letters of credit are common tools for municipalities to ensure timely completion of required improvements related to approved plats and is a power afforded to cities under Minnesota Statute Section 462.358.  This ensures, in the event of default of the developer, that the City has adequate financial resources to complete these necessary public improvements.

 

The City has been asked to explore alternative ways to provide security that required improvements are completed.  One such method suggested was to agree to hold the building code required Certificate of Occupancy until required improvements are completed.  Under this scenario, a building would not be occupied until the required improvements were completed.  The City could then collect a financial surety in the amount of 125% of the remaining/uncompleted required improvements if a Certificate of Occupancy.  It should be noted that the Certificate of Occupancy is legally tied to only the building code and extends only ten (10) feet beyond the foundation of the building.  The Building Official has stated this scenario would only be viable if the developer agreed to withhold the Certificate of Occupancy within the Development Agreement/Contract, which would be recorded against the property.  This way, the City has a legal avenue to withhold the Certificate of Occupancy for activities not ordinarily part of the Certificate of Occupancy.  City Staff's only concern with this scenario is in the event of developer default once a Building Permit has been issued but before a Certificate of Occupancy is issued. 

 

This may be a tool to spur economic development; however the City should take care to ensure that the City is protected in the event of developer default.  The City has had to, on occasion, call on these financial sureties even after construction has commenced and certificate of occupancies have been issued within project.  The City needs to ensure that the City will not end up being responsible for completing required public improvements without a financial surety to pay for these improvements.

 

Staff researched a small sample of metro cities with experience dealing with financial sureties.  Each of these three communities, based on Staff's interpretation of these codes, required a financial surety of at least the amount of the required improvements until such time the improvements were completed.  Staff will be prepared to illustrate impacts to pending developments in the City with different alternative surety scenarios at the meeting.

Staff recommends providing feedback as to alternative sureties.

The ordinance is being processed as part of regular staff duties.

Motion to introduce/not introduce the ordinance amending the City's subdivision ordinance related to financial sureties.