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					City of Janesville Economic Development Authority: Dr. Janet Cherrington, Mike Finley, and Doug Yentsch, Board Members; Kari Grisim and John Sprengeler, City Council Representatives.

MINUTES City of Janesville Economic Development Authority Regular Board Meeting Monday, July 21, 2008 – 7:00 p.m.

I. CALL TO ORDER The meeting was called to order by Vice-Chair Finley at 7:05 p.m. Members Present: Members Absent: Staff Present: Dr. Janet Cherrington, Mike Finley, Board Members. Kari Grisim, City Council Representative. Doug Yentsch, Member; John Sprengeler, Council Representative. Christopher Elvebak; Community Development Director.

II. APPROVAL OF AGENDA Dr. Cherrington moved, seconded by Ms. Grisim, to approve the agenda. The motion passed unanimously.

III. APPROVAL OF MINUTES Mr. Finley moved, seconded by Dr. Cherrington, to approve the June 9, 2008 minutes. The motion passed unanimously.

IV. PUBLIC FORUM No one came forward to address the EDA.

V. NOTICES & COMMUNICATIONS 1. New Laws effective July 2008: Mr. Elvebak reviewed new laws effective on August 1, 2008 that came from the past legislative session. The Board briefly discussed their potential impacts on EDA activities. 2. Building Permit Quarterly Report: Mr. Elvebak distributed the quarterly permit report for Board review.

VI. NEW BUSINESS 1. Tax Abatement Request: R.K.&T. Development; Ray Kubat & Troy Schrom. Northwood Subdivision; Lot 5, Block 2. Townhome Rental Development.


The Board examined an application for tax abatement from R.K.&T. Construction. Mr. Troy Schrom was present to address the Board. Mr. Elvebak gave a review of the “but for” requirement for abatement, meaning abatement criteria stipulate that now subsidy can be granted “but for” a demonstration of public assistance. Mr. Elvebak also informed the Board that abatements are often granted through the issuance of general obligation bonds, and that those bonds are repaid through a set payment schedule of increased property taxes similar to a Statute 429 request for development projects. Janesville policies were looked at also. Mr. Finley asked how much the abatement request was for, as the total project cost on the application listed an estimated market value of 1.1 million dollars. Mr. Schrom addressed the Board and corrected Mr. Elvebak’s statement that what was shown was for the first two buildings of the first phase, not the entire development. The entire project would be 2.2 million dollars estimated market value at build-out. Mr. Finley asked if there were updated market studies on rents & costs and vacancy rates for similar market-rate townhome rental projects including Janesville. Mr. Finley said that the most recent housing market study data the board had seen was the 2006 study the City had done. Mr. Schrom said that he was not aware of an additional market study other than what was in their packet, but that he had received information from Lloyd Management. They manage rental units of various types in several locations. Mr. Schrom distributed handouts of floor plans & unit designs. He said these would not be units designed to handle government housing subsidy programs, they would be market-rate townhomes. He said the internal review of the project to get it to cash flow would be an $850 minimum monthly rent exclusive of utilities. Using the Lloyd Management data provided, he said that two bedroom to three bedroom rates for these projects run from $1000 to $1250 to $1500 dollar rents depending upon location & amenities. If R.K.&T. can put together a project that would be cheaper he said it would be a benefit to the community. Mr. Schrom listed an example of a very similar project being constructed in Eagle Lake. He said that in his discussions with Lloyd Management, he has been informed of an extensive waiting list on a 3 bedroom unit that recently became available in Eagle Lake. He said that people are on waiting lists for these units partially due to foreclosures and other market influences. Dr. Cherrington asked about available amenities on the units. Mr. Schrom said that no utilities were provided. Dr. Cherrington asked about exterior items of concern such as snow removal. Mr. Schrom stated that those items would be the responsibility of his company as the property manager. He also said that he and his partner started in the concrete trade, and that their hope is to be able to make the exterior finish of these units consist of brick to maintain the visual appearance and market rate of the townhomes. They don’t want to keep these items at vinyl siding or other similar materials.


Mr. Schrom told that Board that he and his partner have approached three different groups to date, and that each of them declined due to too much overhead or other markets where they thought they could fill vacancies quicker. With the use of the tax abatement, what they could do to reduce the overhead would be to pay off the assessment for this lot that came with the initial 429 bonding. He said by doing this the obligation of the 429 bond could be removed from the City and a 1.6 million dollar project could be reduced to a 1.1 million dollar project and make that work in current market conditions for cashflow. Dr. Cherrington asked on the original concept plan where these units were to be developed. On a projection screen the lot in question and the concept plan showing rental units were discussed. Dr. Cherrington asked where the initial assisted living facility or senior apartments were to go. Troy Schrom showed an adjacent parcel where that facility was to be constructed by Victor Callaway’s group, and that the land had been granted to them on a right of first refusal. He couldn’t speak for Callaway, but said that he thought they were waiting for market conditions to improve. Mr. Finley asked if the 1.1 million is what the City had to bond for? Mr. Elvebak said no that would be the initial estimated market value. Any bonding could be established for whatever repayment terms the City saw fit, within certain limits. Janesville policies say that the City can bond up to $100,000 in year in tax abatements at a maximum with increased tax revenues used to pay the bond payments. Mr. Elvebak asked Mr. Schrom to verify that what he was asking for on the application was a total of $85,000 of tax abatements. Troy said yes, that is what they were asking for over a five-year period not each year. Mr. Elvebak asked Mr. Schrom where the numbers came from for the estimated market value on the application and where the estimate for $40,000 in increased real estate tax revenue came from. Mr. Schrom said that number came from Bruce Boyce’s office at Waseca County. Mr. Elvebak said he would contact the Assessor’s Office to confirm as that estimated sounded high in his opinion. Mr. Finley asked if the $40,000 was the total amount of taxes collected or just the city portion. Mr. Schrom said that would be the total collected, of which the City receives approximately 36%. Mr. Finley asked if R.K.&T. was then approaching the school and county as well. Mr. Schrom said that the County already said no as their tax abatement capacity was already dedicated to the ethanol plant, but that he was approaching the school district with the same request. Troy Schrom wanted to clarify that the $85,000 was not requested for each year of abatement. He said that the finance source was all in line for the total project cost, but that the total of $85,000 over a five year period from both the City and School district abatements was necessary to show the financier the required numbers for the cash-flow for the project. Mr. Elvebak apologized for the confusion he thought that the $85,000 worth of abatements was being requested each year not total and was thus confusing the Board.


Dr. Cherrington asked what the school district portion would be. According to the tax distribution breakdown chart that the League of MN Cities sent to the City Council in a report earlier in the year, the School District would contribute its roughly 26% and the City would contribute roughly its 36% of the estimated total of $40,000 additional generated tax revenue each year. So the City would contribute $14,400 each year in tax abatement and the school district would contribute roughly $10,400 in tax abatements each year for 5 years or up to a total of $85,000. The Board asked about a statement in the application that said at the time the lot is remortgaged to RK&T Development, a special assessment of $85,000 would be paid off. Mr. Schrom said that at the time that RK&T exercises their option on the land and assumes the mortgage for the project, a special assessment of $85,000 is due via a 429 bond. The tax abatement would be used to pay off this assessment thus lowering the developer’s and the City’s exposure on an outstanding 429 bond. The Board continued to discuss the application and said some confusion and uncertainty over some of the numbers presented still existed. It was asked of Mr. Schrom to provide a pro forma showing rents at various occupancy levels, market study of existing conditions and similar properties in the area, and a financial breakdown to satisfy the “but-for” test before going on to the City Council. Dr. Cherrington voiced a concern about a lack of a current housing study and what other competitors may exist in the market. She stated that Eagle Lake has townhome rentals with 56 vacant units being marketed at $1,025 per month with a two car garage vs. a detached garage option. A more recent snapshot of the market would be useful for answering some of these questions.

VII. OLD BUSINESS 1. Proposal to Restructure the Revolving Loan Fund Mr. Elvebak said that at the last meeting the Board sought clarification from the City’s financial advisor on current Revolving Loan Fund policies. The question was if the current RLF could be used for supplemental loans with fixed low-interest rates for local business owners, or if a separate fund would need to be established? He said that after review it appears that the current RLF monies could be utilized for that purpose provided that policies were crafted to govern those disbursements. The Board discussed rough parameters for how such a program could work. It was discussed that fixed-rate, low-interest financing for short-term loans should be established. Parameters for a program would need to be created that spelled out any qualifications for disbursement & repayment. The Board discussed, as a starting point, up to $10,000 over a five year repayment period for a “fix-up” fund. The Board decided by consensus that an addendum policy would need to be crafted and added to the existing Revolving Loan Fund Policy. A new policy for these small loans


could be crafted that would allow for more flexibility and relaxed wage or job creation requirements.

VIII. ADJOURNMENT Ms. Grisim moved, seconded by Dr. Cherrington, to adjourn. The motion passed at 8:16 p.m.