City Council

HOPKINS CITY COUNCIL WORK SESSION AGENDA Tuesday, January 14, 2025 6:30 pm THIS AGENDA IS SUBJECT TO CHANGE UNTIL THE START OF THE CITY COUNCIL MEETING I. CALL TO ORDER II. PRESENTATIONS 1. Housing Improvement Area Discussion; Needham 2. 2026 Budget Kickoff; Bishop III. ADJOURN  Planning & Economic Development CITY OF HOPKINS Memorandum To: Honorable Mayor and Council Members Mike Mornson, City Manager From: Revée Needham, Community Development Manager Date: January 14, 2025 Subject: Housing Improvement Area Discussion _____________________________________________________________________ PURPOSE The purpose of the Council work session item is to discuss housing improvement areas. INFORMATION Staff are anticipating an application soon for the establishment of a Housing Improvement Area (HIA) for the Summit on 7 condos. In advance of this application, staff would like to review HIAs with Council and answer any questions. Background Staff were initially approached by Doug Strandness, a consultant working with the Summit on 7 condos in July 2024. Staff have met several times with Mr. Strandness to discuss the project. City Council approved an updated HIA policy on September 18, 2024. The full staff report can viewed online at: https://www.hopkinsmn.com/AgendaCenter/ViewFile/Agenda/_09182024-464. In addition, staff have met with members of the Summit on 7 homeowners association board to review the HIA project and process. Mr. Strandness will briefly share more about the project and will be available for questions. HIA Overview Minnesota State Statute 428A outlines housing improvement areas and authorizes cities to establish HIAs. An HIA is a defined area within a City where housing improvements are made, and the cost of the improvements are paid in whole or in part from fees imposed on the properties within the area. HIAs are used to fund common area improvements and not improvements to specific units. HIAs are typically utilized by multifamily ownership housing associations, such as townhome and condominium associations. To establish an HIA, at least 50% of the owners subject to the fee must sign a petition in favor of the HIA. Because private banks are often unwilling or unable to finance common area improvements, HIAs are used as a last resort when associations do not have enough reserve balances to address common area needs. The City’s HIA policy outlines city-specific requirements and objectives for reviewing and establishing HIAs. Overview of HIA Process • Summit on 7 submits initial application including: project description, proposed timeline, estimated improvements, project budget, and denials for private financing from at least two financial institutions. • City staff, City attorney, and City financial advisor review application. • City Council reviews initial application. If given approval to proceed, the process continues. • Summit on 7 submits additional application materials including: petitions in support of the HIA from 75% of owners, financial plan, reserve study, and reserve plan. • City staff, City attorney, and City financial advisor review application and begin preparing a development agreement. • Public hearing notice is mailed to individual condo owners. • Council holds public hearing and reviews HIA adoption. If approved, the process continues. • Summary ordinance is mailed to individual condo owners. There is a 45-day objection period, where the ordinance would not be approved if 45% of condo owners file objections. • If the 45-day period passes without objection, Summit on 7 can move forward with construction. Summit on 7 would receive temporary construction financing from a private lender and manage the construction project themselves. • After construction is complete, the City would issue bonds to satisfy the construction loan and the actual costs of construction. Condo owners could prepay the fee upfront or would pay the HIA fee over time per the repayment details in the development agreement. Moving Forward Council is asked to consider: • What questions do you have about HIAs? • What questions do you have about the process? • What questions do you have for Summit on 7? • Do you have any concerns about HIAs or the process? FUTURE ACTION When an application is submitted, the Council will review at an upcoming meeting. SUPPORTING INFORMATION • HIA Policy  POLICY 7-I HOUSING IMPROVEMENT AREA POLICY 1. PURPOSE 1.01 The purpose of this policy is to establish the City’s position as it relates to the use of Housing Improvement Area (HIA) financing for private housing improvements. This policy shall be used as a guide in processing and reviewing applications requesting HIA financing. Requests for the establishment of HIAs shall be reviewed in accordance with state law and this policy. 1.02 The City shall have the option of amending or waiving sections of this policy when determined necessary or appropriate. 2. AUTHORITY 2.01 The City of Hopkins has the authority to establish HIAs under Minnesota Statutes, Section 428A.11 to 428.21, as amended. Such authority expires June 30, 2028, unless extended by the legislature. 2.02 Within an HIA, the City has the authority to: a) Make housing improvements b) Levy fees and assessments, including interest c) Issue bonds or use other funds to pay for housing improvements 2.03 The City Council has the authority to review each HIA petition, which includes scope of improvements, association’s finances, long term financial plan, and membership support. 3. ELIGIBLE USES OF HIA FINANCING 3.01 As a matter of adopted policy, the City of Hopkins will consider using HIA financing to assist private property association members only when the proposed privately owned housing improvement project will address one or more of the following goals: a) To promote neighborhood stabilization and revitalization, removing blight and/or upgrading the existing housing stock in a neighborhood. b) To correct housing or building code violations and address health and safety violations as identified by the City Building Official and code enforcement staff. c) To maintain or obtain Federal Housing Authority (FHA) mortgage eligibility for a particular condominium or townhome association home within the designated HIA. d) To increase or prevent the loss of the tax base of the City to ensure the City has a long-term ability to provide adequate services for its residents. e) To preserve or increase valuation and provide for the long-term maintenance of 1  the property. f) To preserve naturally occurring affordable housing. g) To stabilize or increase the owner-occupancy level within a neighborhood or association. h) To meet other goals of stated public policy, as adopted by the City of Hopkins from time to time, including promotion of quality urban design, quality architectural design, energy conservation, decreasing the capital and operating costs of local government, and other related policy goals. 4. HIA APPROVAL CRITERIA 4.01 In order to be eligible for HIA financing through the City, the association must submit a housing improvement project application along with all required fees as set by the Council and must follow the HIA review process set forth in this Policy. All HIA loans financed through the City of Hopkins must meet the following minimum approval criteria. A proposed housing improvement project that meets these criteria is not automatically approved. Meeting these criteria creates no contractual rights on the part of the City or any association. 4.02 The project must be in accordance with the Comprehensive Plan and Zoning Ordinances, or required changes to the Plan and Ordinances must be under active consideration by the City at the time of approval. 4.03 The HIA financing shall be provided within applicable state legislative restrictions, debt limit guidelines, and other City financial requirements and policies. 4.04 The project must meet one or more of the above adopted HIA Goals of the City of Hopkins as noted in Section 4. 4.05 The association shall designate an administrator to be the City’s point of contact throughout the process for HIA financing. 4.06 The term of the HIA should be the shortest term possible while still making the annual fee affordable to the association members. The term of the bonds or other debt incurred for the HIA should mature in 20 years or less. The City has the sole discretion to determine the source(s) of financing, and sources other than issuing bonds may be used. 4.07 Service charges, including, but not limited to, construction/housing improvement project costs, cost of issuance of bonds and other pertinent costs association with the proposed housing improvement project, will be imposed on the association members in the same ratio as common elements or other such uniform method as proposed by the applicant. 4.08 The association applying for the HIA must provide adequate financial guarantees 2  to ensure the repayment of the Housing Improvement Area financing and the performance of the administrative requirements of the development agreement. Financial guarantees may include, but are not limited to, the pledge of the association's assets including reserves, operating funds and/or property. 4.09 All taxes, fees, assessments, and charges for shared or common areas must be current. 4.10 The proposed housing improvement project, including the use of HIA financing, must be supported, in writing, by at least seventy-five percent (75%) of the association members. The association must include the results of a vote by a minimum of 75% of association members with its HIA application along with the petitions to create the area. 4.11 The minimum housing improvement project cost for the issuance of bonds is $750,000. 4.12 The association must have a replacement reserve study (the “Reserve Study”) prepared by an independent third party, with designation as a Community Associations Institute (CAI) certified reserve specialist. The Reserve Study must conform to CAI Reserve Study standards and Minnesota Statutes 515B.3-114 through 515B.3-1141. The components of the Reserve Study must include a thirty‐ year replacement reserve plan (the “Reserve Plan”), and the Reserve Study and Reserve Plan must be submitted with the proposed housing improvement project application and will be reviewed by the City’s financial advisor. The association must also have an independent third party prepare a thirty‐year reserve plan (the “HIA Reserve Plan”) with the components of the proposed project for housing improvements removed from the Reserve Plan. The independent third party must also prepare a thirty‐year financial plan (the “Financial Plan”) that reflects the annual replacement reserve contributions based on the HIA Reserve Plan. The Financial Plan will provide a plan for the association’s operating budget with cost increases over time to finance maintenance and operation of the common elements within the association and a long-range plan to conduct and finance capital improvements therein, that does not rely upon the subsequent use of the HIA tool. The HIA Reserve Plan and the Financial Plan must be submitted with the proposed housing improvement project application and will be reviewed by the City’s financial advisor. 4.13 HIA financial assistance is last resort financing and will not be provided to proposed housing improvement projects that have the financial stability to proceed without the benefit of HIA financing. Evidence that the association has sought other financing for the project must be provided at the time of application and should include an explanation and verification that an assessment is not feasible, along with rejection letters from at least two private lenders or other evidence indicating a lack of financing options. 3 4.14 The average market value of units in the association should not exceed 80% of the Area Median Income as set by the U.S. Department of Housing and Urban Development. 4.15 The association shall obtain temporary construction financing from a private lender, and the City shall provide a take-out commitment to the lender, detailing the terms of payoff of the construction financing. Upon project approval and issuance of a certificate of completion, the City will issue bonds or notes to satisfy the temporary construction loan. 4.16 The association must enter into a development agreement, prepared by the City, which may include, but is not limited to, the following terms: a) Establishment of a reserve fund b) Staffing requirements c) Annual reporting and financial auditing requirements, including regular updates to the financial plan not less than once every five years d) Conditions of disbursement e) Limitations on prepayment of fees, if any f) Required dues increases g) Notification to all new owners of levied fees, including to individuals that purchase property after the initial project h) Requirement of multiple bids for proposed housing improvement project construction i) Assessments, including interest and City fees 4.17 The improvements financed through the HIA should be exterior improvements and, in the case of a homeowner's association, the improvements should be restricted to Limited Common Elements defined within the association’s governing documents. The improvements must be of a permanent nature. The association must have a third party conduct a facility needs assessment to determine and prioritize the scope of improvements. 4.18 HIA financing should not be provided to projects that are not in the public interest, as determined by the Council, including: poor project quality; projects that do not comply with the Comprehensive Plan, zoning, or redevelopment plans, and City policies; projects that provide no significant improvement to the neighborhood and/or the City; and projects that do not provide a significant increase in the tax base and/or prevent the loss of tax base. 4.19 The financial structure of the project must receive a favorable review by the City's Finance Director and Financial Advisor. Legal components will be reviewed by the City’s legal counsel. If applicable, the review will include an analysis of performance and level of outstanding debt related to any previously approved HIAs. 4 4.20 If bonds are to be issued, legal components will be reviewed by the City bond counsel. 4.21 All rental units within the HIA must be licensed according to City ordinance. 4.22 The City will charge an administrative fee of 1% of the total project amount or $7,500, whichever is greater. The Association is responsible for all City out of pocket expenses, which can be financed with the project costs or paid from the escrow. Any unused portion of the escrow shall be refundable to the Association. 4.23 The City reserves the right to deny funding for specific improvements if they are determined to not be in keeping with the intent of the policy. 5  Finance CITY OF HOPKINS Memorandum To: Honorable Mayor and Council Members Mike Mornson, City Manager From: Nick Bishop, Finance Director Date: January 14, 2025 Subject: 2026 Budget Kickoff _____________________________________________________________________ PURPOSE To get feedback on the planned 2026 budget calendar and to discuss financial projections. 2026 BUDGET CALENDAR The proposed budget calendar follows the same timelines as the 2025 and 2024 budget cycles. Meeting Date Meeting Type Subject Details January 14th Work Session Budget Kickoff -Planned Budget Calendar -Financial Projections April-July N/A Internal -Departments Prepare Budgets, Preparations Equipment Replacement and Capital Improvement Schedules July TBD Review 2026 Tax -First Draft Levy and General Fund Budget August TBD Review Capital -Equipment Replacement Fund Improvement Plan -Park Improvement Fund and Equipment -Capital Improvement Fund Replacement Plan August Community Review 2025 Tax -Presentation Event Levy and General -Question and Answer Session Fund Budget September Regular Approve -Preliminary Levy Must be Meeting Preliminary Tax Approved by September 30 Levy And General Fund Budget September Regular Approve CIP and Meeting ERP  October TBD Review Other -Special Revenue Funds Budgets and Rates -Enterprise Funds -Utility Rates December 1st Regular Truth in Taxation -Overview of 2026 Budget and Meeting Hearing Tax Levy -Public Comment -Approve Final Levy (by December 28th FINANCIAL PROJECTIONS 2026 Financial Projections Based on available information, the preliminary tax levy for 2026 would be approximately $23.6 million or a 14.38% increase from the 2025 levy. The levy includes amounts for the general fund, capital improvements, Arts Center, Pavilion, equipment replacement, permanent improvements, parking fund and debt repayments. The major considerations related to the estimate for the 2026 financial projections are: • Increase to general fund expenditures of 7%. This is to account for COLA increases in settled and unsettled union contracts, step increases, increased health care costs and other inflationary increases. • Use of Fund balance in 2024 & 2025 to fund current operations • Tax levy support for four existing positions: o Three Police Officers  One currently funded by the American Rescue Plan Act  Two currently funded with Minnesota Public Safety Aid o Deputy Fire Chief currently funded with Minnesota Public Safety Aid • The addition of two new positions for the Administration Department o Positions in Human Resources and Information Technology • Projects scheduled in the 2025-2029 Capital Improvement Plan • Projects scheduled in the 2025-2029 Equipment Replacement Plan Additional Full-Time Employee Requests/Needs Eleven additional full-time employees are planned to be requested between 2027-2032 • Additions to the Police Department based on Axtell Group’s staffing o Three additional police officers in 2027, 2028 and 2029 o Two additional sergeants in 2031 and 2032 o Based on staffing study presented by Axtell Group on January 7, 2025 • Six additional full-time firefighters in 2030 o City will apply for Federal SAFER grant to fund the positions for three years beginning in 2027 o Based on staffing study presented by Raftelis on September 19, 2023 o https://lf.hopkinsmn.com/WebLink/DocView.aspx?id=451284&dbid=1&rep o=Hopkins City Council Budget The City Council budget will be reviewed. Staff is looking for feedback in two areas: • Increasing Salaries of Mayor and Council Members in 2026 o A review of salaries is required based on Hopkins City Code, Chapter 2, Article II, Section 2-19 o https://library.municode.com/mn/hopkins/codes/code_of_ordinances?node Id=PTIICOOR_CH2AD_ARTIICICO_S2-19SAMACOME • City Council Budget for Travel, Training and Conferences Tax Increase on Median Value Home vs. Tax Levy Increase The tax increase on a median value home is a useful metric for making budget decisions and will become more important as the City continues to grow. The redevelopment currently occurring and the future light rail developments can cause increased costs, but also increased tax capacity. The City’s 2025 tax levy increased by 4.92% when compared to 2024, while the city taxes on a median value home increased 2.88%. A major factor in this difference was increased tax capacity from new apartment buildings. FUTURE ACTION Staff will present a first draft of the 2026 Budget and Tax Levy in July.