Appointed Committees

SALES TAX AD HOC COMMITTEE May 17, 2017 Page 1 Committee Members Present: Dean Frantsvog, Rick Hedberg, Shannon Straight, Stephanie Hoffart, John MacMartin, Robert Schemp Members Absent None Others Present: Tom Barry, Stephan Podrygula, Dan Jonasson, Sue Greenheck, Penny Johnson, Kelly Hendershot, Derek Hackett, Ryan Ackerman, Kelly Flermoen, Dave Schwengler, Jim Montgomery, Ron Merritt, Mark Lyman, Jill Schramm, Josh Wolsky, Allen Walter, Rick Feltner Chairman Frantsvog called the meeting to order at 12:00 pm. Minutes Alderman Hedberg moved to approve the minutes from the February 21, 2017 Sales Tax meeting, seconded by Mr. MacMartin and carried unanimously. Flood Control Project Scope, Cost & Funding Review The Public Works Director shared a presentation on the initial focus for flood protection in Minot through the Construction Stage 1.5 (also known as phases 1-4 and tieback levees). He showed pictures of the new flood plain map coming into effect in 2018, the phases currently in design or ready for construction and a map of future phases funded by the 65th Legislative Assembly. He said, once Construction Stage 1.5 is complete, it will remove 60% of homes from future FEMA FIRM maps and save on flood insurance cost for those homes. The total estimated cost for Construction Stage 1.5 is $325M, which includes approximately $25M for continued buyouts. The Public Works Director said, the $193M awarded from the 65th Legislative Assembly is for use in the city limits of Minot. This leaves it open for funding for additional work on projects not in the city limits. Upon questioning by the committee, Dan Jonasson stated, the Forrest Road project would need to be reconfigured if the Moose Lodge property is not obtained through agreement or eminent domain. He stated, the City is in the process of negotiating with the Moose Lodge for purchase. Alderman Straight asked if there has been discussion with the Souris River Joint Board (SRJB) about being the bonding authority for this project and obtaining bonding through them. Mr. Jonasson stated it has been talked about, however, SRJB may not have the financial backing or source of income for the bonds. Upon questioning by Mr. Schemp, Mr. Jonasson stated, the funding from the 65th Legislative Session is for the completion of Phases 1-4 but no more than $193M is to be used within the city limits. He said it is his understanding that after 2025 the City can request more money for future work inside city limits. City Bonding Limits The Finance Director discussed how much the City can bond to pay for the flood project. Currently, the City has approximately $171M in additional bonding capacity but there is a limit of how much they can afford towards the flood project. He also explained, the current city sales tax is divided as follows, the first penny has 50% toward flood control, 25% for capital improvements, 15% for economic development, and 10% goes to tax relief,. Revenue from the second penny goes to 40% infrastructure, 30% for tax relief, and 30% toward community development. Total taxes collected per penny annually is approximately $9.1M. SALES TAX AD HOC COMMITTEE May 17, 2017 Page 2 The Finance Director proposed two scenarios to help pay for phases 1-4. The first option would be to ramp up or gradually increase the percentage of the first penny to be used toward flood control over five years then, when the project starts to finish up gradually decrease the allocation toward flood control. The second scenario suggests using one full penny starting in 2018. Mr. Lakefield stated, one penny would cover the City’s share of phases 1-4 but will not be enough to pay for all phases. The group discussed the $193M in funding provided by the State. Ryan Ackerman, Administrator for the SRJB, stated, the funding available during the first biennium will be about $70M. The remaining $123M will come in the subsequent biennium and will be determined on need and the amount of revenue the state is able to collect. To spend the $70M the City is required to provide a match of 35% to the State’s 65%. Upon questioning from Alderman Frantsvog, Mr. Lakefield said the current flood control reserve at the end of 2016 was just over $12M. This account receives about $4.5M a year using just half of a penny. Alderman Straight questioned if the county could come on board in 2020-2021 with an additional half cent sales tax when the jail is completed. Upon further questioning from Alderman Straight, Mr. Lakefield said the ability to bond through the Industrial Commission, a 30-year bond backed by the Bank of North Dakota Program has been considered but not heavily looked at. The City has received information from the Bank of North Dakota, it is a 2% limit, with a limited funds available and deadline for submitting proposals. The City hasn’t contacted them yet, but staff can review to see if this would be an option. Mr. Schemp asked if there was a recommendation on the maximum term for bonds. Mr. Lakefield replied the City’s financial consultant recommends 15 years or less for terms of bonds, with an interest rate trending around a blended average of 3%. It is possible the rates can increase and the city has looked at the possibilities of up to a 4% in their projections to account for interest rate risk. Upon questioning from Alderman Frantsvog, Mr. Lakefield stated, the second scenario allows the City to keep the bonding at a minimum earlier on. While the first scenario, will require additional bonding which are typically longer term debt and will be increased cost, with increasing the half penny to a full penny over time. Mr. Lakefield recommends utilizing the second scenario using the full penny up front. Josh Wolsky, 1340 S Main Street, asked if there has been exploration on different bond terms with extending length and if there was a creation of special assessment district for public property, if bonds could be backed by this. Mr. Lakefield responded by saying, they have examined using special assessments like the Fargo analogy, however, Fargo is looking at special assessing most the city while it would be a smaller section of Minot that would be special assessed. The special assessment district would have to be created for residential homes and a majority of the public properties are owned by the City through the buyouts. This would make it much more expensive for these residents in the special assessment district to live. Preliminary Discussion of Sales Tax Allocations Alderman Frantsvog asked city staff to come back with other ideas and include more specific recommendations. The City Manager asked for some direction from the committee as to what is on the table and what is not on the table, so they know how to run models. Mr. Schemp said, he would like to find out the extent of what the City is going to build. He wondered if the plan is just phases 1-5 or will the City come up with a plan B to finish the flood wall for the whole city. He stated, before starting we need to know what are we going to build, how will it be paid for and what will protect the entire city from SALES TAX AD HOC COMMITTEE May 17, 2017 Page 3 higher flood insurance. Mr. Schemp also reminded, the second penny is dedicated to community facilities fund for four years and then allocated to NAWS for four years after. It will be eight years before the second penny is available to reallocate. Alderman Hedberg said, initially, he would like to look at utilizing one cent and also look at using the half cent from county taxes as a possibility after the jail is complete. He would be open to either model, either phasing in to a full penny or putting a full cent in right away. Alderman Frantsvog stated to get a full penny right away, one will have to look at eliminating Community Facilities and Economic Development. This will still leave the other 10% from tax relief or capital improvement projects. He does not feel the committee needs to be that ultra-aggressive, and would like a way to keep both the Community Facilities and Economic Development in place if on a smaller scale and look at phasing in overtime to a full penny even if it is spread over a five-year period. Mr. MacMartin agreed with Mr. Schemp’s concept. He said, we need to look at what are we going to build and commit to. He would like to know the complete flood wall will eventually be complete and to look at funding for this before we reach 2025, rather than having to start all over when the time comes. He would also like to look at Special assessment on public properties. The City Manager reminded the committee, this is a large project and we have to look at this at one step at a time. If we only can adjust one penny, then you have to look at what you can only afford to build based on bonds that can be acquired. He said, the City will need to look at what can be built and how fast it can be built, based on affordability. He sees that one cent is on the table for consideration, and can come back next meeting with what can be afforded to build and how fast. Mr. Schemp pointed out again, the second penny will be available after 8 years and at that time will have more than one cent. He would like to see a scenario where you can build phase 1-5 as long as there is a plan to build the rest with what we can afford, with the probability there will not be state funding available. Upon questioning from Alderman Frantsvog, Mr. Schemp said he would not like to see the full penny used immediately. Alan Walter, Ward County Commission, came forward to comment since the committee referenced the half cent county sales tax. He said, the County sales tax used for the jail will end December 2022. Then there will have to be a sales program to go on to put it back for flood control. At this point, he said the committee should not count on the half cent from the county. Alderman Frantsvog added, in order to use the county sales tax there would have to be a vote of the people. Alderman Straight said he would like to commit the full penny and have the Public Works Director discuss with SRJB about bonding the project similar to Fargo for the whole project. He also agreed with Alderman Frantsvog and does not want to see the Community Facilities and Economic Development completely removed in order to use a full penny. Mr. Jonasson wanted clarified for the committee, all of the phases seen currently were an effort to break down the flood protection because of the cost, and therefore it includes 14 different phases. The current phases chosen will get the biggest amount of dollar use and biggest amount of people out of the flood plain. The other phases are just as important but the project has to start somewhere. He also said, the current areas for phase 1-4 are where the City expended an extreme amount of flood fighting effort in 2011. This will help save time and effort in the event of another flood. The Finance Director also reminded, if an entire one cent of the sales of tax is reallocated, some of the money is currently used to finance property tax relief and infrastructure projects will need to come from another source, most likely property taxes. Currently, half of a cent equivalent in sales tax is SALES TAX AD HOC COMMITTEE May 17, 2017 Page 4 approximately $21M in property taxes that would need to be made up. Alderman Frantsvog asked Mr. Lakefield to bring his projections to the next meeting and break it down into dollar amounts to demonstrate the cost of property tax. Mr. MacMartin asked to receive all data a week before the next meeting so the committee has time to review. Alderman Hedberg also requested information on bonding scenarios longer than 15 years. Community Facility Fund Application The Finance Director discussed with the committee the current balance, estimated collections, and recent Community Facility requests. Alderman Frantsvog requested a breakdown of the numbers with more current figures for next meeting. He directed the City staff to contact the current Community Development Chairman and discuss the possibility of accepting new applications for this year. The next meeting will be Tuesday, June 6th, 2017 at 12:00 pm. There being no further business, the meeting was adjourned at 1:18 pm. Respectfully Submitted, Lacey McCarten Administrative Clerk