City Council - Workshop Meetings

City Council Workshop Meeting Cherry Conference Room August 28, 2024 | 5:30 PM This City Council Workshop meeting is taking place virtually and at Woodbury City Hall in the Cherry Conference Room. Members of the public may attend the meeting in person and may also join the meeting using a computer, tablet, or smartphone and accessing the virtual meeting link at woodburymn.gov/VirtualMeetings. Watch the Live Meeting Public comments will be accepted during the meeting both in person and virtually. Virtual questions should be submitted via the online Q&A feature within the virtual meeting link. Questions regarding the meeting will be taken between the hours of 8:00 a.m. to 4:30 p.m. at 651-714-3524 or at council@woodburymn.gov. Questions received after 4:30 p.m. will be responded to in the next three to seven business days. Please note that all agenda times are estimates. 5:00 p.m. Dinner – Cherry Conference Room The intent of the workshop session is to provide a forum for City Council and City staff to discuss more in-depth Council items, exchanging viewpoints and visions prior to the item being set for Council action at a regular meeting of the City Council. Workshop sessions are neither a public hearing nor an open microphone session. No formal votes will be taken and any direction from Council will be in consensus format. The workshop session is not recorded, and no official minutes of the workshop session shall be prepared. Workshop Agenda 1. Workshop Discussion Items - 5:30 p.m. 1A. Housing Action Plan Update, Part Two 24-214 1B. Destination Marketing Organization Update 24-215 2. Administrator Comments and Updates* - 7:00 p.m. 3. Mayor and City Council Comments and Commission Liaison Updates* - 7:05 p.m. 4. Adjournment - 7:15 p.m.  Items under comments and updates are intended to be informational or of brief inquiry. More substantial discussion of matters under comments and updates should be scheduled for a future agenda. The City of Woodbury is subject to Title II of the Americans with Disabilities Act which prohibits discrimination on the basis of disability by public entities. The City is committed to full implementation of the Act to our services, programs, and activities. Information regarding the provision of the Americans with Disabilities Act is available from the City Administrator's office at 651-714-3523. Auxiliary aids for disabled persons are available upon request at least 72 hours in advance of an event. Please call the ADA Coordinator, Clinton P. Gridley at 651-714-3523 (TDD 714- 3568) to make arrangements.  1 City of Woodbury, Minnesota Office of the City Administrator Council Workshop Letter 24-214 August 28, 2024 To: The Honorable Mayor and Members of the City Council From: Clinton P. Gridley, City Administrator Subject: Housing Action Plan Update, Part Two Summary The 2021 Housing Action Plan (HAP) provides short-and long-term policy guidance regarding strategies to assure the creation, access, and preservation of affordable housing, revitalization of existing housing and preservation of neighborhoods. With various changes in terms of the marketplace, housing staff, state and county programming. The City Council has been reviewing the HAP. Our first workshop meeting of March 13, 2024 sought to address the following questions:  Should the budget for HRA loan disbursements be increased for the 2025 HRA Budget? If the loan disbursement budget is to be increased, should the HRA Levy be reinstated to support increased loan activity?  What are the housing policy priorities for the Local Affordable Housing Aid revenue? Based on these priorities, what direction should staff pursue for next steps to be discussed at the June Council Workshop? The discussion at this workshop will focus on how to best use the City’s Local Affordable Housing Aid (LAHA) distributions1, and how recent legislative changes have impacted the HRA’s current budget and programming. Discussion topics will include: 1. LAHA legislative and distribution updates 2. June 12, 2024, HRA meeting follow-up 3. HRA fund balance projections 4. LAHA funding priorities Recommendation Staff will present three recommendations for Council’s consideration: 1. Maintain the 2024 HRA’s loan disbursement budget due to a lower-than-expected LAHA disbursement, and carry over the 2024 LAHA distribution for 2025 activities. 1 In May of 2023, HF2335, also known as the Housing Finance and Policy Bill, was signed into law. The housing package appropriates over $1 billion in annual funding to new and existing programs to develop and expand the supply of affordable housing. As a result, Woodbury will receive approximately $300,000 of Local Affordable Housing Aid (LAHA) revenue in 2024, which is projected to grow to over $720,000 in 2025. These figures have been updated from earlier estimates shared with Council. Council Workshop 24-214 August 28, 2024 Page 2 2. Evaluate, during the September budget workshop, the appropriate HRA Levy based on the HRA’s projected financial position and HRA Fund Policy HRAD-1.5. 3. Allocate 2025 LAHA disbursements to housing programming as follows: a. Supplementing the HRA Loan Programs b. Gap Financing/Preserving Affordable Housing/Land Banking Governance Mode Generative (identifying key questions, anticipating future challenges, framing of issues, development of options). Fiscal Implications This workshop item will not have any specific fiscal implications but may lead to policy conversations regarding HRA fund balance (Fund 295), the HRA property tax levy, Local Affordable Housing Aid, and the role and nature of the City’s investments in affordable housing. Policy 2021 Housing Action Plan 2040 Comprehensive Plan Public Process The 2021 Housing Action Plan was adopted by the City Council on April 14, 2021. This will be the second of two workshop sessions on this topic, with the first workshop held on March 13, 2024. Background LAHA Legislative Update 2 During the 2024 legislative session, amendments were adopted to the 2023 law establishing the Metro Area Affordable Housing Sales Tax and LAHA disbursements to metro cities and counties. The most consequential of the amendments passed, is new language stating that LAHA must supplement and not supplant locally funded expenditures for existing housing programs. Recipients of LAHA will need to provide expenditure reports annually beginning in 2025 to document compliance with this requirement. The 2025 report will be a two-year look back and subsequent years will be a one-year look back. Expenditures will be reviewed by the Minnesota Housing Financing Agency (MHFA) to see if locally funded expenditures for existing programs were decreased and supplanted with LAHA. Local expenditures can be decreased but an explanation for the decrease must be provided with the report. If it appears that LAHA was used to supplant local funds for existing housing expenditures, the LAHA funds must be repaid, and the Department of Revenue may withhold future disbursements. 2 The information in this section is based on an FAQ released by MHFA, conversations with MHFA staff that will administer the LAHA program, and legislative liaisons representing metro cities. Council Workshop 24-214 August 28, 2024 Page 3 Essentially, LAHA recipients cannot replace the local funds that have historically supported existing program expenditures with LAHA. The City’s HRA must continue to support its loan programs with local revenues and can select to supplement the program with LAHA to increase the number of loans issued. MHFA’s attorneys are still interpreting the intent of the legislation. LAHA reporting requirements and the review process are still in development. Additionally, LAHA cannot be used for administrative costs unless it is directly tied to providing a housing program or service as outlined in the statute. It was further clarified that if LAHA is deposited into a Local Housing Trust Fund, none of the funds can be used to cover unqualified administrative costs as well. HRA labor reimbursement expenditures would not be a qualified use of LAHA and will need to continue to be paid with local revenue. LAHA Distribution Update The City’s 2024 LAHA distribution totaled $301,991, which is approximately half of what the City was projected to receive. This was not unique to Woodbury; most other LAHA recipients received 50 percent or less of what had been projected in 2024. The Department of Revenue stated the lower disbursement amount was due to 2024 only being five months’ worth of collection from October 2023 through February 2024, whereas the original projection likely included additional months. LAHA will be disbursed to the City in two installments, each totaling $150,995 on July 20, 2024, and December 26, 2024. Disbursements will be made on the same dates in future years. Based on the LAHA received in 2024, staff anticipates 2025’s disbursements to be approximately $720,000. The LAHA projections referenced earlier, originally projected the city receiving $908,000 in 2025. The $720,000 staff estimate is a conservative amount, but it will be difficult to accurately anticipate what will be received until a full year of revenue collection has been completed. For budgeting and planning purposes, it will be best to use the conservative estimate for 2025 activities. Additionally, a separate Special Revenue Fund within the Community Development Department will be established for LAHA (Fund 296). Due to the State reporting requirements, it will be best to keep LAHA funds separate from HRA funds. Other reasons for establishing a separate fund include simplifying the accounting of program income, timely spending reporting and to prevent the mixing of funds for unqualified uses. June 12, 2024, HRA Meeting Follow-Up Demand for the HRA’s Loan Programs was exceptionally high this year and all 2024 budgeted funds were expended or reserved by the end of June. The HRA loan activity includes 26 loans using a combination of HRA ($712,000) and CDBG ($36,000) funds. An HRA meeting was held to discuss options for continuing the program with a possible budget adjustment for the remainder of the year. Staff also informed the HRA of recent changes to LAHA legislation that may have future consequences if additional local funds are expended for more loans. The three options presented by staff included: 1. Pause: Do not consider 2024 budget amendments to allow additional expenditures to the 2024 budget until more clarification is provided by MHFA regarding expenditure reporting. However, if sufficient clarification is received this fiscal year, and loan demand remains high, retain openness to consider a fiscally prudent additional loan budget appropriation request. Council Workshop 24-214 August 28, 2024 Page 4 2. Stop: Once the 2024 loan budget appropriation has been utilized, cease all additional lending for the loan programs in 2024 and await the 2025 budget process and MHFA clarity regarding expenditure reporting requirements. 3. Go: Continue business as usual and prudently seek to meet loan demand through budget adjustments to local funding, in combination with LAHA disbursements, to support more lending in 2024, recognizing that this approach raises the locally funded expenditures which will be used as the local expenditure baseline in 2025. The HRA selected the “Pause” option and directed staff to collect more information from MHFA regarding LAHA and to report back at the August 28th Workshop. City staff met with MHFA’s newly hired staff which will administer LAHA and review the required annual reports. Staff asked them if the HRA would be out of compliance if it were to do the following in 2025:  Decrease HRA loan program expenditures in 2025 from what was expended in 2024 ($712,000).  Budget 2025 loan program expenditures to $550,000, which is the three-year historical average.  Supplement additional lending above $550,000 with LAHA which would allow the City to expand the loan program going forward. Staff further explained that recent expenditures have been unusually high due to demand for the loan program, and that the HRA cannot continue to locally support the level of spending that occurred in 2023 and 2024. MHFA confirmed to staff that the proposed scenario would be compliant if the HRA supplies documentation to support rationale for the proposed expenditure decrease in 2025. However, decreasing expenditures any further and supplementing with LAHA without valid reasoning could be considered non-compliant. HRA Fund Balance Projections The 2024 HRA budget, when presented and adopted, was based on information regarding the new LAHA revenue that is no longer accurate. Since the adoption of the 2024 budget there have been ongoing statutory developments regarding LAHA and a year of extremely high demand for the loan programs. As such, all HRA expenditures for 2024 will need to be covered by revenue from principal and interest payments, miscellaneous income, and fund balance. It was originally planned that LAHA would be the primary revenue source for HRA loan activity, but that is no longer possible. Furthermore, LAHA cannot be used to reimburse expenditures already incurred and cannot be used for operating costs not directly tied to providing a housing service. These LAHA restrictions have created a fund balance decrease from $1,673,645 at the beginning of the year, to an anticipated end-of-year balance of $1,063,838. If the HRA wishes to use LAHA to supplement the loan programs in 2025, the HRA will need to commit at least $550,000 in local funds before LAHA can be used. Currently, the HRA’s expenditures for operating costs and programming greatly exceed its revenues, and principal payments are on track to be much lower than in prior years. Repayment of principal can provide a boost to revenue, but it is subject to market conditions and the ability of borrowers to sell their homes and move. The attached HRAD-1.5 HRA Fund Policy states that if the end-of-year fund balance is less than two times the three-year expenditure average, the HRA levy should increase. Furthermore, the increase should last until the fund balance reaches two times the three-year average. Currently,  Council Workshop 24-214 August 28, 2024 Page 5 the three-year expenditure average is approximately $830,000 and the projected end-of-year fund balance is $1,063,838. The 2024 HRA levy was set at zero, and the HRA’s current financial position suggests the levy should be increased in accordance with HRAD-1.5. The chart below is a five-year projection of the HRA fund balance with three levy scenarios: zero levy, reinstating a $250,000 levy, and increasing the levy to $350,000. 5-Year Fund Balance Projections With and Without HRA Levy $2,500,000 $2,000,000 $1,500,000 End of Year Fund Balance $1,000,000 $334,070 $1,063,838 Historical Fund Balance $500,000 Zero Levy $- $250,000 Levy $350,000 Levy $(500,000) $(165,930) $(1,000,000) $(1,500,000) $(1,415,930) $(2,000,000) 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 The expenditure assumptions include $550,000 in loan disbursements, annual four percent increase for labor reimbursement, with all other operating expenditures remaining the same year to year. For revenues, staff assumed $297,200 in principal and interest payments, miscellaneous income, plus either a zero, $250,000, or $350,000 levy. If the levy remains zero and there is no substantial increase in revenue from loan repayments, the HRA will not be able to fund the loan program in 2026. If the levy is reinstated to $250,000, the fund balance will continue to decrease to the point where funding loans is not possible around 2027. If the levy is increased to $350,000, the fund balance will continue to decrease, but at a much slower rate. Housing Levy History The chart below depicts the annual levy by either the City’s Economic Development Authority (EDA) or the HRA. In 2001, a housing levy was initially adopted as a strategy to generate revenue to achieve affordable housing development goals of the City’s original Housing Action Plan. Upon the creation of the HRA in 2007, housing related activities were transferred from the EDA to the HRA. The HRA levy was first implemented in 2008 to fund the HRA’s homeownership and home improvement loan programs, and to fund staff time to administer housing related tasks. Council Workshop 24-214 August 28, 2024 Page 6 LAHA Funding Priorities The law which established LAHA, provides a list of qualified uses for the revenue, and staff are seeking direction from Council on the funding priorities for these funds. Staff have identified four housing initiatives for Council’s consideration. Prioritizing the initiatives will assist with establishing a foundation to begin assigning a share of the LAHA funds based on the level of priority directed by Council and developing program policies for these initiatives. The recommended uses for LAHA listed below, are either already identified as a specific policy section within the 2021 Housing Action Plan or are in alignment with the guiding principles of the plan. In addition to achieving goals of the Plan, these recommended initiatives will assist with meeting the Metropolitan Council’s affordable housing unit allocations for the City and in creating housing with deeper affordability for the City’s lowest income households. Staff recommends allocating LAHA to a pool dedicated to three activities:  Preserving existing affordable housing units  Gap financing for new construction of affordable units  Land banking for future affordable housing development Staff recommends pooling the funds for these activities so the City can be opportunistic and utilize funds when qualified projects emerge. Pooling the funds will allow staff to be flexible when identifying projects to address new needs or challenges. The City’s ability to provide larger subsidies can increase the City’s leverage to request units with deeper affordability as well. If the HRA decides to prioritize these three activities, staff will need to develop policies and procedures to establish guidelines for utilizing funds for these purposes and project eligibility to receive funding. 1. Preserving Existing Affordable Housing - The challenge of losing affordable housing units is becoming increasingly more common as large numbers of Low-Income Housing Tax Credit (LIHTC) units constructed in the 1990’s and early 2000’s are reaching the end of their affordability period. In Woodbury, there are currently eight affordable housing developments subsidized through LIHTC, totaling 691 units. Of the eight developments, Council Workshop 24-214 August 28, 2024 Page 7 three will reach the end of their affordability period over the next decade. In addition to these three (3) LIHTC properties, there is also a housing TIF development approaching the end of its affordability period. In total, there are 120 affordable units at risk of converting to market rate this decade in Woodbury. This does not include any naturally occurring affordable housing units that may be sold to new owners with the intent to increase rents. LIHTC and TIF Subsidized Properties in Woodbury Service Service Property Address Subsidy Units Start End Ashwood Ponds 6725 Ashwood Road LIHTC 36 1996 2026 Stonecrest Senior 8725 Promenade Lane TIF 17 2001 2026 Living Lakeside 401 Lakeview Alcove LIHTC 32 2001 2031 Townhomes Pondview 431 Woodduck Place LIHTC 35 2004 2034 Townhomes Sienna Ridge 11086 Cresthaven Trail LIHTC 41 2008 2038 Townhomes Views at City 375 Lake View Drive LIHTC 45 2013 2043 Walk Glen at Valley 7995 Afton Road LIHTC 42 2019 2049 Creek Legends of 570 Settlers Ridge Pkwy LIHTC 216 2019 2049 Woodbury Orville Commons 4290 Radio Drive LIHTC/HOME 235 2023 2053 In response to this challenge, other communities have developed local financial incentives to preserve affordable units. These incentives include deferred no interest loans, principal only loans, grants for capital projects, and debt buy-down to reduce operating costs. In exchange for the low-cost capital, a new affordability declaration is placed on the property which again restricts rents and tenant income for periods ranging from ten to twenty years. The Washington County Community Development Agency (WCCDA) has already prioritized LAHA dollars towards addressing the expiring affordability issue. It could be beneficial for the City to also prioritize its LAHA dollars as a measure to ensure WCCDA spending occurs within Woodbury. Partnering with the WCCDA to leverage the funds of both agencies for preservation incentives could increase the impact of LAHA dollars and the likelihood of success in this area. 2. Gap Financing- New Construction - Gap financing is the providing of funds to fill gaps between the amount of financing available and the actual cost of a development. When gaps occur, developers typically turn to units of government to assist with a subsidy. In most instances, communities provide gap financing in the form of a loan. The loans typically offer terms that include deferred principal and interest or may be structured as a forgivable loan. Communities will also place additional conditions on loans such as requiring deeper affordability for a number of units proportional to the loan amount. The most recent example of gap financing in which the City participated was for Orville Commons, where the City utilized HOME grant funds. Council Workshop 24-214 August 28, 2024 Page 8 3. Land Banking - Land banking is one of several policy sections identified in the adopted 2021 Housing Action Plan. The City has not been able to realistically pursue land banking due to the high cost of acquiring land and holding it for long periods of time. Historically, the HRA fund balance has been the only revenue source available for this activity, and purchasing enough land to make a meaningful impact would greatly deplete the fund balance. City staff anticipates a parcel of at least five acres would be needed to facilitate a future affordable multi-family development. LAHA revenue presents an opportunity to accumulate funds over time to better respond to opportunities that arise to acquire land and leverage other HRA funds if needed. The WCCDA has already prioritized this activity for the use of their LAHA disbursement, and there is the possibility for partnership to leverage the funds of both agencies for land acquisition in the city as well. Supplement the HRA Loan Programs - Staff recommends allocating LAHA to supplement the HRA loan programs. The HRA’s First-Time Homeownership and Neighborhood Reinvestment loans are the City’s bread and butter housing programs. To date, the HRA has loaned an aggregate amount of $8,096,628 and assisted over 335 households. Historically, the programs see increased demand during periods of high interest rates and rapidly increasing home prices. In 2023 and 2024 the HRA issued 52 loans, the highest two-year number since 2016-2017. Staff anticipates a sustained high level of demand for the HRA programs in 2025 due to continued elevated interest rates and home prices. Downpayment assistance programs are a qualified use for LAHA revenues. Revenues received by the City can be used to fund the HRA loan programs or be leveraged with other local revenues to increase the level of service. If Council elects to supplement the loan programs, the current policy regarding income eligibility will need to be updated to reflect the income limits established for LAHA. Moreover, the HRA will need to expend all its budgeted local funds for the year prior to utilizing LAHA to issue loans. Next Steps 1. Develop policies and procedures for new LAHA funded housing programs (affordable housing preservation, gap financing and land banking). 2. Adjust HRA Loan Program income eligibility policy to comply with LAHA income limits. 3. Finalize the 2025 HRA budget during the September Budget Workshop. 4. Adopt proposed HRA Levy in September. 5. Evaluate levy and revenue options to stabilize the HRA fund balance. Written By: Jamie Fritts, Housing and Economic Development Coordinator Approved Through: Janelle Schmitz, Community Development Director Attachment: HRAD-1.5 Housing and Redevelopment Authority Fund Policy  2 City of Woodbury, Minnesota Office of City Administrator Council Workshop Letter 24-215 August 28, 2024 To: The Honorable Mayor and Members of the City Council From: Clint Gridley, City Administrator Subject: Destination Marketing Organization Update Summary With the establishment of the City’s new Destination Marketing Organization (DMO), Destination: Woodbury, staff will provide an early update on recent DMO activity and progress being made towards achieving goals and primary objectives of the DMO’s strategic plan. The Economic Development Commission is the advisory citizen body to the City Council on DMO policy and strategy. Recommendation This is for informational purposes only. Governance Mode  Strategic - Setting priorities, reviewing and modifying strategic plans, and monitoring performance against plans. Focus is the “ends” rather than the "means”. Fiscal Implications In November 2022, the City Council voted to enact a three percent lodging tax, which took effect in April 2023. Per state law, these resources can be used only for attracting visitors to the community. A special revenue fund was established, and a 2024 budget has been approved by Council. Collection of the tax is administered by the Minnesota Department of Revenue (MNDOR). Policy Minnesota State Statute § 469.190, Local Lodging Tax Destination: Woodbury 2024-2026 Strategic Plan 2023-2028 Business Plan Public Process  October 19, 2022: Adoption of DMO Business Plan  November 30, 2022: Establishment of local lodging tax effective April 2023 Council Workshop Letter 24-215 August 28, 2024 Page 2  January 25, 2023: Establishment of the DMO Task Force  April 26, 2023: 2023 DMO initial budget allocation  June 14, 2023: Authorization for MNDOR administer tax  March – Sept 2023: DMO Task Force meetings  October 18, 2023: City Council Workshop to review draft DMO Strategic Plan  November 29, 2023: Establishment of DMO (Destination: Woodbury), various ordinance amendments, and approval of 2024-2026 DMO Strategic Plan Background The City of Woodbury is the economic hub for the east metro of the Twin Cities region. Now 8th largest in Minnesota, and nationally recognized as a great place to live, work and thrive. Most recently, Fortune Magazine’s “Best Places to Live for Families” ranked Woodbury as the best place in Minnesota and 12th in the country. A contributing factor to Woodbury’s growth and vitality is the ability to attract visitors. The result of visitor spending has a direct effect on the local economy—adding leisure and hospitality sector jobs, attracting and supporting local businesses, and increasing attendance at festivals, cultural events, and sports tournaments that cater to both visitors and locals, all of which sustain and grow the local tax base. The DMO was established to leverage the benefits that visitors bring to our community and its economic well-being. In May 2024, Eric Satre was hired as Destination Marketing Manager at Destination: Woodbury. He brings a wealth of DMO/CVB experience, most notably with Visit Saint Paul (13 years) and Visit Inver Grove Heights (4 years), and has an extensive background in destination marketing, coordinating event bids, including major sporting events, and connecting visitors to the destination experience. The DMO’s 2024-2026 Strategic Plan outlines five goals: 1. To connect visitors and raise awareness of existing events and amenities to position Woodbury as an attractive location for new and recurring visitors. 2. To provide a high quality and innovative online and Central Park experience, which markets and promotes Woodbury as a destination. 3. To continue to cultivate partnerships with hotels, business establishments and community organizations to increase the tourism and visitors to Woodbury, supporting their success and ultimately the economic impact to the community. 4. To support and enhance marketing and business opportunities for all community facilities and park amenities while prioritizing Eagle Valley Golf Course, Central Park, Ojibway Park, and the Sports Center. 5. To provide transparent comprehensive financial and performance reporting, planning and analysis. Council Workshop Letter 24-215 August 28, 2024 Page 3 Staff will provide an update to the Council on recent DMO activity and progress being made towards achieving the goals above and will provide updates on priority objectives such as creating the new website for Destination: Woodbury. Written By: Eric Satre, Destination Marketing Manager Approved Through: Janelle Schmitz, Community Development Director Attachments: None