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HomeMy WebLinkAbout2013 06-24 CCM Work Session MINUTES OF THE PROCEEDINGS OF THE CITY COUNCIL/ECONOMIC DEVELOPMENT AUTHORITY OF THE CITY OF BROOKLYN CENTER IN THE COUNTY OF HENNEPIN AND THE STATE OF MINNESOTA WORK SESSION JUNE 24, 2013 CITY HALL—COUNCIL CHAMBERS CALL TO ORDER The Brooklyn Center City Council/Economic Development Authority (EDA) met in Work Session called to order by Mayor/President Tim Willson at 8:01 p.m. ROLL CALL Mayor/President Tim Willson and Councilmembers/Commissioners Carol Kleven, Kris Lawrence-Anderson, Lin Myszkowski, and Dan Ryan. Also present were City Manager Curt Boganey, Finance Director Dan Jordet, Director of Business and Development Gary Eitel, Assistant City Manager/Director of Building & Community Standards Vickie Schleuning, and Carla Wirth, TimeSaver Off Site Secretarial, Inc. CONDUIT BOND SALE—ODYSSEY SCHOOL It was noted that discussion of this item started during the June 24, 2013, Study Session. Paul Donovan, Cushman & Wakefield, NorthMarq Real Estate Services, stated he is the project manager to coordinate with Odyssey Academy and ASG Brooklyn Center the acquisition of the property, determination of construction to be done, and securing the financing. John Sedey, Executive Director of Odyssey Academy, introduced himself and stated they are one of the longest organized Charter schools in Minnesota with an enrollment of 280 to 290 students and operating a full-year program. Mr. Sedey stated they pride themselves on being a school that cares, having a diverse and mobile population, and being project/inquiry based school. He explained they are re-emphasizing their focus on being student centric and having an experiential inquiry based approach. Mr. Sedey reviewed the cooperative relationship they hold with Brooklyn Center's school, which certifies their teachers. For next year, they have 328 students enrolled and their goal is to reach 362 students. He offered to answer questions and noted several of their Board members are in attendance. Mayor/President Willson asked if they are considering the option of all-day kindergarten. Mr. Sedey stated they have provided all-day kindergarten for ten years. Mayor/President Willson noted these types of schools are well recognized across the United States and while in New York, he had toured the Academy School in Queens, New York, that works on the same principle. He complimented Odyssey Academy. 06/24/12 -1- Councilmember/Commissioner Myszkowski noted the material indicated the majority of students are from Minneapolis. Mr. Sedey explained most students have a 554 zip code, which would be Minneapolis or Brooklyn Center. He stated he cannot give the exact number but the overwhelming majority comes from the suburban area and not Minneapolis. He stated they bus from a radius of about ten miles. Councilmember/Commissioner Myszkowski asked if a formula is used to determine State lease aid. Mr. Sedey stated they used to get lease aid at a higher rate than other schools but as of last year, all schools receive $1,200 per student. Greg Gredvig, Board Chair of ASG Brooklyn Center, described his involvement with Wells Fargo International Group, with Odyssey Academy, and their move to form a 501(c)(3) process so they can purchase the building. He explained that in 2008, they were close to bonding but due to the economic downturn, it did not occur. During years since, they had opportunity to receive financing but because of the coupon rate, it was not conducive for them to move forward. About a year and a half ago, they came up with the plan to purchase the building but MDA interpreted the existing State Statutes to require new school building organizations to have a positive net fund balance prior to moving forward with the purchase. Since they were an existing school building organization and felt they were not within the scope of that statute; however, MDA did not reconsider. Mr. Gredvig stated they have the option to wait for a four-year grace period from positive funds in the balance or they can request conduit financing. Mr. Gredvig stated ASG Brooklyn Center has a three-person Board. He is the Chair and the other two members are from Cushman & Wakefiled, being non-paid in that involvement. Mr. Gredvig stated they have no involvement in how the school is run, ASG Brooklyn Center is a shell and acts as a conduit from issuance of bonds to bond payments. Mr. Gredvig stated they have projections that allow for excess reserves to pay down debt faster or the excess reserves can be used to improve the property. Mayor/President Willson asked if ASG Brooklyn Center owns the property and how funds would flow from the conduit (City) through ASG Brooklyn Center to the school. Mr. Gredvig explained the payments from the State come through ASG Brooklyn Center and they make the bond payment. Mayor/President Willson stated as a 501(c)(3), they have auditing and organization in place. Mr. Gredvig confirmed that is the case and they have been audited since 2008. Mayor/President Willson stated he has trepidation with having a shell organization between the school and City but understands the legality of needing it. Councilmember/Commissioner Ryan asked whether the income stream to service the bond issue, if approved, would come from lease aid to the school. Mr. Gredvig stated that is correct and will be sufficient to service the bonds. Will Fossle, Ziegler Capital Markets, explained that Ziegler is a financial services firm with investment banking serving only not-for-profit clients, senior living, health care, and education. For the past four years, the education side has been focused on charter schools and last year, his 06/24/12 -2- firm was the Number 2 underwriter of charter school debt and in 2001, it was Number 1. Mr. Fossle stated they focus resources on that and have developed expertise. When looking for a client they consider whether it is fiscally responsible, they have demand, can meet that demand, performance, and facility needs. With this financing, the school is looking for about $5 million in tax exempt with a small portion not being tax exempt as set by IRS rules. It would take 30 years to amortize the debt fully, and a debt service reserve fund would be built equal to one year of debt service to protect investors. Mr. Fossle stated before they get involved with a client, they conduct due diligence to assure they have financial wherewithal for 30-year financing. They would be selling the debt on the public market and need to be sure it is a product that can be sold and at a reasonable price. Mr. Fossle stated they focus on strong high yield clients. He explained that on the coverage, they generally require about 1.2 times. This means the cash flow available for debt service has to be 120% of the maximum annual debt service. In looking at enrolment growth and lease aid, the school is well within that 120%. Mr. Fossle stated there will be surplus for maintenance expenses. Mayor/President Willson stated he is looking for assurances so this makes him more confident in the process. Mr. Fossle stated Ziegler's reputation is absolutely important and they conduct an extensive internal credit review process before entering this type of transaction. With regard to a third party holding the real estate, based on his experience, this is a common structure because there are legal issues as to whether the Charter School can hold property and it protects the bond holders and Charter School. The bondholders want the mortgage so it strengthens the transaction and they see that in 99% of the cases. Mayor/President Willson stated the City Counci/EDA is concerned with the City's reputation and will rely on the due diligence and expertise of the City's Finance Director as this process moves forward. Mr. Fossle stated they are very clear in all of their materials that there is no obligation on the part of the City to stand behind any of this debt but he does understand the point about the City's reputation. Councilmember/Commissioner Ryan asked what other alternatives ASG Brooklyn Center has to achieve a bond issue other than a conduit issuance through the City. Mr. Fossle stated there are other issuers with a broad mandate but in their experience, it is appropriate to find the closest issuer because the benefit is closer to home and from a relationship perspective, they want to work with the closest issuer. He stated there are several issuers, one in Wisconsin that is very active and in a lot of cases, the issuers will be created to serve 501(c)(3) or industrial bonds. Mr. Fossle stated there are pros and cons with another issuer and they prefer to issue through the City of Brooklyn Center since that is where the benefit is focused. Councilmember/Commissioner Ryan asked if the City's tax exempt status would be available to ASG Brooklyn Center should the City not be involved. Mr. Fossle stated they have the ability to issue tax exempt debt through any governmental or quasigovernmental body authorized to do so, there is an appropriate use of funds, an appropriate borrower, and the money is correctly spent according to IRS rules. 06/24/12 -3- Councilmember/Commissioner Myszkowski asked if they have had an instance in Minnesota with a Charter School asking a municipality to issue the bonds. Mr. Fossle stated not in Minnesota but have done so in Florida and Arkansas. He explained other states, such as California and Colorado, have an entity created expressly for the purpose of tax-exempt conduit bonding for charter schools. Councilmember/Commissioner Myszkowski stated she served on the Osseo School Board Property Committee for five years and is familiar with the attempts to acquire the building. She noted a 30-year period is longer than a generation, enrollment goes up and down over the years, and if the economy crashes, there is often lower births. She asked what would happen if enrollment drops to a point where the level of State Aid is not sufficient. Mr. Donovan stated Ziegler has mandates under due diligence and hired CliftonLarson to conduct a third-party independent market analysis. The enrollment projections were also reviewed by an independent auditing firm. The current debt service would be $410,000 a year and the current capacity of lease payments is over $450,000. Mr. Donovan stated Odyssey Academy has hit enrollment every year and as approaching an enrollment of 362, it will be $560,000, exceed the debt capacity and allow an ability to pay down the debt at an accelerated basis, make capital improvements, and build reserves should there be a future shortfall. In addition, the school has a $450,000 line of credit and a debt service reserve fund, both of which are options. Mr. Donovan stated this will be an asset and it is important it be well maintained. He felt they had a lot of buffers and provided financial projections based on five different scenarios. Mr. Donovan stated the group that oversees, ASG Brooklyn Center, has worked with 40 charter schools and developed good skill sets to make sure the schools are performing, can continue to keep a responsible surplus, the property is maintained, and academic outcomes are appropriate. Councilmember/Commissioner Myszkowski asked if any of the 40 schools are in Minnesota. Mr. Donovan stated all 40 are within Minnesota. Mr. Fossle explained that for the bond structure, they set the covenant at 1.2 times coverage so if they see it drop below that level, they will ask the school to bring an independent third party (approved by the trustee and bond holders) to review the school's operations and determine if the trend can be dealt with. This provides an early warning system to determine if there is a problem and how to correct it (i.e., more marketing, cut in expenses) before touching the debt reserve or missing a payment. City Manager Curt Boganey stated worst case scenario, it is the real estate that is the backstop and there would need to be a way to liquidate the value of the real estate. Mr. Fossle stated that is true but there is protection built in when the third party owns the property and they have ability to bring in a new tenant. So, if Odyssey is not successful, the first step is to replace them. In general, liquidation is the last resort as no one benefits, including the bond holders. Mayor/President Willson reviewed Mr. Fossle's educational background, noting he has been the Vice President of Ziegler since 2006. 06/24/12 -4- Councilmember/Commissioner Lawrence-Anderson stated she serves on the Odyssey Board and had met representatives of Cushman & Wakefield and Ziegler on May 24. She asked what is their opinion and prospective of the management and administration of the Board. Councilmember/Commissioner Lawrence-Anderson also asked if this is a sustainable situation. Mr. Fossle stated with a charter school, management is everything and they feel Odyssey has a strong management team in place, Mr. Sedey has proven himself, and the Board makeup is sustainable over the 30-year term. Mr. Fossle explained they are looking for a diverse Board from the community that has a succession process. They feel comfortable with the Board, that it is taking steps to assure continuity moving forward, and is diverse. Jacqueline May, Cushman & Wakefield, stated they will take on an improvement project and would like the issue to transpire this summer so they can take on that work. She reviewed a list of improvements that are planned, resulting in a lovely updated facility for years to come. Ms. May felt the advantages are that it will retain a quality school building in the community that will attract student base and is also nice for school employees. She stated the improvements are the "driver" and they have undertaken this process starting years ago. Mayor/President Willson stated he was concerned about the short timelines, which makes him more cautious. Councilmember/Commissioner Myszkowski stated she would like to hear from the Board Members and asked what they feel the benefit to the City of Brooklyn Center would be. James Rosengren, Board Treasurer, stated benefits to Brooklyn Center are that Odyssey Academy students graduate from Brooklyn Center schools and last year the top three students were from Odyssey Academy. Jodie Hardenbrook, Board Chair and science teacher at Odyssey Academy, stated they do not just focus on test scores but pride themselves on focusing on citizenship and having responsible and respectful students. She stated other schools want Odyssey Academy students because they are good students and respectful. Ms. May made a formal request to be on July 22, 2013, City Council agenda to schedule a formal hearing on issuing conduit bonds. She stated they can provide any information requested. Mayor/President Willson stated that had been discussed at tonight's Study Session and the City Council/EDA was aware of the request to be placed on the July 22, 2013 City Council agenda. Councilmember/Commissioner Ryan stated there was concern on the short timelines but after hearing the comments relayed tonight, he understands it has been an extended effort with a considerable level of expertise and planning. He stated he has seen enough to justify calling for a public hearing on July 22, 2013, for the sale of bonds. During the interim, the City Council/EDA can receive a report from staff to further review this information and achieve a greater understanding. 06/24/12 -5- Mr. Boganey suggested the City's bond counsel and Finance Director have an opportunity to provide comments. Finance Director Daniel Jordet stated staff can develop an interim report for the City Council's/EDA's review; however, additional conversations are needed on the process before staff makes a recommendation. He stated they have looked at and conducted due diligence on a lot of documentation including information on Odyssey Academy. One of the key pieces to discuss with ASG Brooklyn Center and Odyssey Academy is that in the financial forecast, their auditors gave a favorable opinion, which represents the information is presented in conformance with general accounting principles but is actually neither an endorsement nor disclaimer on the value of the information. Mr. Jordet noted the sensitivity analysis looked at impacts should State aid change, enrollment stabilize instead of increase, and/or if State aid decreases. However, those numbers do not appear to meet the 1.2 requirement. He stated staff also wants to talk about a bond rate of 7%, which is higher than tax exempt bonds are selling at now. Mr. Jordet stated the City would receive a fee of $25,400 plus reimbursement of direct costs such as the bond counsel. He would like direct involvement with both Cushman & Wakefield and Ziegler to discuss the points that have been raised. Mr. Jordet stated staff will complete an interim analysis for consideration before the next meeting. Mayor/President Willson stated he would support additional staff exploration and publishing notice in the newspaper to meet the timelines. Mr. Boganey stated staff would not su gg est a delay as long as there is opportunity to hold meetings and conversations to get to the heart of the issues. Then staff can prepare an interim report for the next meeting and indicate whether or not staff feels all of their questions have been satisfied. At that point,the City Council/EDA can consider if they want to further action. Councilmember/Commissioner Lawrence-Anderson stated as a Board Member and former parent of an Odyssey Academy student, she has sat through this discussion for five years so she has a comfort level and wants the same for the other Councilmembers/Commissioners. The majority consensus of the City Council/EDA was to request staff further explore the request and provide an interim report for consideration at the next meeting. STRATEGIC PLAN 2013 RETREAT FOLLOW UP—JUNE 24,2013 A. VALUES AND MISSION B. KEY PERFORMANCE INDICATORS Craig Rapp, facilitator of the April 2013 City Council/EDA and Leadership Team two-day retreat, stated the City Council/EDA and staff has done a lot of work to put together the details of the Strategic Plan and identify five key priorities. Mr. Rapp reviewed the Key Performance Indicator (KPI), measure, and target, noting this is a work plan for staff and provides details in how it will get done. He asked if there are questions on the definitions. 06/24/12 -6- The consensus of the City Council/EDA was to support the Strategic Priority Definitions. Mr. Rapp noted the targets that remain to be identified and explained the need for a baseline and follow up survey to create that target. The City Council/EDA discussed how the target should be set, noting it should not be so high it is unattainable, but some general assumptions can be made. Mr. Rapp suggested a 5-10% increase would be reasonable. Mr. Boganey explained the percentage would be annually based. The consensus of the City Council/EDA was to establish a 5% annual goal with a report back each year and staff to indicate whether it thinks 5% would be unreasonable for some groups. Mr. Rapp agreed the percentage can be adjusted once there are "more boots on the ground." Mr. Rapp asked the City Council/EDA to address the KPI of blighted properties. The City Council/EDA acknowledged this is a problematic measure because the City wants to uphold and enforce community standards. Mr. Rapp explained the idea behind vagrant neighborhoods is safety and the condition of properties. He noted in what the City Council/EDA wants to monitor, the indicator would be blighted properties. What would be measured is nuisance violations. Mr. Rapp asked if there is a different measure that should be considered, noting the initiatives are on the positive side and the Maintenance Reduction Program is on the enforcement side. Mr. Boganey stated the target relates to the change in number of blighted properties, not code violations and suggested working on the measure, the target, and to tie the target to a particular condition instead of to the number of violations. The City Council/EDA agreed this is an issue larger than rental properties and more focused on neighborhoods of single-family houses. Mr. Rapp suggested a future discussion so that the measure would be a blight condition index that is created and the target would be to reduce the number of properties within the blight condition index. Then it would address all properties. Councilmember/Commissioner Kleven stated another subdivision is vacant homes that are also in a blighted condition. Mr. Rapp stated that could be one of the indexes that is scored. Mr. Boganey stated staff will draft this information for the City Council's/EDA's review. Mr. Rapp next addressed Secondary Value Propositions, noting operational excellence is the value proposition but with more pronounced definition, that desired value was a customer intimate approach. The ,City Council/EDA indicated it remained comfortable with that Secondary Value Proposition. 06/24/12 -7- Mr. Rapp stated the City Council/EDA had a good list of values but a general realization was reached that there may be too many value statements that should be further discussed. Similarly, with the mission statement, it should be a separate discussion. Mr. Boganey asked if the Mission Statement is a topic that the City Council/EDA wants to address this year in another Work Session. The majority consensus of the City Council/EDA was to request staff to schedule discussion of the Mission Statement at a future Work Session. CONDUIT BOND SALE—ODYSSEY SCHOOL This item was considered prior to Agenda Item 1. CITY RESPONSE TO STORM DAMAGE The City Council/EDA discussed the telephone calls received from residents asking whether the City would provide curbside pick up of storm debris. It was noted the City has made no plans and there is no expectation that it will remove trees after a storm and should the City provide such a service, parameters and criteria would need to be established to identify under which conditions it would do so. Mr. Boganey advised that staff is already in the process of removing trees from the City's rights- of-way, including sidewalk. If the tree is on private property, staff will ask the property owner what their plans are and if they intend to take no action, the tree will be cut up and removed from the public right-of-way. He noted that in other cases, a resident may not have the funds to remove the tree so perhaps there should be a process to remove the tree and specially assess that cost as it represents a public nuisance. Mr. Boganey stated staff intends to work with every property owner and be reasonable. Councilmember/Commissioner Ryan stated the City Council/EDA has gained a lot of good will in recent years, as shown in the resident survey, but if there is a service gap maybe it should be considered by the City Council/EDA under extraordinary circumstances. Mayor/President Willson stated he does not object to the City taking action and assessing the cost against the benefiting property. Councilmember/Commissioner Lawrence-Anderson suggested posting something on the City's website because many may be interested in the tree debris. She supported helping residents through this crisis and assessing that cost to the property. Councilmember/Commissioner Lawrence-Anderson stated she received a call from the resident who had raised the issue of cars driving through a "T" intersection and hitting her house, indicating the tree that had stopped cars from hitting her house had fallen. 06/24/12 -8- Councilmember/Commissioner Kleven stated Maple Grove residents with downed trees call the City Hall with their address and Brooklyn Park removes the tree if it is in the right-of-way. She stated a resident called her after calling Brooklyn Center City Hall and being told there would be no assistance. Councilmember/Commissioner Kleven stated if the tree is cut into pieces and placed on the boulevard, she supports the City picking it up. Mr. Boganey stated City Hall received about 20 calls this morning and staff asked them to call back in the afternoon after staff had discussed the issues. He stated out of all the people staff talked with, only one insisted on speaking to the City Manager to find out why the City was not helping. Every other resident, though not happy, was willing to accept the City's decision and move forward with another way of resolving the situation. Mr. Boganey indicated staff gave them options of what they could do, who they could contact, and that information is also posted to the City's web site. ADJOURNMENT Councilmember/Commissioner Kleven moved and Councilmember/Commissioner Ryan seconded adjournment of the City Council/Economic Development Authority Work Session at 10:03 p.m. Motion passed unanimously. 06/24/12 -9- STATE OF MINNESOTA) COUNTY OF HENNEPIN) ss. Certification of Minutes CITY OF BROOKLYN CENTER) The undersigned, being the duly qualified and appointed City Clerk of the City of Brooklyn Center, Minnesota, certifies: 1. That attached hereto is a full, true, and complete transcript of the minutes of a Work Session of the City Council of the City of Brooklyn Center held on June 24, 2013. 2. That said meeting was held pursuant to due call and notice thereof and was duly held at Brooklyn Center City Hall. 3. That the City Council adopted said minutes at its July 8, 2013, Regular Session. City Clerk Mayor 06/24/13 -10-