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HomeMy WebLinkAbout2012-06-20 PACKET 04.A.i.REQUEST OF CITY COUNCIL ACTION COUNCIL AGENDA MEETING ITEM # DATE 6/20/12 PREPARED BY Public Works Les Burshten ORIGINATING DEPARTMENT STAFF AUTHOR COUNCIL ACTION REQUEST Accept and place on file the minutes of the May 14, 2012 Meeting of the Public Works Commission. STAFF RECOMMENDATION Approve the May 14, 2012 minutes of the Public Works Commission. BUDGET IMPLICATION $ $ BUDGETED AMOUNT ACTUAL AMOUNT FUNDING SOURCE ADVISORY COMMISSION ACTION DATE REVIEWED APPROVED DENIED ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ ❑ PLANNING ❑ PUBLIC SAFETY ® PUBLIC WORKS 6/11/12 ❑ PARKS AND RECREATION ❑ HUMAN SERVICES /RIGHTS ❑ ECONOMIC DEV. AUTHORITY SUPPORTING DOCUMENTS ❑ MEMO /LETTER: ❑ RESOLUTION: ❑ ORDINANCE: ❑ ENGINEERING RECOMMENDATION: ❑ LEGAL RECOMMENDATION: ® OTHER: Approved minutes of the May 14, 2012 Public Works Commission Meeting ADMINISTRATORS COMMENTS ity Administrator Date ***************** * * * * * * * * * * * * * * * * * * * * * ** * * * * * * ** COUNCIL ACTION TAKEN: ❑ APPROVED ❑ DENIED ❑ OTHER •N a r klou*1 0 - 1 kvi I ivi I • 11 - , LI M Pursuant to due call and notice thereof, a meeting of the Public Works Commission of Cottage Grove was duly held at Cottage Grove Public Works, 8635 West Point Douglas Road, Cottage Grove, Minnesota on Monday, May 14, 2012 at 7:00 p.m. 1. CALL TO ORDER Commission Chair Gary Kjellberg called the meeting to order at 7:00 p.m. 2. ROLL CALL Members Present: Gary Kjellberg, Jeff Rolling, Matthew Forshee Jeff Podoll, Michael Edman, Alex Chernyaev Staff Present: Ryan Schroeder, City Administrator Robin Roland, Finance Director Les Burshten, Public Works Director Jennifer Levitt, City Engineer Gary Orloff, Street Department Foreman Also Present: Derrick Lehrke, City Council Member Ken Brittain, IMTF Member Herb Japs, IMTF Member David Olson, IMTF Member Nancy Hanzlik, IMTF Member Excused: Harry Taylor Absent: Jason Field, Cheryl Kohls 3. APPROVE MINUTES Upon a motion by Jeff Podoll, seconded by Gary Kjellberg, the April 9, 2012 Minutes were unanimously approved. Public Works Commission May 14, 2012 — Page 2 4. ADDITIONAL AGENDA ITEMS Vice Chair Michael Edman inquired if there was a follow up on unanswered questions regarding what constitutes a quorum from the prior meeting. Chair Gary Kjellberg inquired if a quorum was based on commission members or the members plus the IMTF. Schroeder responded that he believed it was the Public Works Commission members only. Edman indicated that by not having a formal response to the quorum question, how is this group to send a message from this body to the City Council? He was expecting some sort of response from the City Attorney to answer these questions. Jeff Rolling asked if the quorum was a majority of the official members. Edman stated, "Who are the official members ?" Ryan Schroeder indicated this is a fair question to ask. Edman stated if everyone is voting on recommended changes, whose vote counts? The Commission members may think one way and the IMTF folks may think another and it may be a mixed message. From a quorum perspective, whose vote is supposed to be on record? IMTF Member David Olson suggested that if the group gets to a vote where there's a lot of contention /disagreement amongst whatever members are in attendance, it can be discussed in detail and the vote can be postponed for a month. IMTF Member Ken Brittan stated an alternative to that would be to take a roll vote and when you figure it all out, you've got the votes from each person. From that point, it can be determined which votes can be counted. Synopsis: Later in the meeting Ryan Schroeder read an email sent from City Attorney Heine that indicated, "the motion of Council was to appoint the members as ex- officio members for the PWC. According to Roberts Rules, ex- officio members who are appointed to a board or committee have the privileges, but not the obligations of a regular member. Therefor., they (the IMTF) are not counted for purposes of determining a quorum." Schroeder stated this indicates the quorum is the group of Public Works Commission members. IMTF Member Nancy Hanzlik asked "So, do we vote ? ". Schroeder believed if the group is adopting a consensus report, the votes of the entire group will be counted. Ken Brittain asked, "What do they mean by privileges? It's mentioned we have privileges, but not obligations. " Publice Works Commission May 14, 2012 — Page 3 Ryan Schroeder responded this likely means there is open participation, but in a case where there is actual voting, the vote is the Public Works Commission. However, it's preferred this group result in a consensus report. 5. NEW BUSINESS How Funding for Pavement Management Works Finance Director Robin Roland indicated in tonight's packet was a spreadsheet with no narrative attached and inquired if everyone understood the various items represented. IMTF Member David Olson indicated he did. Vice Chair Edman asked if pre -paid assessments include residents who write a check for their assessment. Roland indicated this is correct. She added these people pay within the first 30 days after the assessment hearing. Edman asked if in 2008, 32.35% of the residents prepaid their assessment and 67.65% went on the assessment rolls to which Roland indicated this was also correct. Edman questioned whether residents typically pay the assessment over 15 years. Roland responded that special assessments to the county can be paid in full at any time. "Usually what we see is special assessments being paid off earlier than 15 years because of refinancing or sale of the property." At this point she is unable to provide the percentage of residents who pay over 15 years. She imagines that would vary from project to project and from 15 year period to 15 year period. For example, during the time prior to 2008, she anticipated many residents refinanced their homes and paid off those assessments. Or if they sold their home, they would have paid off their special assessments. She noted Washington County would be able to provide those statistics. Roland referred back to the spreadsheet indicating that the report provided information requested by the Commission with regards to the amount of deferrals due to hardship. It's required to make residents aware of the deferral option. Those who would file for those hardship deferrals do have to submit information to the City with regard to their financial status and why they are applying for a hardship deferral. Those deferrals are only good for a year and must be renewed annually, which most of them are. They do terminate on the death of the individual or the sale of the property. Partial payments, that is, any amount greater than $500, can be paid during the first 30 days. After the first 30 days, we do not allow partial payments. The amount is either paid with the assessment through the property tax with the county or it is paid in full at the time of the property owner's choice. Public Works Commission May 14, 2012 — Page 4 Finance Director Roland indicated that after the project is ordered, if the City has funds on hand (which up until this point the City has), bonding up front has not been a requirement. Many other cities may order the project and issue debt at the same time. Here in Cottage Grove, the project is basically cash flowed by the City's bank account. As an example if a project is $2 million dollars: the City pays the $2 million dollars over the course of the project and at the end of the project when the project is due to be assessed, the amount of the assessment is determined at the percentage. At this point, it's 45% - 55 %. (The residents pay 45% and the City pays 55 %.) So the 45% is divided by the number of parcels and the special assessment amount is determined. The other 55% of the project cost is the responsibility of the City and it is cash flowed to begin with, then reimbursed, although perhaps not for a year or two years by the City issuing debt or bond. When the City issues a bond, the interest rate on those bonds is determined by the bond sale. The City must then, each year, levy 105% of the annual debt service less the assessments that are collected each year in order to pay the debt. The entire cost of the 2011 Pavement Management Project was $1,277,800. Of that amount, $131,900 was for the park. The difference is $1,145,900 (the total cost without the park). 45% of that, or the assessed amount, would have been $515,655.00 which is the assessment. The balance of that is $630,245.00. In essence the City pays for this with either cash or bond proceeds. Over a 15 year period and then each year, divide this by 15, plus interest and that's what the City would need to levy for on property taxes. IMTF Member David Olson stated the importance of matching the actual cash expenditure with the useful life of the assets the taxpayers are purchasing. "The asset they are purchasing are these street improvements, so therefore, we finance that over a 15 year period, unless the citizens that are assessed want to pay for it in advance which they can, or we finance them through the county over a 15 year period. That's the reason we do that. If we have the money in the bank, why would we do this? Well, because we are using our working capital to accomplish something that's a long term asset. We want to match long term assets to long termed debt." Robin Roland stated this is a public policy philosophy. "If you are buying a long term asset, you want people who are going to use that asset to be the ones who pay for it. Consequently, you wouldn't necessarily use all of the proceeds that you saved up over a number of years to finance a facility that people who move out of the community aren't going to get any benefit from. This is a combination between the City- wide benefit that all residents get because at some point they may drive on that road and the specific benefit that the individuals living on that road get from everyday use of it. And it's paid for by the people that live there now and who will live there in the future through the tax levy." Public Works Commission May 14, 2012, Page 5 Commission Member Jeff Rolling asked if this is financed, (the 45% and the 55 %) underneath the same bond. Roland responded they are underneath the same bond, meaning that we take both parts, the levy and the assessments that are at the county, when the county pays the City twice a year, with part of that and the combination of the levy and the assessment together make the debt circumstance. Ken Brittain said in this case, wouldn't you have to do 105% of the project cost? He believed he heard that number at one point in time. Roland responded in the bond market, for example if your debt service payment is $100,000 per year, under State law, the City is required to levy 105% or $105,000. That levy can then be reduced by either special assessment or funds on hand, so ultimately the amount that is actually required to be levied or required to have, may be less than 105% of the debt. Brittain stated when the City does a project, they have to pay the people that did it, however he was under the impression that if you bond, you bond for the whole amount. pay the bill and then you have to pay the bond back. Schroeder stated it's actually in reverse: The City pays the bill. David Olson stated it's positive the City has the ability to do that. Brittain asked when this is done, does the City bond for that whole original amount or that amount plus $105,000? Roland stated that with cash on hand, the City pays down essentially what they are bonding for and then over the long run. What that does is reduce the amount of required levy. The City is optimizing cash. And in a market where the City is not getting very much for their invested funds, they are better off using that cash than trying to put it in the bank. IMTF Member Olson stated he believes it very important we understand one thing: "With the current special assessment policy, the one that was recommended and sent to Council, the policy states that the interest rate of special assessments shall be at a rate established annually by the City Council at the time of certification of the levy. So I suggest we not get hung up on this 7% now because that wasn't a number that any commission recommended to anybody. That's the number that City Council chose to use whenever it chose to use it. Now City Council is asking us to come up with an interest rate policy, which is fine, but let's be careful we understand why the 7% number is out there." Edman stated his point is that the interest rate may be 15% or .5 %, however, there is a period of time when the City is not actually incurring debt service on the money. It's collective whatever interest rate it actually is. Olson stated it should be kept in mind, "that's money we took out of our working capital, our cash flow as a City that we no longer have available." Jeff Rolling stated the City must be earning something on that cash. Roland replied at this point we're earning about 1 %. "Now that is different than it was 10 years ago, because 10 years ago, very honestly at 7% would have been a Public Works Commission May 14, 2012 — Page 6 bargain because interest rates were much higher, The other comment I'm making is issuing bond again, it's a 15 year process, so when you say there is a period of time when we issue bonds and we don't and we're not issuing bonds, but we don't have that debt service. The debt service overlaps, constantly. We currently have 3 bond issues out that are entirely for pavement management. And we are collecting assessments on those and we are required to make that service payment on those. At any one time, we still have debt service we have to pay and the 7% interest that we collected or are collecting doesn't need to go to help pay for those bonds, even though the debt might be at a lower interest rate than that 7 %." Brittain was under the impression that every two years, the City goes out for bond for these infrastructure maintenance improvements. So what is the standard practice? "Eventually we are going to bond and get charged interest for that money. Will the City still be bonding on that money at some point in time? What is the standard practice, how long do you go to replenish that infrastructure maintenance pie ?" Roland stated this also depends on what general cash that the City has on hand would be used for. "If we have a pile of cash and it's in funds where it is available for use, we might not bond every two years, however, if we pay for other things out of that money, if we pay for, as an example, building, out of the cash we have on hand, than we have less cash to front projects and we would have to bond more often for special assessments." Mike Edman inquired if the City waits for two years before they bond, do they bond for the original amount or do they bond for the amount the last two years of receiving payment for the special assessment? Roland responded that the City will bond for two years for special assessments and the pre -pay. Edman asked if during those two years if the City is collecting 7% (or whatever the rate may be) and not paying any debt service. Council Member Derrick Lehrke explained that what Mr. Edman may be getting at is the cost of the money lost, which is, right now 1 %. "It may be different if we go out to a loan and the cost of that money gets higher than 3 YZ %. We are going to charge the same interest rate whether our cost is 3 Yz% or if our cost is 1 %." Olson stated that the interest rate is up to the Council. They can change the interest rate if they wish. Commission Member Jeff Podoll stated he wasn't at the March meeting, however mentioned up until 2008, the prime rate was around 6 -7 -8% and the mortgage rates were 5 -6% . Podoll doesn't feel the City is causing residents a disservice by charging a 7% interest rate. "If a homeowner doesn't have the money and has to put the assessment on a credit card, the interest rate will be a lot more than 7 %." Public Works Commission May 14, 2012 — Page 7 Brittain was in agreement with Podoll that up to 2008, the 7% interest rate was a pretty reasonable rate. The disconnect that he sees is that now, "the interest rate is so much lower, and it's a good reason for us to take a look at it to make certain the interest rate residents pay is as comparable as possible to what it costs the City in order to have loaned them that money. But by doing a five year average over what we would have bonded if we bonded every year, then that's what they would pay because that is what we would have borrowed the money for. If the interest rate goes up and the City pays a little more, they lost out. If it goes down, then a little more money goes into the tax rolls and gets spent on something else, but in my opinion it can track better if we tie it to something like that instead of picking some number, because then it's more consistent - whatever it would have been, plus the financing fee, regardless of when you do it. Over a ten year period of time, it will cost twice as much to do it anyway so you just can't pick a dollar amount. It has to be traced and tacked to something in my opinion that moves with what it's costing the City to actually work within a reasonable percentage." Jeff Podoll indicated the only way he would agree with that is with some kind of a sliding scale that if the bond rates went up, then the magical 7% would go up to 9% to which Brittain stated that's what it would do now. Podoll went on to state this is the way the IMTF group set up the policy in 2005. The City Council was to have looked at the policy every year and at bonding time, to establish that interest rate. Council Member Lehrke stated he wished to clarify that the 7% figure came from a memo from former Finance Director, Ron Hedberg and that was the Council's direction that they would do 1 '' /z% over an interest rate, but a minimum of 7 %. Lehrke went on to state, "if we eliminate that minimum and went a percent and a half over that interest rate that we are going to pay, then it is that sliding scale." (Whatever we pay, plus a percent and a half). "The problem is that 7% which at the time, no one thought the interest rate would go that low, we are actually at a point now where the interest rates keep getting lower and residents are still paying 7 %." Roland said in actuality, that policy goes all the way back to the beginning of the IMTF. She believes the original memo was from former Finance Director, Diane Archer, who had the Council set that interest rate policy based on the bond in 1994. "Whether we bond in a year or we don't bond in a year, we can tell what the bond market would bring and Council could make the choice at the time of the special assessment hearing to say we know the bond rate currently in the market is "X" plus whatever, and they could set that if they so choose." Jeff Rolling questioned if there was anything from the City's Finance Department on what is going to be the difference between a sliding scale or if a 7% scale is used. Roland responded there would be no significant difference. " What Council chooses to set the rate at is what we will assign the rate at when we certify the assessments to the county." Public Works Commission May 14, 2012 — Page 8 Ryan Schroeder stated that the IMTF group in 2005 didn't deal with interest rates but what they did deal with is equity and what they wanted to accomplish is an assessment program or assessment formula that treated future beneficiaries of the pavement management program similarly to those that came before them. And with that thought in mind, what Robin prepared is a document that shows if you want to follow the thought process that Ken a moment ago was expressing, what you could do is eliminate that minimum 7% . We would suggest throwing in an average. Consider changing the cost share formula from 45 %155% to a 50 % -50% share and if you did that, with the pavement management program today, may not work tomorrow. With both options, you would kind of end up in the same place. Mike Edman commented that in looking at what other cities do, he's not suggesting Cottage Grove is in left field, however he wished to know the philosophy behind normally charging a rate higher than the debt service? Schroeder responded that isn't just simple equity. If last year's program rate was 7% and if you pay less in this year's program, (for example, 5 %), doesn't the resident that paid 7% in an earlier project get a less better deal? We've always charged 7 %, let's just keep charging 7% and then everyone is paying exactly the same. Mike stated this makes sense, he's just asking why these other cities also apparently are bond rate plus? IMTF Member Nancy Hanzlik stated the reason they would charge more is because of a handling fee. "First off, you are taking the money and are putting it somewhere that you can't build another project. You are losing the use of your money so you should be compensated for that." Roland added, "You also have to track it. It's that time in order to track it, to do whatever it takes over the 15 years. If you pay it in full, you are never going to get another invoice. The City doesn't have to worry about it, they don't get paid twice a year from the county because they already have their money. But every time the county pays them twice a year, somebody has to handle that. And so it's that time to handle it, so really, it's kind of a handling charge plus the fact people have the use of your money." Schroeder added the City has to pay the county a processing charge, like a bank. Edman went on to ask why in this cost of doing business, we're forcing someone to have their road done? Why should the citizen who doesn't have any money pay the burden as opposed to the City? He added he's not so much in agreement with that statement, however, he has heard that comment from others. "Why isn't the City experiencing the burden? Cottage Grove has one of the highest interest rates, one of the highest shares over other cities. We want to start going down the road of other cities of similar size. If we go the 60 -40 and reduce the rate by 2 points, plus 1.25 %, 1 don't think that is where we want to be. " Public Works Commission May 14, 2012 — Page 9 Ken Brittain said some of those cities have a much higher tax base from commercial and industrial taxes so they are going to be able to take revenues that reduce that burden. Kjellberg asked if the percentages were changed from that what was charged to residents in earlier project, to 50 % -50 %, those residents paying for earlier projects are going to be paying even more. "The residents now having their streets done would be paying less than I did. I'm trying to see how this could be fair for everybody. They don't want to be paying more for their share of what the City picks up." Roland stated "if you change the percentage as shown on the chart, in effect you are raising the amount of the principal to those that will choose to pay in cash at the benefit of those who would finance it over time at a lower interest rate." Kjellberg stated in other words, if a resident pays off their assessment right away, they would pay more, to which Roland stated this would be correct. "So the question then becomes, when policy is made, who should you be 'more fair' to? How do you want to tip the scale? Do you want to charge more up front ,so that people can lessen interest, or do you want to charge less up front at a higher interest rate. Or as we talked about, do you want to charge 45% at a lower interest rate. If you will still have equity concerns, people who have already been charged will say, 'Oh, you're charging me 7% why aren't you charging future people ?.' There's always going to be an equity argument. Even if we had paid it at 1.5% interest on the bond rate from ten years ago, people today would be paying less in interest than they did 10 years ago. And ten years from now, it may swing back the other way." Brittain said "But I think the important point there is that as long as they are paying the same percentage amount, as close to the same percentage amount as what it was costing to do the work, then the interest rate. They go up, they go down, you know, but here's your 45 %, this is what it costs the City to do it." Olson said "I don't think we should worry about someone before is paying more than someone tomorrow. If someone is getting a lower interest rate, now or pay more on 45% last time, that happens. Edman indicated he would agree on the interest rate, "that's relevant, but in a way it's irrelevant. But as far as the equity share, I have a stronger opinion on that because of the fact that someone couldn't pay it out of their own money, or borrow at a more attractive interest rate than 7% isn't related in the least bit to the improvement being done to our streets, that's the 45/55 or 40/60 whatever we decide. That is something the Policy should dictate and perhaps we should have a dictation on interest rates too, about lending money to someone who happens to be a taxpayer in the City of Cottage Grove." Councilman Lehrke said "I think it should be two separate issues. We need to hold some deference to the people who came before us and paid, but I don't think that needs Public Works Commission May 14, 2012 — Page 10 to be the only factor, just because somebody paid 45% before us. If there's a reason to change it, I think we should change it but I don't know if I see that reason. On the percentage on the interest rate, I do see how that should be a fluctuating amount because that's the cost of borrowing the money. Our cost is now lower, so I don't think there's a reason we should still be charging that high interest rate." David Olson asked, "Has the City decided that was the rate it was going to charge? If the City decides a different rate. I don't see that as an advantage." L.ehrke stated, "After we go to the assessment, the 30 -day window, how much work is there back on the Cottage Grove side? From my understanding, do we inform Washington County stating this property owner owes us $10,000, every 15 years? How much work is that on our side? Are they keeping track on how much is owed or administrated ?" Roland stated "We both keep track of it. Washington County is different from other counties I have had experienced with. Providing information on special assessments for projects falls back on the City. I have a clerk who keeps all the rolls and someone calls the City and says I have this claim, how much are the special assessments and what are they for? And she has to be able to give them that number. And if they are ever paid off, they come to us instead of going to the county and the county takes those payments. Jeff Rolling stated the administrative cost appeared to be a fluctuating number and wished to communicate that as well. Roland stated that 1 'Y2% - 2% was a standard. In order to come up with the exact dollar amount of what we would have to charge administratively, Robin added she would have to track every single hour of her time, as well as having her staff track every single hour of their time. Rolling stated he would rather see the language be more vague than, as an example 1 Y2 %. Brittain believes it goes from 1.25% to 1.7% and it's going up and down. "It would seem to me it would be more consistent over time if it would be made simple, say 1 '/ %. As long as it seems like a reasonable amount, that will get you pretty close." Ryan Schroeder indicated the other thing to keep in mind is, "Beyond administrative costs, we have uncontrollable costs. For instance, we're going towards an assessment hearing on the West Point Douglas Project. There is a spread between what our costs are and what we're able to recover through the assessment program. Those sorts of situations happen and there's no way to cover us for that, through the standard assessment program." Ken Brittain stated another thing to keep in mind is being able to do a certain percentage over what the City can bond for. "You are talking 8 to 10% to go out and get it on your own. You can't get a 15 year loan for $5,000. You can get a home equity advance or something like that but I just can't go and borrow $5 grand, it's nova big Public Works Commission May 14, 2012 — Page 11 enough number. I'm not saying the City is trying to make any money. With some of these other things I see it reasonable as having an administrative fee." Mike Edman asked Administrator Schroeder if he would address items that aren't part of the assessment, such as eminent domain, including any sort of taking a small section of somebody's yard or a tree. Schroeder responded, If we need to acquire a small piece of ground, for example, in River Acres, we acquired a $30,000 dollar piece of ground to expand a cul de sac. There's no way we can include that. Let's say we are doing your street, and there are 10 property owners and it's $4,000 per property owner. For some reason we need to acquire an additional amount of footage, ag. land or something. And let's say that costs us $100 thousand dollars to acquire ". Robin Roland indicated the spread sheet she included in the packet is fairly self explanatory. There are four different scenarios that talk about what the project cost was, at the different percentages, what the principal cost is, and then how that works out at different interest rates. "I was trying to show why that total cost, principal and interest over a 15 year period is effectively the same at 55 % -45% and 7 %, 50 % -50% and 5% and 45/55 at 3 %, just to give you an idea of the same amount of money can come from different combinations. I heard tonight that those issues are two separate issues and that's how this Commission feels about them and that they should be taken as separate issues. All this was showing was the same dollar amount can come from any combination of numbers." Edman asked "what rate do you need to get to in order to have this chart balance? You show your preferred target numbers, if you don't get there with the 60 %- 40 %, what would you charge ?" Roland responded she would guess this perhaps to be 9 %. Edman asked "do you see any data showing an increase in prepays with an increase to the City share ?" Roland responded she did not have that data. Edman asked if there is anything we can do to get more people to pay up front? "Then everybody wins." Olson responded, "the taxpayers lose, because we, the taxpayers are paying 60% instead of 55 %. " Podoll stated if the percentages are changed, you may perhaps be opening up a can of worms. His thoughts would be to leave it at 45 %/55% and something you can positively attain by putting on a sliding scale the interest rate you charge that you can substantiate to the homeowners. "You can sustain that if you want to put it on a sliding scale ". Ryan Schroeder stated, "If the City is charging 3 ' /z% or something like that, people would see this as "cheap money" and will pay off their other debts first ". Roland stated that the City does not currently accept credit card payments for special assessments. The City has come under some level of pressure to accept credit cards, however. She Public Works Commission May 14, 2012 — Page 12 tends to believe the City might get more prepayments this way, but they will not be able to collect the interest rate. Rolling asked 'aren't you going to have to discount those for the transaction fees for credit cards ? ". Roland stated this is correct, the City is allowed to charge a transaction fee. Ken Brittain stated, "if we lower the assessment rate and just effectively say, instead of 1 '/ say 4% increase the interest rate. Now we have to find a way of reasonably justifying that extra percentage over what could be reasonably considered an administrative cost. If we can do that, you could go in that direction. That would be just one other concern that I would have, we're charging a higher interest rate to pay it off quicker. Edman believes there's a fairness thing. "Is asphalt likely the biggest cost factor in the project? If one is talking about fairness, residents whose roads were done years ago paid less for the asphalt." Edman believes this group can recommend the City move forward on what keeps it financially viable, makes dollar sense and makes the direction clear so the City Council knows it's there. If we don't change this, the message is, no matter how upset you get, people can really come to the Council meeting and complain. This impacts how much citizen volunteer time is wasted when you're not going to change. I think we have to do something whether or not it actually changes the overall total at all. Schroeder stated the item on the table is to discuss and make a recommendation to change the assessment policy. " I believe the current policy of the City is as stated, a point and a half over the bond rate. I believe from listening to the conversation that the tenor of this group is to remove that minimum number. At least that's what I hear you saying." Olson would like to suggest there are two decisions to be made: "The biggest decision is about the assessment. How much we assess, how much property values will increase? Once you have made that decision, then it's just a financing decision. Each homeowner has to make payments on that loan but I believe we should try to discipline ourselves to keep those two things separated, when we mix them, we get caught in the 'how much does each citizen have to pay' conversation." Brittain stated his question is, "is 2% the right number or 3 % %? To recover that, I'm thinking you must put in 1.5% in." Edman stated the concern is "we're putting in a cap so there isn't the impression the City is making too much, which is why we're here. to cap it at 2 %." Nancy Hanzlik questioned when would the actual bond rate be determined? "The City pays for the project, then they hold the assessment hearing informing homeowners Public Works Commission May 14, 2012 — Page 13 what they owe. That's their share of the assessment and they have the opportunity to finance it through the City with no credit, no background check, no, questions asked. If the City then decides they are going to do that for a year they aren't actually going to go out for bonds until a year after. What is the rate to be charged homeowners because they must be told at the time of the assessment hearing? Council Member Lehrke recommended to do away with the five year rolling average and base it on what the anticipated bond rate would be. "That should not affect the homeowners that need their roads done now. The other thing with the five year average, we could see it both ways but we could see a situation right now where it says the five year rolling average is 4% but we know if we go to market it'll be 6 or 7 percent. This rolling average only works as long as the interest rates are going slowly up or slowing going down. If it spikes one way, it's either going to really hurt the citizens or hurt the City of Cottage Grove. In essence, 1 say just get rid of it, do it off of what the bond rate would be this year, whether we go to bond or not, what would it be and then we base the 1 Y2% off of that. Just like the cost of the project, that's not a variable over five years. It's, `what will the project cost today' and that's what we are assessing, not what is the five year average of asphalt or concrete." Chair Gary Kjellberg inquired of Finance Director Roland how she would feel about the scenario of going 1 Y2% over what the bonds are going for now versus having this rolling average. Roland responded, what she's used to seeing for the past 20 years, is 1 Y2% over the current bond rate. Olson believes it's very simple and straight forward to consider specifying how that bond rate is obtained. "It's very simple, very straight forward and we, as the entire tax- paying citizenry take that risk that we just talked about and I think that's a fair risk for us to take." The question was asked: "What day do you consider the assessment of the project? Roland responded this would be the date of the assessment hearing. Brittain reiterated on the date of the assessment hearing, the homeowners would be informed of this amount. Schroeder stated it may be about 30 days before the hearing because when the assessment hearing is scheduled, the interest rate is determined. Gary Kjellberg at this point wished to take a consensus vote of each individual if they agree to consider the figure of 1 Y2% over the bond rate when the project is assessed and do away with the minimum interest rate. In other words it would be 1 Y2% over the actual bond rate at the time of assessment. In agreement? Public Works Commission May 14, 2012 — Page 14 "We would ask the Council to do away with the minimum percentage rate and to consider the five year rolling average with a cap of 1 112% over the S year rolling average. Nancy Hanzlik: Yes Ken Brittain: Yes Alex Chernyaev: Yes Michael Edman: Yes Herb Japs: Yes Gary Kjellberg: Yes Matthew Forshee: Yes Jeff Podoll: Yes David Olson: Yes Jeff Rolling: Yes Derrick Lehrke stated if this group is going to have a discussion over changing the percentage, that would probably be a longer discussion than you would want to have tonight. Also, the group asked to have a brief review at the next meeting about what other cities are doing. City Engineer Jennifer Levitt stated at the next meeting the topics of Parks and Seal coating will be reviewed. 6. OLD BUSINESS None Public Works Director Les Burshten reported: • There were about 125 visitors for the Arbor Day Celebration back on April 28 th . Approximately 3,000 pounds of paper was brought in by residents for shredding • Spring Clean Up, was held on May 7 th Attendance was down a bit this year due to rainy weather. Approximately 700 cars dropped off trash, appliances and hazardous waste items. • Patching is currently taking place utilizing a rented patching unit. So far, the project is going well. Public Works Commission May 14, 2012 — Page 15 Hydrant flushing is complete The punch list is being finished on the 1 MG water tank Cottage Grove is working with the Cities of Newport, St. Paul Park and Denmark Township on sealcoat programs to take place this summer. Pearson Brothers received the bid for the project. City Engineer Jennifer Levitt reviewed the realignment project that will be taking place in the 70 Street and County Road 19 area. As part of that project, land will need to be acquired Meetings with businesses at Almar Village and Cedarhurst will be on Wednesday, May 16 so they can begin to understand the access as part of the project and construction process. We're anticipating a final design at this point and the Council will discuss this in a workshop at the June 20 meeting. Award for the Belden Boulevard Railroad Crossing Quiet Zone will take place on May 16 Construction will begin after schools are out for summer. Grading is being finished at the Gateway north of 80 Street with material being taken over to the Southpointe Development. Hopefully this will be finished by mid -June. 9. CITY COUNCIL UPDATE Council Member Lehrke reported: • The windmill project was approved at the last meeting. • The time limit for an Open Forum presentation was increased from two to three minutes. A timeline was also created for public hearings. The City will be conducting a $12,000 survey of the community. • A feasibility report is being completed for Hamlet Park. $1.9 million was approved for Tax Increment Financing for Districts 1 -1, 1 -2, 1 -8 and 1 -12 under Minnesota State Statues Section 469.176 Subd. 4m to utilize existing tax increment revenues from TIF districts to stimulate construction /rehabilitation of private development in a manner which will create or retain jobs. Public Works Commission May 14, 2012 — Page 16 10. COMMISSION COMMENTS AND REQUESTS Commission Member Mike Edman had a question regarding weed removal — who takes care of this? Burshten responded this would be taken care of by the Code Enforcement Officer at City Hall. 11. ADJOURNMENT Motion to adjourn was made by Jeff Podoll, seconded by Michael Edman. Motion was unanimously carried. Meeting adjourned at 9:02 pm. Respectfully submitted, Patricia Storhy