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Home My WebLink About2013-06-19 PACKET 04.L.REQUEST OF CITY COUNCIL ACTION COUNCIL AGENDA MEETING ITEM # DATE 6/19/2013 � � PREPARED BY: Administration Ryan Schroeder ORIGINATING DEPARTMENT DEPARTMENT HEAD ************************************************ COUNCIL ACTION REQUEST Consider authorizing entrance into a settlement agreement with the Washington County Attorney regarding TIF 1-10. STAFF RECOMMENDATION Authorize entrance into the settlement agreement. SUPPORTING DOCUMENTS � MEMO/LETTER: Memo from Ron Batty ❑ RESOLUTION: ❑ ORDINANCE: ❑ ENGINEERING RECOMMENDATION: ❑ LEGAL RECOMMENDATION: � OTHER: Agreement. ADMINISTRATORS COMMENT � �' �/� , City ministrator Date : ***,�**�*****�****�**********�********��****�*** COUNCIL ACTION TAKEN: ❑ APPROVED ❑ DENIED ❑ OTHER V:\nbelscamper\Templates\City Council�Action Form.doc Ronald H. Batty 470 US Bank Plaza 200 South Sixth Street Minneapolis MN 55402 � (612) 337-9262 telephone (� (612)337-9310faY �' 1.�raV�n rbatty@kennedy-graven.com „ _ �_ , _ http://www.kenned��raven.com CHARTERED MEMORANDUM To: Mayor and City Council From: Ron Batty, EDA Attorney Date: June 18, 2013 Re: Compromise and Settlement Agreement re Office of State Auditor Tax Increment Financing Matter In early 2012, the Minnesota Office of the State Auditor ("OSA") conducted an audit of several Cottage Grove tax increment financing districts ("TIF districts"). The OSA conducts audits of TIF districts throughout the state to checic on compliance with the tax increment financing statute ("TIF Act"). The TIF Act is complex and technical and it is not uncommon for the OSA's audits to result in alleged violations of the TIF Act. On March 29, 2012, the OSA issued its Initial Notice of Noncompliance which included four findings of noncompliance with the TIF Act. Although the TIF districts in question are operated by the Cottage Grove Economic Development Authority (`BDA"), the TIF Act requires the city council to respond to the OSA's findings within 60 days. The city disagreed strongly with the OSA's fourth finding of noncompliance and decided to contest the matter. That finding involved TIF District 1-10 and whether the city had properly complied with the statutory requirements regarding interfund loans. An interfund loan is a form of inteinal borrowing whereby a TIF authority takes money fiom a healthy fund (for example, a city's water or sewer fund) and loans the money to a TIF district with the expectation that the loan will be repaid over time with tax increment fiom the district. Since August 1, 2001, it has been necessary for a TIF authority to adopt a formal resolution to authorize this type of transaction. Prior to that time such resolutions were not typically used and the statute represented a change of practice. In recognition of that change, the statute "ratified and approved" previous loans, grandfathering in all interfund loans made prior to that date. TIF District 1-10 was established in 2000 and the city's original interfund loan was recognized by the OSA as qualifying for the statutory grandfather provision. In 2002, however, the city accounted for these transactions in a way which the OSA detel�rnined in 2012 should have been 426446 RHB CT165-47 preceded by adoption of an interfund loan resolution. The city disagreed and argued that it should be allowed to continue to rely on its pre-August 1, 2001 interfund loan transactions. The OSA maintained its position and issued its Final Notice of Noncompliance on July 9, 2012. Under the TIF Act, an unresolved Final Notice of Noncompliance is referred to the office of the county attorney for review. The county attorney has 12 months to bring an enforcement action. If the county attorney determines not to bring an action or fails to bring an action within the 12- month period, the matter is returned to the OSA and the OSA refers the matter to the office of the Minnesota Attorney General ("AG"). The AG then reviews the matter and, if warranted, may refer it to the Tax Court with a petition to suspend the authority of the city to exercise its powers under the TIF Act for up to five years. In other words, the city (and the EDA) could be suspended from using tax increment for five years. In this case, the Washington County Attorney's office reviewed the matter and determined there was a violation because the city failed to adopt an interfund loan resolution in 2002. The city is disappointed in this decision and continues to believe this is essentially a disagreement between the city and the OSA about accounting practices. However, the city recognizes that reasonable people can disagree about such matters and appreciates the professionalism demonstrated by the Washington County Attorney's office in its review. In an attempt to reach a compromise on a disputed claim, the County Attorney has proposed to settle with the city for $94,068, which represents one-half of the $188,137.37 the OSA wanted the city to repay. This is a favorable result. Even if the city had accepted the OSA's finding and returned the $188,137.37 within 60 days of the Initial Notice of Noncompliance, the city would have received only $70,297 through redistribution from the county auditor. The proposed settlement exceeds that amount by $23,771. In fact, the city did not return the money within 60 days and, therefore, would not be entitled under the TIF Act to any redistribution of returned funds other than by virtue of the proposed settlement agreement. In addition, settlement will avoid potentially lengthy and expensive litigation and will put the matter to rest. ' :.-� 426446 RHB CT165-47 2 STATE OF MINNESOTA COUNTY OF WASHINGTON DISTRICT COURT TENTH JUDICIAL DISTRICT Case Type: Other Civil In Re: The Matter of Cottage Grove Tax Increment Financing District No. 1-10 COMPROMISE AND SETTLEMENT AGREEMENT BETWEEN WASHINGTON COUNTY ATTORNEY AND THE CITY OF COTTAGE GROVE TIF DISTRICT No.1-10 SETTLEMENT AGREEMENT This Settlement Agreement is made this day of June, 2013, by and between the Washington County Attorney and the City of Cottage Grove, Minnesota (hereinafter parties). WHEREAS, during the period January 3 through January 4, 2012, auditors from the Office of the Minnesota State Auditor (hereinafter OSA) performed an examination of the tax increment financing (hereinafter TIF) districts of the City of Cottage Grove (City); and WHEREAS, the OSA auditors discovered possible violations of the state's tax increment financing statutes (hereinafter TIF Act); and WHEREAS, on March 28, 2012, the OSA auditors sent to the City an Initial Notice of Noncompliance regarding 4 different findings; and WHEREAS, the City resolved 3 of the 4 findings of noncompliance with the OSA through mutual agreement of coi�ective action; and WHEREAS, the OSA and the City could not reach an agreement on the final finding of noncompiiance regarding TIF District No. 1-10; and WHEREAS, by a July 9, 20121etter, the OSA issued to the City a Final Notice of Noncompliance (Final Notice), setting forth the purported violations of the TIF Act; and WHEREAS, the City denies any of the activities alleged by the OSA in its Final Notice violate the TIF Act; and WHEREAS, pursuant to the requirement contained in Minnesota Statute section 469.1771 subd. 1(b), the OSA refeired the purported violations contained in its Final Notice to the Washington County Attorney for action; and WHEREAS, Minnesota Statute section 469.1771 subd. 1(b) authorizes the County Attorney to bring action to enforce the provisions of the TIF Act or related provisions; and WHEREAS, the Washington County Attorney determined that based upon the allegations contained in the Final Notice action was warranted against the City; and WI3EREAS, prior to bringing action against the City, the parties agreed that a fair and final settlement of this matter under the tei7ns set foi�th below would best serve the interests of justice and the public. NOW, THEREFORE, IT IS HEREBY AGREED by and between the parties hereto as follows: The City shall pay to the Washington County Auditor the sum of ninety four thousand and sixty eight ($94,068.00) dollars, said payment to be made no later than thil�ty (30) calendar days after this Agreement is fully executed. 2. The payment and acceptance of the ninety four thousand and sixty eight ($94,068.00) dollars is in full, final and complete compromise, settlement and satisfaction of any action that may arise from the allegations contained in the OSA's July 9, 2012, Final Notice of Noncompliance which is incoiporated herein and made part of the settlement, and shall preclude the County Attorney, his representatives, assigns, successors, agents or principals from taking any further action arising from said allegations against the City and is intended to satisfy and resolve all claims from any and all enforcement authorities under Minnesota Statutes 469.1771. 3. Nothing contained in this settlement constitutes or shall be constiued as an admission of liability or fault on the pai�t of the City. 4. This settlement constitutes a contract under Minnesota law and shall be enforceable against the pai-ties hereto, all entities authorized to pursue or defend claims under Minnesota Statutes 469.1771, and their principals. 5. The City hereby acknowledges that pursuant to Minnesota Statutes 469.1771, subd. S, this settlement and compromise is made after 60 days from the City's receipt of the OSA's final notification of noncompliance and, therefoi•e, the City is not entitled to any excess increment distribution from this payment. 6. This Agreement constitutes the entire written Agreement between the parties and supersedes any and all prior agreements, anangements, understandings or representations between the parties whether written or verbal. This Agreement may be amended only by a subsequent written agreement signed by the parties. 7. This Agreement may be executed in any number of multiple originals, or counterparts each of which shall be considered an original. IN WITNESS WHEREOF; the parties have set forth their hands and seals this day of June, 2013. WASHINGTON COUNTY ATTORNEY Dated: Dated: Dated: Dated: Pete Oiput Washington County Attorney CITY OF COTTAGE GROVE Myron Bailey Mayor, City of Cottage Grove Ryan Schroeder Cottage Grove City Administrator Ronald H. Batty Kennedy & Graven 470 U.S. Banlc Plaza 200 South Sixth Street Minneapolis, MN 55402