HomeMy WebLinkAbout2022-10-18 City Council Work Session PacketAgenda
City Council Work Session
City of Edina, Minnesota
Community Room, City Hall
Tuesday, October 18, 2022
5:30 PM
I.Call To Order
II.Roll Call
III.Housing Information Area Policy and Financing Review
IV.Adjournment
The City of Edina wants all residents to be comfortable being part of the public
process. If you need assistance in the way of hearing ampli$cation, an
interpreter, large-print documents or something else, please call 952-927-8861
72 hours in advance of the meeting.
Date: October 18, 2022 Agenda Item #: III.
To:Mayor and City Council Item Type:
Advisory Communication
From:Stephanie Hawkinson, Affordable Housing
Development Manager Item Activity:
Subject:Housing Information Area Policy and Financing
Review
Discussion
CITY OF EDINA
4801 West 50th Street
Edina, MN 55424
www.edinamn.gov
ACTION REQUESTED:
Discussion only.
INTRODUCTION:
In May 2021 the Housing and Redevelopment Authority approved a Housing Improvement Area P olicy as a
financing mechanism for common area improvements for condominium associations and townhomes. The City
lends the money for the improvements and is repaid with fees added to the property taxes. This is a last resort for
financing, after the association has demonstrated that they cannot receive financing from a traditional lender, such
as a bank. We will review the policy and the financing options.
Since that time an application has been submitted and staff is working with the condominium association. As this
is the first application, prior to formally presenting this to the City Council, staff would like to discuss the process
and funding sources.
ATTACHMENTS:
Description
Staff Report, May 14, 2021
HIA Policy
Staff Presentation
May 14, 2021
Chair and Commissioners of the HRA
Stephanie Hawkinson, Affordable Housing Development Manager
Housing Improvement Area Policy
Information / Background:
Over the years various Condominium Associations have approached the City seeking a financing mechanism
for common area improvements. Although State Statute allows for the creation of Housing Improvement
Area (HIA) financing, Edina does not yet have a policy regarding this. Staff is proposing the passage of a
policy that is like the HIA policies in St. Louis Park and Bloomington.
The purpose of this policy is to establish the City and Housing and Redevelopment Authority’s (HRA)
position relating to the use of HIA financing for private townhome and condominium housing improvements.
This policy shall be used as a guide in processing and reviewing applications requesting HIA financing.
HIA’s are City funded improvements to common areas of owner-occupied condominiums and/or
townhomes. The City lends the money for the improvements and is repaid with fees added to the property
taxes. This is a last resort for financing, after the Association has demonstrated that they cannot received
financing from a traditional lender, such as a bank. The City Council may appoint the HRA to be the
implementing entity for this policy.
Policy Highlights:
1. Eligible Uses: promote neighborhood stabilization; correct building code violations; increase or
prevent the loss of the City’s tax base.
2. Approval Criteria: Last resort for financing; financial guarantees; 70% of owners support; financial
plan for on-going maintenance; common area improvements.
3. City Administration Fee: 1% of total project cost or $7,500, whichever is greater plus an escrow
deposit of $10,000 to cover out of pocket costs for financial advisor and legal advisors.
Please refer to the attached HIA Policy for full description. Even with the passage of this policy, a
Condominium or Townhome Association would need to make an application to the City/HRA. The City
STAFF REPORT Page 2
Council would need to hold public hearings and pass an ordinance before financing for a particular
association application were approved.
Alignment with Comprehensive Plan:
1. 2040 Comprehensive Plan
Goal 2.2: Encourage the preservation and maintenance of, and improvements to, existing subsidized
and naturally occurring affordable housing (NOAH).
Goal 2.5: Promote the preservation and production of affordable housing through the areas of Edina
accessible to transit by addressing financial and zoning barriers (italics added).
Goal 2.10: Recognize that housing is a long-term investment and promote housing policies that
offer enduring opportunities for medium and low-income residents to house themselves,
emphasizing home ownership.
Goal 3.4: Maintain some of Edina’s lower square footage housing stock to attract new residents and
retain existing residents, including providing affordable options.
2. Housing Strategy Task Force Report
Goal 1.D.2: Encourage the preservation, maintenance, and rehabilitation of existing subsidized and
naturally occurring affordable rental and ownership housing (NOAH).
Goal 3.B.8: Fully utilize the other options the city has to lower the cost of development and or
financing [del].
Alignment with City Pillars:
1. Sustainability
The condominium and townhome stock in Edina is aging. Some are currently facing deferred
maintenance issues that exceed their accumulated reserves. This may not be due to poor
management, but rather reflect aging buildings with failing mechanical systems, building envelopes
including windows, siding and roofs that are reaching the end of their functional life. HIA financing
can help extend the life and functionality of these buildings. It is more environmentally sustainable
to increase energy efficiency and address rehabilitation needs rather than demolishing a building
and constructing new.
2. Equity and Inclusion
Condominium and townhome ownership are more affordable ownership options in the City. A
vast majority of the Come Home 2 Edina mortgages are placed on condominiums that allow low-
and moderate-income homeowners to move into the City or transfer from rental to ownership
housing.
3. Engagement
The HIA policy was reviewed and supported by the Edina Housing Foundation at their March 23,
2021 Board meeting.
☐City Council Approved: 5/27/2021
☒City-Wide Revised
☐Department
City of Edina Policy
HOUSING IMPROVEMENT AREA POLICY
1. PURPOSE
1.01 The purpose of this policy is to establish the City of Edina and its Housing and
Redevelopment Authority’s (HRA) position relating to the use of Housing
Improvement Area (HIA) financing for private townhome and condominium housing
improvements. This policy shall be used as a guide in processing and reviewing
applications requesting HIA financing.
1.02 The City/HRA shall have the option of amending or waiving sections of this
policy when determined necessary or appropriate.
2. AUTHORITY
2.01 The City/HRA has the authority to establish HIAs under 1994 Minnesota Laws,
Chapter 587, Article 9, Section 22 through 31, and extended in 2000, M.S. Section
428A.11 to 428A.21. Such authority expires June 30, 2028, unless extended by the
legislature.
2.02 Within a HIA, the City/HRA has the authority to:
A. Make housing improvements.
B. Levy fees and assessments, including interest.
C. Issue bonds or use other funds to pay for improvements.
2.03 The City/HRA has the authority to review each HIA request, which includes
petition, scope of improvements, association’s finances, long term financial plan,
and membership support.
3. ELIGIBLE USES OF HIA FINANCING
3.01 As a matter of adopted policy, the City/HRA will consider using HIA financing to
assist private property owners only in those circumstances in which the proposed
private project addresses one or more of the following goals:
A. To promote neighborhood stabilization and revitalization by the removal of
Page | 2
blight and/or the upgrading of the existing housing stock in a neighborhood.
B. To correct housing or building code violations as identified by the City
Building Official.
C. To maintain or obtain FHA mortgage eligibility for a particular condominium or
townhome association within the designated HIA.
D. To increase or prevent the loss of the tax base of the City to ensure the long-term
ability of the City to provide adequate services for its residents.
E. To preserve naturally occurring affordable housing.
F. To preserve a variety of housing styles and values within the community
G. To stabilize or increase the owner-occupancy level within a neighborhood or
association.
H. To meet other uses of public policy, as adopted by the City from time to time,
including promotion of quality urban design, quality architectural design, energy
conservation, decreasing the capital and operating costs of local government, etc.
4. HIA APPROVAL CRITERIA
4.01 All HIA financed through the City/HRA shall meet the following minimum approval
criteria. However, it should not be presumed that a project meeting these criteria would
automatically be approved. Meeting these criteria creates no contractual rights on the part
of the City/HRA or any association.
A. The project must be in accordance with the Comprehensive Plan and Zoning
Ordinances or required changes to the Plan and Ordinances must be under active
consideration by the City/HRA at the time of approval.
B. The HIA financing shall be provided within applicable state legislative
restrictions, debt limit guidelines, and other appropriate financial requirements and
policies.
C. HIA financial assistance is last resort financing and should not be provided to
projects that have the financial feasibility to proceed without the benefit of HIA
financing. Evidence that the association has sought other financing for the project
should be provided and should include an explanation and verification that an
assessment by the association is not feasible along with at least two letters from
private lenders or other evidence indicating a lack of financing options.
Page | 3
D. The project shall meet one or more of the above adopted HIA Goals of the
City/HRA as noted in Section 3.01.
E. The association shall designate an administrator who will be the City’s point of
contact throughout the improvement project.
F. The term of the HIA should be the shortest term possible while still making the
annual fee affordable to the association members. The term of any bonds or other
debt incurred for the area should mature in 20 years or less, or the improvements
useful lifespan, whichever is less. The par amount of any bonds shall not be less than
$250,000. The City/HRA may determine to provide other sources of financing in lieu
of issuance of bonds.
G. Service charges (including, but not limited to, construction/improvement costs,
cost of issuance of bonds and other pertinent costs associated with the project) will
be imposed on the owners in the same ratio as common elements or other such
uniform methods as proposed by the applicant.
H. The association in a HIA shall provide adequate financial guarantees to ensure the
repayment of the HIA financing and the performance of the administrative
requirements of the development agreement. Financial guarantees may include but
not limited to the pledge of the association's assets including reserves, operating
funds and/or property.
I. The proposed project, including the use of HIA financing, shall be supported by at
least 70% of the owners within the association. The association should include the
results of a membership vote along with the petitions to create the area.
J. The association must have adopted a financial plan that provides for the
Association to finance maintenance and operation of the common elements within
the Association and a long-range plan to conduct and finance capital improvements
therein, which does not rely upon the subsequent use of the HIA tool.
K. The association must have a replacement reserve study (the “Reserve Study”)
conducted by an independent third party with designation as a Community
Associations Institute (CAI) certified reserve specialist. The Reserve Study must
conform to CAI Reserve Study standards. The components of the proposed
improvements must normally come from the Reserve Study. The Reserve Study
must include a thirty-year replacement reserve plan (the “Reserve Plan”), and the
Reserve Study and Reserve Plan must be submitted with the application and will be
reviewed by the City’s Financial Advisor. The association must also have an
independent third party prepare a thirty-year reserve plan (the “HIA Reserve
Page | 4
Plan”) with the proposed components removed from the Reserve Plan. The
independent third party must also prepare a thirty-year financial plan (the “Financial
Plan”) the reflects the annual replacement reserve contributions based on the HIA
Reserve Plan. The Financial Plan will provide a plan for the association’s operating
budget with cost increases over time. The HIA Reserve Plan and the Financial Plan
must be submitted with the application and will be review by the City’s Financial
Advisor.
L. The association shall obtain temporary construction financing from a private
lender, and the City/HRA shall provide a take-out commitment to the lender,
detailing the terms for the payoff of the construction financing. Upon project
approval and issuance of certificate of completion, the City will issue bonds or
notes to satisfy the temporary construction loan.
M. The homeowner's association must be willing to enter into a
development agreement, drafted by the City/HRA, which may include, but not
limited to, the following terms:
• establishment of a reserve fund
• staffing requirements
• annual reporting requirements
• conditions of disbursement
• required dues increases
• notification to new owners of levied fees
• assessments, including interest and City/HRA fees
N. The improvements financed through the HIA should primarily be exterior
improvements and other improvements integral to the operation of the project,
e.g., boilers. In the case of a homeowner's association, the improvements should be
restricted to common areas and must be of a permanent nature. The association
must have a third party conduct a facility needs assessment to determine and
prioritize the scope of improvements.
O. HIA financing should not be provided to those projects that fail to meet good
public policy criteria as determined by the City/HRA, including: poor project quality;
projects that are not in accord with the Comprehensive Plan, zoning,
redevelopment plans, and the City/HRA policies; projects that provide no significant
improvement to the neighborhood and/or the City; and projects that do not
provide a significant increase in the tax base and/or prevent the loss of tax base.
P. The financial structure of the project must receive a favorable review by the City’s
Director of Finance, Financial Advisor and legal components will include a review by
the City/HRA’s legal counsel. The review will include a review of performance and
level of outstanding debt of previous HIAs.
Page | 5
Q. If bonds are to be issued, legal components will be reviewed by the City/HRA
bond counsel.
R. All rental units within the HIA must be licensed according to Edina ordinance.
S. The association is to submit an application along with a $500.00 non-refundable
application fee, as set from time to time by resolution of the City Council.
T. The City/HRA will charge an administrative fee of 1% of the total project
amount, or $7,500, whichever is greater. In addition, the Association is responsible
for all City/HRA out of pocket expenses with an initial escrow deposit of $10,000.
[This amount can be financed with the project costs.] Any unused portion of the
escrow shall be refundable to the Association.
U. The City Council/HRA reserves the rights to deny funding for specific
improvements if they are determined not to be in keeping with the intent of the
policy.
Housing Improvement Area
City Council Work Session
Agenda
1.Overview
2.Review HIA Policy
3.HIA Process Checklist
4.City Council Approval
Process
5.Funding Sources
EdinaMN.gov 2
What is a Housing Improvement
Area (HIA)?
•A defined area where common area improvements to
townhome/condo developments (“Associations”) may be financed
with City assistance
•Provides loans to Associations unable to obtain private financing
•Authority granted by State Statute (M.S. 428A)
•Property owners repay the loan through fees imposed on the HIA
and collected as part of their property taxes up to 20 years
•-Carries same penalties and tax forfeiture process
EdinaMN.gov 3
•Windows
•Siding
•Roofing
•Parking lot resurfacing
•Common entry doors
•HVAC
•Elevators
Maintenance and capital
improvement repairs which are the
responsibility of the Association
(must be defined by the governing
documents)
What Types of Improvements
are Eligible?
EdinaMN.gov 4
•Improvements that are not eligible
include items that are the
responsibility of individual
homeowners
What Types of Improvements
are not Eligible?
EdinaMN.gov 5
•What improvements are needed?
•What are the costs of needed
improvements?
•Have all other means of financing been
exhausted?
•Will at least 70% of owners included in the
proposed area requesting a Housing
Improvement Area designation sign a
petition?
What to consider for an HIA
Designation
EdinaMN.gov 6
HIA Statutory Requirements
•Owners submit petition for public hearing
•Public Hearing to approve Ordinance defining HIA
•Notice published and mailed to each owner
•Prior to adoption, an owner may file objection if property
would not benefit (determination to exclude property made
within 60 days)
•Public disclosure of project expenditures, contracting,
financing and third-party long-term ops/maintenance plan
•Public Hearing on fee resolution
•Residents who object have a process to be heard prior to
effective dates of ordinance and resolution
EdinaMN.gov 7
HIA Checklist
EdinaMN.gov 8
Association submits Application
-Demonstration of no other funding options
-Reserve plan
Petition for Improvement Area Establishment and Fees (70% owners)
Public meeting to accept Petition and schedule hearing
Public Hearing Notice and adoption of Ordinance
-Provide list of Public Area Improvements
Mail Ordinance to all Owners included in HIA
-Mailing includes information on right to veto ordinance
Public Hearing Notice/adoption of HIA Resolution & Ordinance imposing fees
Financing Development Agreement between City and Association
Delivery of Financing Commitment
HIA Financing
Funding Sources:
EdinaMN.gov 9
Internal Funds
Revenue Bonds
General Obligation
Bonds
Taxable General Obligation Bonds
City issues its bonds pledging its full faith and credit as additional backing if
HIA fee revenue ever proves insufficient for repayment
Advantages:
HIA property can access City’s ability to obtain low market rates and flexible terms
Does not count against statutory debt limit or election requirements
Disadvantages:
City is pledging to step in and use its own funds to make bond payments in event of tax
delinquency or forfeiture
Annual HIA Fees must provide 105% debt service coverage to avoid City levy requirement
Credit Rating Risk
EdinaMN.gov 10
Taxable Revenue Bonds
City issues its bonds pledging only the HIA fee revenue toward the bonds’
repayment. Bondholder takes on risk of delinquency / forfeiture.
Advantages
Potentially offer better terms / interest rates than conventional financing
Limits City’s exposure to HIA delinquency / credit risk
Disadvantages
Higher financing cost and underwriting standards
-Debt reserve, revenue coverage requirements, etc.
Bonds still carry City name and administrative responsibilities
EdinaMN.gov 11
Revenue Bond vs G.O. HIA Fee Impact:
0.35 to 0.50% Higher Interest Rates
10 to 25% Higher revenue coverage ratio
5% Higher bonding amount
= 10 to 25% Impact to supporting HIA Fee
Internal Funds
City advances its funds to provide for the improvements and recovers costs
from HIA fees
Advantages
City sets terms for financing: can offer additional flexibility beyond market
Can setup revolving fund to manage exposure and reinvest proceeds
Disadvantages
Limited resources / funding capacity
City funds at risk for delinquencies / forfeiture
Long recovery period
EdinaMN.gov 12
Potential Sources:
•SPARC
•TIF Pooled Funds
•Aff. Housing Trust Fund
•Other (HRA Levy, surplus, etc.)
HIA: Protecting City Resources
Risk Factor: Owner objection and Veto process
HIA process requires careful review and lengthy timeline to accomplish public
steps for ordinance and hearings
Potential Mitigation
Require Association provide higher petition percentage by owners before start (70% in Edina
versus 50% as required by Statute); demonstrate commitments. To Veto need 45% of owners.
Application fee held in escrow to cover City’s administrative costs
EdinaMN.gov 13
HIA: Protecting City Resources
Risk Factor: Project Feasibility
Bond or Loan proceeds at risk during project construction
Potential Mitigation
Review Association’s project development, scope and procurement align with City’s policy
objectives and requirements
Financing agreement:
Set terms for disbursement or require Association obtain construction financing w/ City
guarantee of private loan takeout after project completion and HIA proceedings
Consider other forms of collateral or recourse (if necessary)
Consider property owner fee prepayment provisions
EdinaMN.gov 14
HIA: Protecting City Resources
Risk Factor: HIA Fee delinquency / tax forfeiture
HIA fee repayment dependent on capacity of Association property owners
Potential Mitigation
Measure project cost and annual fee payments compared to property value / income levels
Review Association’s financial reports, long-term maintenance and operating plan
Financing Agreement:
Require Association guarantees, bond reserves
If bonding, consider adding prepayment flexibility
EdinaMN.gov 15
HIA: Protecting City Resources
Risk Factor: HIA Administration
HIA requires ongoing administrative oversight during project completion and
length of fee repayment
Potential Mitigation
Review bond and loan administrative requirements (trustee / credit surveillance fees)
Consider adding HIA administrative charge within annual fee amount to cover staff time
coordinating HIA program and financial administration
EdinaMN.gov 16
HIA: Protecting City Resources
Risk Factor: City’s AAA (S&P) and Aaa (Moody’s) Credit Ratings
HIA General Obligation Bonds will count against credit factors:
1. Debt load (total balance as % of tax base)
2. Leverage (total balance as % of operating revenues)
3. Debt service carrying charge (annual debt payments as % of general expenditures)
Potential Mitigation
Pursue revenue bonds or internal funds (if able)
Set policy limits to amount of bonds outstanding, length of repayment
EdinaMN.gov 17
HIA: Protecting City Resources
2022 Credit evaluation forecasted $78 million in potential Fire Station and Sales Tax bonding
in the future. No impact to overall AAA and Aaa rating assignments, however:
S&P: “Weakening debt burden, with the city’s overall debt profile growing this year, potentially
significantly if voters approve the local option sales tax bonds.”
Moody’s: “Credit Challenge: elevated leverage and fixed costs”
EdinaMN.gov 18
City of Edina Key Debt Credit Ratios
Indicator Current Ratio Score Forecasted Ratio Score
Debt Load 0.45%Aa / Strong 0.95%Aa / Adequate
Leverage 131%A / Adequate 247%A / Weak
Carrying Charge 14.6%A / Adequate 22.3%A / Weak
Closing Thoughts
•Effective tool available to MN cities
•Preservation of aging affordable housing stock
•Bonding vs. internal funding:
•-Do we prioritize the use internal funds to address the needs of
Condominium common areas?
•-Are General Obligation Bonds an appropriate financing tool?
•-Pending requests
EdinaMN.gov 19