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HomeMy WebLinkAboutJune 5, 2006 16200 Eagle Creek Avenue S.E. Prior Lake, MN 55372-1714 PRIOR LAKE ECONOMIC DEVELOPMENT AUTHORITY REGULAR MEETING Monday, June 5, 2006 Fire Station - City Council Chambers 1) Call to Order 2) Approval of Agenda 3) Consider Approval of Meeting Minutes: NONE 4) Consent Agenda. Those items on the EDA Agenda which are considered routine and non-controversial are included as part of the Consent Agenda. Unless the President, a Commissioner or member of the public specifically requests that an item on the Consent Agenda be removed and considered separately, items on the Consent Agenda are considered under one motion, second and a roll call vote. Any item removed from the Consent Agenda shall be placed on the EDA agenda as a separate category. a) 5) Items Removed from Consent Agenda 6) Public Hearings: a) NONE 7) Presentations: a) NONE 8) Old Business: a) NONE 9) New Business a) Consider Approval of a Resolution Appointing Economic Development Officers for 2006 b) Consider Approval of a Resolution Establishing a Housing Finance Program and Issuance of Revenue Bonds to finance a Senior Independent Living Facility Pursuant to Minnesota Law 10) Other Business 11) Adjournment 1:\EDA\2006\June 5, 2006 EDA Agenda.DOC www.cityofpriorlake.com Phone 952.447.4230 / Fax 952.447.4245 16200 Eagle Creek Avenue S.E. Prior Lake, MN 55372-1714 MEETING DATE: AGENDA #: PREPARED BY: AGENDA ITEM: DISCUSSION: ECONOMIC DEVELOPMENT AUTHORITY AGENDA REPORT JUNE 5,2006 9A PAUL SNOOK CONSIDER APPROVAL OF A RESOLUTION APPOINTING THE ECONOMIC DEVELOPMENT AUTHORITY OFFICERS FOR 2006 Introduction The Economic Development Authority needs to appoint officers for 2006. Historv According to its Bylaws and Enabling Resolution, the Economic Development Authority needs to appoint officers at the annual meeting. This meeting serves as the official annual meeting of the Prior Lake EDA for 2006. The members of the City Council serve as the EDA Board of Commissioners. Current Circumstances According to the Bylaws, the EDA shall elect the president, vice president, and treasurer annually. A commissioner must not serve as president and vice-president simultaneously. The other offices may be held by the same commissioner. The offices of secretary and assistant treasurer need not be held by a commissioner (historically, the Administrative Assistant has served as secretary, and the Finance Director has served as assistant treasurer). The following appointments were made for 2005: President - Joe Zieska Vice President - Chad LeMair Treasurer - Jack Haugen The following appointments should be made for 2006: President - Vice President - Treasurer - www.cityofpriorlake.com Phone 952.447.4230 / Fax 952.447.4245 Conclusion The EDA should nominate members to fill the offices identified above, and by resolution appoint the officers. ALTERNATIVES: 1. Approve the resolution 2. Defer for a specific reason RECOMMENDED MOTION: Alternative 1 16200 Eagle Creek Avenue S.E. Prior Lake, MN 55372-1714 PRIOR LAKE ECONOMIC DEVELOPMENT AUTHORITY RESOLUTION EDA06- A RESOLUTION APPOINTING OFFICERS TO THE ECONOMIC DEVELOPMENT AUTHORITY MOTION BY: SECOND BY: WHEREAS, Pursuant to Minnesota Statutes, Section 469.09 to 469.108, the City of Prior Lake has established an Economic Development Authority, and WHEREAS, Pursuant to Economic Development Authority Bylaws and Enabling Resolution, the Economic Development Authority shall appoint officers at its annual meeting; and WHEREAS, The following appointment of officers is made for 2006: President - Vice President - Treasurer - Assistant Treasurer - Secretary - Ralph Teschner, Finance Director Charlotte Green, Administrative Assistant NOW, THEREFORE, BE IT HEREBY RESOLVED BY THE PRIOR LAKE, MINNESOTA ECONOMIC DEVELOPMENT AUTHORITY as follows: 1. The recitals set forth above are incorporated herein. 2. That the above appointments are hereby made as set forth above for the year 2006. PASSED AND ADOPTED THIS 5TH DAY OF JUNE 2006. YES NO I Haugen I Dornbush I Erickson I LeMalr I Millar HauQen Dornbush Erickson LeMalr Millar Frank Boyles, Executive Director www.cityofpriorlake.com Resolution 06 -_ Appointing Officers to the PfR9A~i9g!':'!t!~~~th?ri.all~~44 7.4245 Page 1 4 PRI~ (~O1llll<' \ f..t ~ 16200 Eagle Creek Avenue S.E. U rrl Prior Lake, MN 55372-1714 \ ~ ) ECONOMIC DEVELOPMENT AUTHORITY ~ AGENDA REPORT MEETING DATE: AGENDA #: PREPARED BY: AGENDA ITEM: DISCUSSION: JUNE 5, 2006 9B PAUL SNOOK, ECONOMIC DEVELOPMENT DIRECTOR CONSIDER APPROVAL OF A RESOLUTION ESTABLISHING A HOUSING FINANCE PROGRAM AND ISSUANCE OF REVENUE BONDS TO FINANCE A SENIOR INDEPENDENT LIVING FACILITY PURSUANT TO MINNESOTA LAW Introduction The purpose of this item is to consider the establishment of a housing finance program and issuance of City ($22,000,000) and Economic Development Authority ($10,000,000) revenue bonds to finance a senior independent living facility pursuant to Minnesota Law. At its May 15th meeting City Council received from Shepherd's Path LLC an Application for Financial Assistance, and called public hearings on proposed City and Economic Development Authority revenue bonds, and proposed establishment of Tax Increment Financing district 6-1. (the City Council conducts the public hearing on issuance of both the EDA and City bonds; the EDA does not hold a public hearing. The City and EDA then act separately to approve their respective bonds). The public hearing for tax increment financing will be June 26, 2006. Shepherd's Path Senior Campus is designed to be a full service high quality residential environment and a comprehensive community resource exclusively for adults age 62 and over. Shepherd's Path will serve a wide spectrum of lifestyle needs from active adults 62 and over to very frail adults who need a wide range of support and services. In order to have an affordable residential element to Shepherd's Path, revenue bonds and tax increment financing is necessary to keep the rents at an affordable rate. City Council is asked to hold the required public hearing on the issuance of City and Economic Development Authority revenue bonds, and both the City and EDA are asked to approve respective revenue bonds for the purposes of assisting in the development of the Shepherd's Path senior residential community. Histol"\l The development of the senior residential campus arrives on the heels of the new Shepherd of the Lake Lutheran Church which was completed in 2003. The senior campus represents the implementation of the master plan developed by the church to create a multi-generational community where senior adults, family members, church members, youth, volunteers and the residents of Prior Lake have an opportunity to benefit from the synergy of cooperative programs. www.cityofpriorlake.com 5 EC..'.\ Meetip~~W~~30E9f.Y~i95~~ry~~gie2r Current Circumstances Shepherd's Path contracted with Maxfield Research to conduct a market analysis of the senior housing needs in Prior Lake. Maxfield's market analysis shows a total potential market base for senior housing of 660 households in the Prior Lake market area. It is estimated that 45% of the market base will need or want subsidized I affordable housing. Thus, demand in the Prior Lake market area exists for 297 subsidized I affordable senior housing units. Some but not all of that demand is or will be met by existing subsidized I affordable units provided by other sources such as the Scott County HRA. The analysis also reveals that Scott County is one of the few counties in the state that has an inadequate number of skilled nursing beds to serve the senior population. In fact, there are no skilled nursing facilities in Savage or Prior Lake. Maxfield's calculations reveal the potential to support up to 180 beds in the Prior Lake market area through 2009. Conclusion The Shepherd's Path project meets many of the objectives of the City's 2030 Vision and Strategic Plan under the Housing Quality and Diversity section. Most importantly, the developers of this project will make available various styles and levels of senior housing and this is a project that provides for lifecycle housing, specifically for the senior community. If the Council wishes to proceed, it should by resolution, issue the revenue bonds (the EDA would proceed in the same manner as the City, issuing its revenue bonds). ISSUES: The City Council needs to determine if it is important to have Shepherd's Path be a development that provides opportunity for lifecycle housing, inclusive of affordable units. If so, revenue bonds will help achieve the affordable residential component of the project. It is proposed that the City and EDA both issue tax-exempt revenue bonds on behalf of Shepherd's Path to finance a senior housing campus, including 84 independent housing units, 18 memory care units and 10,000 square feet of community space. The bonds will help keep the residential units affordable, and provide a significantly greater degree of related services than would occur without the bonds. The use of the bonds will require (in the development agreement) that a non-profit maintain ownership and operation of Shepherd's Path, which will consequently result in a continuum of affordability to the units. NOTE: all financial approvals for this project are conditioned upon approval of a final plat. FINANCIAL IMPACT: The bonds being proposed in this development are known as "conduit" bonds. In effect, the City is allowing its name and issuance authority to be used by the developer in return for an agreement to provide affordable housing. The developer uses the below-market interest rates attained with the City's tax exempt bond issuance authority to reduce financing costs thereby making affordable rents achievable. The EDA and the City will assign all of their rights to payments under the loan agreements to a trustee for the bondholders who will purchase the bonds and loan the purchase price of the bonds directly to Shepherd's Path. The EDA and the City are merely "conduits" and the money = C),::', ?EPCF~T {~ and obligations flow only between the trustee (for the bondholders) and Shepherd's Path. The revenue bonds issued by the EDA would not exceed $10,000,000 and the bonds issued by the City would not exceed $22,000,000. The EDA and the City would enter into separate loan agreements with Shepherd's Path under which Shepherd's Path will agree to pay all principal and interest on both series of bonds. The bonds and the resolutions adopted by the EDA and the City for issuing the bonds will state that when issued, the bonds will not be payable from any of the EDA's or the City's funds, other than the revenues received under the Loan Agreements and pledged to the payment of the bonds, and the EDA and the City are not subject to any liability on the bonds. The bonds will not constitute a debt of the EDA or the City. The bonds issued by the EDA must be factored into the EDA's $10,000,000 bank qualification allowance leaving no amount available for other obligations that the EDA might issue this year for governmental purposes or other nonprofit borrowers. It is not expected that there will be any other EDA bonds issued this year. For the City, these bonds and others to be issued this year for governmental purposes will exceed the $10,000,000 limit so no bonds issued by the City will be Bank Qualified this year. However, Shepherd's Path stipulates as part of the loan agreement to compensate the City for the additional costs it incurs due to being unable to designate its bonds as Bank Qualified in 2006. Issuing the bonds will not affect the credit rating of the EDA or the City on bonds they issue for municipal purposes. Enclosed is a memo from the City and EDA's bond counsel Briggs and Morgan regarding conduit bonds. ALTERNATIVES: Allen Black of Presbyterian Homes I Shepherd's Path will be in attendance at the public hearing to make a presentation and answer questions you may have. 1. Approve the resolution 2. Deny the resolution 3. Defer for a specific reason RECOMMENDED MOTION: Alternative 1. RevirtJ Frank Boyles, Ci F(EFC'RT {c rlec"lr DOC Extract of Minutes of a Meeting of the Board of Commissioners of the Economic Development Authority of the City of Prior Lake, Minnesota Pursuant to due call and notice thereof, a regular meeting of the Board of Commissioners of the Economic Development Authority of the City of Prior Lake was duly held at the Prior Lake Fire Station 1 in said City on Monday, the 5th day of June, 2006 at 0' clock P.M. The following commissioners were present: and the following commissioners were absent: Member introduced the following resolution and moved its adoption: A RESOLUTION PROVIDING FOR THE ISSUANCE AND SALE OF SENIOR HOUSING REVENUE BONDS, (SHEPHERD'S PATH SENIOR HOUSING, INC. PROJECT), SERIES 2006A TO PROVIDE FUNDS FOR A SENIOR MUL TIF AMIL Y HOUSING PROJECT The motion for the adoption of the foregoing resolution was duly seconded by commissioner . and after full discussion thereof and upon vote being taken thereon, the following voted in favor thereof: and the following voted against the same: whereupon said resolution was declared duly passed and adopted. 1910688vl A RESOLUTION PROVIDING FOR THE ISSUANCE AND SALE OF SENIOR HOUSING REVENUE BONDS, (SHEPHERD'S PATH SENIOR HOUSING, INC. PROJECT), SERIES 2006A TO PROVIDE FUNDS FOR A SENIOR MUL TIF AMIL Y HOUSING PROJECT BE IT RESOLVED by the Board of Commissioners of the Economic Development Authority of the City of Prior Lake (the "EDA"), as follows: 1. Authoritv. The EDA is, by the Constitution and laws of the State of Minnesota, including Minnesota Statutes, Chapter 462C, as amended (the "Act"), authorized to issue and sell its revenue bonds for the purpose of financing the cost of multifamily housing facilities for the elderly and to enter into agreements necessary or convenient in the exercise of the powers granted by the Act. 2. Authorization ofProiect: Documents Presented. Shepherd's Path Senior Housing, Inc., a Minnesota nonprofit corporation (the "Borrower"), has proposed that the EDA issue and sell its $10,000,000 Senior Housing Revenue Bonds (Shepherd's Path Senior Housing, Inc. Project), Series 2006A (the "Series 2006A Bonds") in substantially the form set forth in the Indenture (as hereafter defined) pursuant to the Act and loan the proceeds thereof to the Borrower, in order to assist in financing the acquisition, construction and equipping of an approximately 154-unit senior housing and assisted living facility (the "Project") located adjacent to the Shepherd of the Lutheran Lake Church, located at 13760 McKenna Road in the City. Forms of the following documents relating to the Series 2006A Bonds have been submitted to the EDA, all of which are dated as of the first day of the month in which the Series 2006A Bonds are issued, unless otherwise indicated: (a) The Loan Agreement (the "Loan Agreement") between the EDA and the Borrower, whereby the EDA agrees to make a loan of the proceeds of sale of the Series 2006A Bonds to the Borrower and pursuant to which agreement the Borrower agrees to undertake and complete the Project and to pay amounts in repayment of the loan sufficient to provide for the full and prompt payment of the principal of, premium, if any, and interest on the Series 2006A Bonds; and (b) The Trust Indenture (the "Indenture") among the EDA, the City of Prior Lake, Minnesota (the "City") and U.S. Bank National Association, as trustee (the "Trustee"), authorizing the issuance of the Series 2006A Bonds and the City's $20,500,000 Senior Housing Revenue Bonds (Shepherd's Path Senior Living, Inc. Project), Series 2006B (the "Series 2006B Bonds" and together with the Series 2006A Bonds, the "Bonds") and pledging certain revenues, including those to be derived from the Loan Agreement, as security for the Bonds, and setting forth proposed recitals, covenants and agreements relating thereto; and (c) The Limited Guaranty Agreement from Presbyterian Homes and Services, a Minnesota nonprofit Borrower (the "Guarantor"), to the Trustee, by which the Guarantor guarantees payment of certain obligations of the Borrower relating to payment and purchase of the Bonds (this document not executed by the EDA); and 1910688vl 2 (d) The Combination Mortgage, Security Agreement and Fixture Financing Statement and Assignment of Leases and Rents (the "Mortgage") between the Borrower, as mortgagor, and the Trustee, as mortgagee, granting to the Trustee a first mortgage lien on and security interest in the Project as security for repayment of the Bonds, (this document not executed by the EDA); and (e) The Disbursing Agreement (the "Disbursing Agreement") among the Borrower, the Trustee, and a disbursing agent, setting forth the conditions to disbursement of proceeds of the Bonds in payment of costs of the Project (this document not executed by the EDA); and (f) The Bond Purchase Agreement (the "Bond Purchase Agreement"), among Northland Securities, Inc. (the "Underwriter"), the Borrower and the EDA, providing for the purchase of the Series 2006A Bonds from the EDA by the Underwriter and setting forth the terms and conditions of purchase; and (g) The Preliminary Official Statement (together with the form of final Official Statement and the insertion of the final underwriting details of the Bonds, including the interest rates thereon, and any other changes deemed necessary or desirable, intended to constitute the form of the final Official Statement, and including all Appendices thereto (together the "Official Statement")), describing the offering of the Bonds, and certain terms and provisions of the foregoing documents relating to the Bonds. 3. Findinl!s. It is hereby found, determined and declared that: (a) Based on Borrower representations to EDA, the Project constitutes a project authorized by and described in the Act as elderly rental housing. (b) There is no litigation pending or, to the EDA's actual knowledge, threatened against the EDA relating to the Series 2006A Bonds, the Loan Agreement, the Bond Purchase Agreement or the Indenture (collectively, the "EDA Bond Documents") or questioning the due organization of the EDA, or the powers or authority of the EDA to issue the Series 2006A Bonds and undertake the transactions contemplated hereby. (c) The execution, delivery and performance of the EDA's obligations under the EDA Bond Documents do not and will not violate any order of any court or other agency of government of which the EDA is aware or in which the EDA is a party, or any indenture, agreement or other instrument to which the EDA is a party or by which it or any of its property is bound, or be in conflict with, result in a breach of, or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument. (d) It is desirable that the Series 2006A Bonds be issued by the EDA upon the terms set forth in the Indenture under the provisions of which the EDA's interest in the Loan Agreement will be pledged to the Trustee as security for the payment of principal of, premium, if any, and interest on the Series 2006A Bonds. 1910688vl 3 (e) Under the provisions of the Act, and as provided in the EDA Bond Documents, the Series 2006A Bonds are not to be payable from nor charged upon any funds other than amounts payable pursuant to the Loan Agreement and moneys in the funds and accounts held by the Trustee which are pledged to the payment thereof; the EDA is not subject to any liability thereon; no owners of the Series 2006A Bonds shall ever have the right to compel the exercise of the taxing power of the EDA to pay any of the Series 2006A Bonds or the interest thereon, nor to enforce payment thereof against any property of the EDA; the Series 2006A Bonds shall not constitute a general or moral obligation of the EDA or a charge, lien or encumbrance, legal or equitable, upon any property of the EDA (other than the interest of the EDA in the Loan Repayments to be made by the Borrower under the Loan Agreement); and each Series 2006A Bond issued under the Indenture shall recite that such Series 2006A Bond, including interest thereon, shall not constitute or give rise to a charge against the general credit or taxing powers of the EDA. 4. ~ualified Tax Exempt Obli~ations. In order to qualify the Series 2006A Bonds as "qualified tax-exempt obligations" within the meaning of Section 265(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), the EDA hereby makes the following factual statements and representations; (1) the Bonds are not treated as a "private activity bond" under Section 265(b)(3) of the Code; (2) the EDA hereby designates the Bonds as qualified tax-exempt obligations for purposes of Section 265(b)(3) of the Code; (3) the reasonably anticipated amount of tax-exempt obligations (other than obligations described in clause (ii) of Section 265(b)(3)(C) of the Code) which will be issued by the EDA (and all entities whose obligations will be aggregated with those of the EDA) during the calendar year 2006 will not exceed $10,000,000; (4) not more than $10,000,000 of obligations issued by the EDA during the calendar year 2005 have been designated for purposes of Section 265(b)(3) of the Code; and (5) the aggregate face amount of the Note does not exceed $10,000,000. 5. Approval of Housin~ Program. The EDA hereby approves the housing program prepared in connection with financing the Project. The EDA has established a governmental program of acquiring purpose investments for qualified 501(c)(3) projects. The governmental program is one in which the following requirements of ~ 1.148-1 (b) of the federal regulations relating to tax-exempt obligations shall be met: (6) the program involves the origination or acquisition of purpose investments; (7) at least 95% of the cost of the purpose investments acquired under the program represents one or more loans to a substantial number of persons representing the 1910688vl 4 general public, states or political subdivisions, 501(c)(3) organizations, persons who provide housing and related facilities, or any combination of the foregoing; (8) at least 95% of the receipts from the purpose investments are used to pay principal, interest, or redemption prices on issues that financed the program, to payor reimburse administrative costs of those issues or of the program, to payor reimburse anticipated future losses directly related to the program, to finance additional purpose investments for the same general purposes of the program, or to redeem and retire governmental obligations at the next earliest possible date of redemption; (9) the program documents prohibit any obligor on a purpose investment financed by the program or any related party to that obligor from purchasing bonds of an issue that finances the program in an amount related to the amount of the purpose investment acquired from that obligor; and (10) the EDA shall not waive the right to treat the investment as a program investment. 6. Annroval and Execution of Documents. The forms of Series 2006A Bonds and the EDA Bond Documents are approved. The EDA Bond Documents, together with such other documents necessary in connection therewith, are authorized to be executed in the name and on behalf of the EDA by the President and the Secretary at such time, if any, as they may deem appropriate, or executed or attested by other officers of the EDA, in substantially the form on file, but with all such changes therein, not inconsistent with the Act or other law, as may be approved by the officers executing the same, which approval shall be conclusively evidenced by the execution thereof; and then shall be delivered to the Trustee. Modifications to the form of Mortgage may be made at the discretion of the parties thereto. 7. Annroval. Execution and Deliverv of Bonds. The EDA is authorized to issue the Series 2006A Bonds, in an aggregate principal amount of not to exceed $10,000,000, in the form and upon the terms set forth in the Indenture which terms are for this purpose incorporated in this resolution and made a part hereof; provided, however, that the initial aggregate principal amount of and the maturities of the Series 2006A Bonds, the interest rates thereon, and any provisions for the optional or mandatory redemption thereof shall all be as set forth in the final form of the Indenture to be approved, executed and delivered by the officers of the EDA authorized to do so by the provisions of this Resolution, which approval shall be conclusively evidenced by such execution and delivery; and provided further that, in no event, shall such maturities exceed forty (40) years. The Underwriter has agreed pursuant to the provisions of the Bond Purchase Agreement and subject to the conditions therein set forth, to purchase the Series 2006A Bonds at the purchase price set forth in the Bond Purchase Agreement and said purchase price is hereby accepted. The President, Secretary, and other EDA officers are authorized to execute the Series 2006A Bonds as prescribed in the Indenture at such time, if any, as they may deem appropriate, and to deliver them to the Trustee, together with a certified copy of this Resolution and the other documents required by Section 2.08 of the Indenture for authentication, registration and delivery to the Underwriter. 1910688vl 5 8. Official Statement. As requested by the Underwriter, the EDA hereby consents to the circulation by the Underwriter of the Official Statement in offering the Series 2006A Bonds for sale; provided, however, that the EDA has not participated in the preparation of the Official Statement or independently verified the information in the Official Statement and takes no responsibility for, and makes no representations or warranties as to, the accuracy, completeness or sufficiency of such information. 9. Certificates. etc. The President, Secretary, and other officers of the EDA are authorized at such time, if any, as they may deem appropriate, to prepare and furnish to bond counsel and the purchaser of the Series 2006A Bonds, when issued, certified copies of all proceedings and records of the EDA relating to the Series 2006A Bonds, and such other affidavits and certificates as may be required to show the facts appearing from the books and records in the officers custody and control or as otherwise known to them; and all such certified copies, certificates and affidavits, including any heretofore furnished, shall constitute representations of the EDA as to the truth of all statements contained therein. Adopted by the Board of Commissioners of the Economic Development Authority of the City of Prior Lake this 5th day of June, 2006. President AnhST: Secretary 1910688v 1 6 STATE OF MINNESOTA ) ) ss. COUNTY OF SCOTT ) I, the undersigned, being the duly qualified Secretary of the Economic Development Authority of the City of Prior Lake, Minnesota (the "EDA"), do hereby certify that attached hereto is a compared, true and correct copy of a resolution giving final approval to an issuance of revenue bonds by the EDA on behalf of Shepherd's Path Senior Housing, Inc., dilly adopted by the Board of Commissioners of the EDA on June 5, 2006, at a regular meeting thereof dilly called and held, as on file and of record in my office, which resolution has not been amended, modified or rescinded since the date thereof, and is in full force and effect as of the date hereof. WITNESS My hand this day of June, 2006. Secretary 1910688vl BRIGGS AND J.\.:lORGAN 2200 FIRST NATIONAL BANK BUIIDING 332 MINNESOTA STREET SAINT PAUL, MINNESOTA 55101 TELEPHONE (651) 808-6600 FACSIMILE (651) 808-6450 WRITER'S DIRECT DIAL (651) 808-6484 PROFESSIONAL ASSOCIATION WRIlER'S E-MAIL jboulton@briggs.com May 5, 2006 VIA EMAIL Mr. Frank Boyles Mr. Ralph Teschner Mr. Paul Snook City of Prior Lake 16200 Eagle Creek Avenue SE Prior Lake, MN 55372-1787 Re: Economic Development Authority of the City of Prior Lake, Minnesota - Senior Housing Revenue Bonds (Shepherd's Path Senior Housing, Inc. Project), Series 2006 City of Prior Lake, Minnesota - Senior Housing Revenue Bonds (Shepherd's Path Senior Housing, Inc. Project), Series 2006 Dear Frank, Ralph, Paul, City Council Members and EDA Commissioners: It is proposed that the EDA and the City of Prior Lake, Minnesota both issue tax-exempt Bonds on behalf of Shepherd's Path Senior Housing, Inc. (the "Borrower") to finance the acquisition, construction and equipping of a senior housing campus, including 84 independent housing units, 18 memory care units and 10,000 square feet of community space, to be located adjacent to the Shepherd of the Lake Lutheran Church in the City (the "Project"). The Bonds issued by the EDA on behalf of the Borrower would not exceed $10,000,000 and the Bonds issued by the City on behalf of the Borrower would not exceed $20,500,000. State and Federal law allows local government units and their agencies to issue bonds and loan the proceeds to nonprofit corporations to finance or refinance capital expenditures. This assistance reduces borrowing costs for nonprofit corporations and enables them to provide their services more cost effectively. It is a fairly common means of obtaining necessary financing for all nonprofit entities, including senior housing facilities. To accomplish this purpose, the EDA and the City would enter into separate Loan Agreements with the Borrower under which the Borrower will agree to pay all principal and interest on both series of Bonds. The EDA and the City will assign all of their rights to payments under the Loan Agreements to a Trustee (the "Trustee") for the Bondholders who will purchase the Bonds and loan the purchase price of the Bonds directly to the Borrower. The EDA and the City are merely conduits and the money and obligations flow only between the Trustee (for the Bondholders) and the Borrower. 1875567v2 MINNEAPOLIS OFFICE. IDS CENlER . WWW.BRIGGS.COM MEMBER - LEX MUNDI, A GLOBAL ASSOCIATION OF INDEPENDENT LAW FIRMS BRIGGS AND MORGAN May 5, 2006 Page 2 The Bonds and the resolutions adopted by the EDA and the City will recite that the Bonds, if and when issued, will not to be payable from or charged upon any of the EDA's or the City's funds, other than the revenues received under the Loan Agreements and pledged to the payment of the Bonds, and the EDA and the City are not subject to any liability on the Bonds. No holder of the Bonds will ever have the right to compel any exercise by the EDA or the City of their taxing powers to pay any of the principal of the Bonds or the interest or premium thereon, or to enforce payment of the Bonds against any property of the EDA or the City except the interests of the EDA and the City in payments to be made by the Borrower under the Loan Agreements. The Bonds will not constitute a charge, lien or encumbrance, legal or equitable, upon any property of the EDA or the City except the interests of the EDA and the City in payments to be made by the Borrower under the Loan Agreements. The Bonds are not moral obligations on the part of the State or its political subdivisions, including the EDA and the City, and the Bonds will not constitute a debt of the EDA or the City within the meaning of any constitutional or statutory limitation. The Bonds issued by the EDA must be factored into the EDA's $10,000,000 Bank Qualification allowance leaving no amount available for other obligations that the EDA could otherwise issue this year for governmental purposes or other nonprofit borrowers. The EDA has indicated these are the only Bonds it expects to issue this year. With these Bonds and others the City expects to issue this year for governmental purposes, the City will exceed the $10,000,000 limit so no bonds issued by the City will be Bank Qualified this year. However, the Borrower will agree in the Loan Agreement to compensate the City for the additional costs it incurs due to being unable to designate its bonds as Bank Qualified in 2006. Issuing the Bonds will not affect the credit rating of the EDA or the City on bonds they issue for municipal purposes. Under Federal and State law in order for the Bonds to be tax exempt obligations, they must be issued by a political subdivision. This requires that the EDA and the City hold a public hearing and approve issuance of the Bonds and the execution of related documents. In addition to the Bonds, the Borrower has requested tax increment financing assistance for the Project. The Borrower has proposed "pay-as-you-go" financing in which the Borrower would be paid tax increments over time as they are generated rather than requesting an upfront payment from the City. The underwriter for the Bonds will require a collateral assignment of the TIF to provide the financial coverage necessary to market the Bonds. The Borrower will assign and pledge to the to the Trustee on behalf of the Bondholders all of its right, title and interest in a Development Agreement with the City and a Tax Increment Financing Note from the City. However, Bondholders will not any have greater rights to tax increments or other revenues of the City or the EDA than are given to the Borrower under the pay-as-you-go arrangement. 1875567v2 BRIGGS AND MORGAN May 5, 2006 Page 3 Although the TIF and the Bonds are both part of the total financing package for the Project, there are some differences. The processes for approval of the TIF and the Bonds can move along parallel tracks but are separate processes with more notice requirements on the TIF side. Consequently, the current plan is to hold the public hearing on the issuance of the Bonds prior to the hearing on the approval of the TIF plan. Moreover, while no revenues of the City or EDA are pledged to the payment of the Bonds, tax increment financing is a payment of a portion of the property tax revenues generated by the Project to the Borrower in the form of tax increments. On the other hand, the Bonds and the TIF are alike in that there is really no risk to the City or the EDA in the event there are financial difficulties with the Project. The Borrower has proposed pay-as-you-go TIF so that they only receive the increments that are actually generated by the Project. If for any reason tax increments are not generated in the amounts projected there is no recourse to the City or the EDA for additional payments. If you have any questions please don't hesitate to contact me. Very truly yours, /s/ Jenny (jJou{ton Jenny Boulton JSB 1875567v2