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10/19/2020 - City Council - Work Session - Minutesr CITY OF SPRING PARK • WORK SESSION MINUTES OCTOBER 19, 2020 — 5:00 PM SF1UHC AkROK SPRING PARK CITY HALL On Lake Minnetonka (Work Session discussion times are approximate) 1. 5:00 — ZONING CONSIDERATIONS FOR SHORT-TERM RENTAL DISCUSSION WITH CITY PLANNER AL BRIMUS Brixius said regarding Anton Reder, 3946 and 3948 Shoreline Drive, options to retain short- term rental. He said they can do nothing, revist the code, or there are zoning options. To rezone the property to commercial, short term stays would be allowed. Negatives are it abuts a residential area and resale is a concern due to future owners. An interim use permit allows for a use to occur over a time and expires. The city would have to establish an interim use, establish a termination date and process it the same as conditional use. Amending the zoning code to specifically define short term rental, establish criteria that can limit the sites available, establish performance standards specific to the site, determine adequate parking and limited occupancy. Brixius said conditions for termination or expiration would need to be drafted. Other conditions could be if the short-term rental changes, the interim use would expire. He said violations would terminate it and number of violations could be grounds for termination. •Comments: Rockvam is concerned about spot zoning. He wonders is someone else will try the same thing. Brixius said the interim use permit would have criteria for location. Performance standards would be built in. Rockvam said a lot of money could be spent to get this changed. He thinks noise and parking are the big issues. Brixius thinks the best option is the interim use because of date specific and/or an event. Chase said he favors option 4. He said it is unique because it does abut a commercial district and the present owner operates a clean and well managed business. Rockvam is concerned where someone is allowed to do it but nobody else can. Brixius said it would be written so that if another request came in they would be held to the same standard so arbitrary decision making would be removed. Hughes wonders about commercial property doing short-term rental and it not being in an R1 district. Brixius said because it's commercial a hotel/motel arrangement would be allowed. Tolsma said there are some residential properties on the south side of Shoreline Drive that abut a commercial district and they could potentially use this interim use. 2. 5:30 — BONDING DISCUSSION WITH BRUCE KIMMEL OF EHLERS Bruce Kimmel with Ehlers said he's here to talk about a finance plan. He said this is just to go through it for questions or any changes and looking forward to approval. Kimmel said the •highlights of the presale report are two purposes. One to finance the proposed sewer and water projects on West Arm Rd West and the other refinance the last five years of debt service remaining on the City's 2010 A bonds. Kimmel said that is strictly for interest cost savings. He said the refinance will save about $20,000 in interest costs but more importantly it helps to increase the size of the larger bond issue for the new money. • Kimmel said a larger bond issue is more efficient overall as bond investors look for bigger bond issues. Kimmel said a number of revenue sources are planned for paying back the bond. There is a property tax portion on the 2010 bonds as well as special assessments would still be in play but most of it would be paid with water and sewer utility revenues. He said the bonds as currently structured are planned for a term of 15 years. He said these bonds will be bank qualified that offers the city an advantage in terms of the interest rate bidders will propose. In addition to the tax exemption if a bank were to buy these, they get the tax exemption as well as the additional tax benefit for using deposits to buy the bonds. Kimmel said the City of Spring Park has an amazing bond credit rating of AA+ which is one notch below the highest rating of AAA. He said AA+ is an excellent rating for a relatively small community. He said they don't anticipate any issues with S&P. He said this will be a rather competitive bond sale so on the date and time they'll be taking bids on the city's behalf they expect regional and national interest. He said the sale date is November 16. There is expected to be no meaningful volatility in the market after the elections. If there is any volatility, the bond can be pulled and the sale date postponed. Regarding premium pricing, Kimmel refers to the bond schedules in the handout, debt service schedule and looking at coupon, estimated interest rates ranging from .35 percent up to 1.6% on final in 2036. He said 1.1 % is the average coupon. He said the premium pricing in the winning bid is coupons in the 3% range down the full range of coupons. He said investors want higher coupon bonds because they'll have a better chance of selling those bonds. In • order to get those coupons they have to pay more than the bonds are worth. They potentially will offer more. The premium can be kept or it can be used to reduce the size of the bond issue. The city gets to tell Ehlers what to do with premium, should they get it. Hoffman wonders if the bid is being inflated and Kimmel explained it's what's called true interest costs and a way to compare apples to apples. Hoffman asks what is meant by premium. Kimmel refers to sources and Uses of Funds page and shows the two parts of the bond. With water and sewer improvements they add up to 1.1 million based on estimated project costs and soft costs. He said perhaps an additional $200,000 can be got in premium — Hoffman still wants clarification on premium. Kimmel said premium is the additional bond amount the buyer pays or is willing to pay in extra cash in order to have interest rates on the bonds that are higher than the market. If the market is 1 % and they want to have bonds with a coupon of 3 % in order to be the winning bid they need to be willing to pay the city more cash for those bonds than what they are selling the bonds for. Hoffman clarifies that they are doing that as it makes it more favorable for them to sell the bonds and Kimmel confirms. Kimmel said because they are middle men and they are going to resell those bonds. So, they are trying to win the bid and have the easiest time of selling those bonds to their investors. Kimmel goes back to his scenario of assume there's $200,000 of premium on the table with the winning bid. On the date of sale, whoever has the winning bid, they would add the . $200,000 premium to the sources of funds and assuming no adjustments to the bond amount 2 the rounding amount instead of being $3600 would become $204,000 because there is this premium but it's not counted for so it rolls into the rounding. If no more is needed than the 1.1 .million, they would reduce the size of the bond offering probably by about $180,000 more or less. So essentially instead of having a bond offering for 1.57 they might have a bond offering for 1.4 million. The city is still achieving the funding they need and it is still overall the best borrowing cost. They want to encourage prospective bidders because it's what their investors want and it provides the city with the best interest rate. Hoffman is concerned about the yield is the yield and Kimmel agrees with him but the coupon is the market dynamic. Kimmel said they try to protect the city's interest and make sure the city gets what they need but also cater to what is going on in the market. Kimmel said the city's rate is fixed. He said this is not a rate reset. Muni bonds costs are not going to change. Rockvam asks where Ehlers makes their money. Kimmel refers to the Sources and Use page again and under the uses of funds there is the underwriters discount, he said that's like points on a mortgage or a commission, origination fee. Rockvam said if going with the 1.57 amount, what is Ehlers going to get out of it. Kimmel said the costs are part of the cost of issuance, the $41,000 and Ehlers is about $15-20,000 of that. He said Standard and Poor's charges a fee and bond counsel as well. Rockman just wants to make sure the $41,000 is factored into the 1.57 amount and Kimmel affirms. Kimmel said there aren't any other refunding options. He said there are 2015 bonds that are callable for 2023 and they are being monitored. Kimmel said regarding the debt schedule they will ask for the resolution giving the green light • to move on to the next steps and they will distribute the official statement the week of the 2nd and they are already scheduled to talk with S&P on the 5th and take bids and award to the winning bidder on the 16th with receiving proceeds on December 10th. He said the refunded bonds are eligible to be refunded on February 1 st. The first payment on the new bonds will be August 1st of 2021. Rockvam wonders the reason for the rush and Kimmel said it's totally at the city's discretion. Kimmel said the market is good, they think there is an opportunity for the city to save money with regard to the refunding but regarding West Arm Road, it's the City's prerogative. Tolsma said something to think about is as the project moves along and invoices come in they will have to be paid. He said if investments have to be cashed out to pay for this, they'd be removing CD's and they're getting about 2.2% right now on those. Rockvam said the only thing that concerns him is when looking at the operation and looking at the road a resident previously against fixing the road is now concerned about what's going to happen to the road after the project. He said this resident now thinks perhaps the road should be done as well and Rockvam agrees. Rockvam said an estimate to do the road could be gotten from a contractor but the engineer could be consulted too. He said he's been disappointed because at the start the project was going to cost around $1 million to do the sewer, the water, the road and the new road across Bennyhoff's property (4658 Shoreline Drive) and improving the center pilings in the bridge trestle. Then it was decided to maybe just do the water and sewer. That would have been somewhere around $300-380,000. He said now it's jumped up to over a million dollars. He said at this point we're into it. He thinks they're doing a great job and it will be a great benefit to the city. 3 Tolma said of the 1.157 issuance, the $405,000 is earmarked for paying off the 2010 bond. Tolsma said the benefit of the bond is the financing is less than what the investments are • paying. He said the money is there if they decide to do the road. Rockvam said he's never in favor of going into debt but the one thing that makes sense is that it gives the people who are going to be living here an opportunity to pay for it rather than having the people who have already lived here a long time paying for it out of reserves. Tolsma said the city's history has always been to keep the bonding around the 15 year mark. Kimmel said they look at the appropriate financing for the appropriate term. He said they're looking at the appropriate balancing of the amortizing, the overall interest costs and financing affordability. Kimmel said they look at affordability to annual budgets. On utility bonding, 15 years is very common. Tolsma said the lifespan of the new stuff their putting in is in the range of 50 years. Kimmel said they are suggesting the bonds be prepayable or callable after about eight years. It gives the power for debt management. Horton asks about the possibility of doing the road project with curb and gutter and wonders if the extra money could be used for that. Kimmel said if the council says they want to increase the bond size and address the road costs, say it's $200K, they could adjust the yield to 1.3 from 1.1. Because the projects are related they would not need another statutory authority. He said a third approach would be to keep it at 1.1 and use city cash to fund out of reserves the road project costs you would have. Hoffman said he would lean towards increasing the bond and Rockvam agrees. Rockvam said they might have to go back to the rail authority to see if they can purchase more land because of the lift. Rockvam said serious thought should be given to removing the center • poles of the bridge. Rockvam said it's not so much of a house fire but fire trucks need to get into Seton Village. He said the fire chief has already said this is an issue. Hughes asks about residents contributing additional fees. Tolsma said the policy is abutting residents pay 25% of reconstruction of city streets. Rockvam said the city picks up the 75%. Kimmel said if there is an assessment, he wonders about the ability to assess without an improvement hearing given the timeline. Kimmel said the bond issue could be delayed in order to decide. Rockvam asks about what happened on West Arm East. Tolsma said that was a full reconstruction so it was assessed at 25%. Tolsma said that was part of the 2015 bond. Tolsma said road maintenance is different than road reconstruction. He said because the utilities are not really under the street on West Arm West, it would be hard to call it a reconstruction. Tolsma said it would be more like maintenance. Kimmel said there is gray area in all of this. Rockvam thinks we come back with another project that's going to be paid for and present it to the residents. Then they can look at a total upgrade with new hydrants. He said it's hard to argue about safety. Hoffman asked about premiums and Kimmel said they don't know yet. Kimmel recommends discussing the options. Rockvam said he feels the upcoming election is going to have an influence on the bonds. 0 M Tolsma asked about receiving bids. He wonders if they have the option to go with a bidder who offers a higher premium. Kimmel said they would recommend the lowest proposal be accepted. He said given the likelihood there might be a more deliberative discussion about the reconstruction he feels they should go for the lowest interest rate. Rockvam asks about the first call provision and Kimmel suggests after eight years. Kimmel said that's standard. 3. 5:50 — PUBLIC WORKS CONTRACTING DISCUSSION Tolsma said he's been meeting with the City of Orono over the past six months regarding public works coverage. Tolsma said their draft proposal was for $250,000 a year, flat rate, includes snow plowing, street sweeping, pothole repairs and sewer cleaning - things that are currently contracted out. Peoples Service does the base public works operations and separate contracts for the aforementioned. Tolsma said he's used averages when adding it up, a better apples -to - apples comparison and they're in the 180K range. Tolsma said the biggest variable is snowplowing. He said under the current arrangement, whatever it costs is what is paid. Tolsma said Orono made it clear this is just a draft. He said this would take effect in about a year. He said after hour call outs are similar. Both would be willing to do utility billing. Rockvam wonders if this is included in these figures. Tolsma said with the Orono one he's not sure but it would be an add on for People's Service. Chase wonders about current costs. Tolsma said with PS they increase at the CPIU, so whatever that increase is. He said in their proposal they would add one percent. Horton asks about software. Tolsma said Bolton and Mink is an engineering firm like Sambatek. He said the City of Orono head of public works is their engineer. Tolsma said it totally depends upon what we're asking for. If we're going to do a water plant expansion like we did five years ago, Orono PW is not going to have the time to dedicate to that. Tolsma thinks low level engineering could be counted on. High level big project engineering would require our own engineer. Horton wonders about the software component. Tolsma said one of the things talked about is if we were to go with Orono we would want to coordinate our GIS software and Orono is more advanced than we are. They have a useful life schedule with most things. Spring Park would be involved in this. Rockvam asks about a dedicated representative. Tolsma said this needs to be discussed. Hoffman said it says there would be someone. Tolsma said he's not sure if that means someone dedicated for eight hours per day and Rockvam said we don't have that now. Rockvam said the plus with Orono is they're right next door and they have a huge public works department and they have backed us up in the past. He said they know Spring Park. Rockvam said Larson has done a good job on snowplowing and wonders if it might be worth staying with Larson. Chase said Spring Park with Larson does plowing better than Orono. Rockvam said Black Lake Road is happy and that's huge. Hughes said some of that is due to Norling. Hughes asked about the computer system and wonders if they read each other and Tolsma said yes, SP would just be another licensed user. Tolsma said a followup discussion with Orono needs to be had and to ask about snowplowing as an option instead of the base bid and what's included and what isn't. He requests the council contact him if there are other things to add to the discussion. He also thinks they should be invited to a work session. 0 Rockvam is looking for a council consensus. Hoffman said he's open to it. He said the increase needs to be justified. Chase thinks it's a starting point. Horton said she agrees but her only thing is she doesn't want it to be Spring Park City of Orono. 4. 6:30 — APARTMENT UTILITY BILLING DISCUSSION Tolsma has another handout. Tolsma said Fred Puzak who owns Lord Fletcher Apartments has been asking questions for about a year. Puzak's biggest contention is apartments are getting the short end of the stick in regards to how our billing system works. He said the biggest issue is the way the billing is done in that each unit or facility or commercial operation is looked as a base unit. He said every living unit is one base unit. He said there is an $18 base fee for water and a sewer base fee of $15. So, before any water is used the base fee is incurred. That is the privilege to be connected to the system. Puzak questions the fairness of being charged for each living unit. Tolsma said he would bring this to the council. He said maybe there could be tweaks. He said he used three examples, LF apartments, LF restaurant and 3 person residential. He said when breaking down the total charge for 1000 gallons, it's similar in terms of consistency. He said restaurant and single family is less than apartments. He said it's tough to say one thing would make it more uniform but to keep in mind water usage is based upon tiers whereas an apartment with 529 units, that total usage is divided among the units. He said all of LF apartments are being charged at the lowest tier. LF restaurant is charged at the higher tier. • Single family residential is charged at the lowest and then increased usage gets bumped. Hughes asked about apartments if there are separate meters. Tolsma said all apartments are all different. Lakeview Lofts are metered separately. He said the older ones only have two or three meters. He said to help that out, those meters are added and looked as one meter. So three meters per complex is combined. He said it makes it more consistent. He said they had a lot of apartments where one meter was feeding 75% so when treating as two separate meters, the water from the bigger meter was getting bumped up into the middle tier. Where now when it's combined as one and divided amongst the number of units it levels everything out and it gets more of the usage in the lower tier. Rockvam wonders what Puzak's recommendation is. Tolsma said in an ideal world he would just want to be charged one unit fee for the entire building. So he'd be charged $18 per quarter instead of right now he is charged $1,584 for the water base fee because we charge $18 per unit. So because LF has 88 units they are getting 88 base fees per quarter. Tolsma said he didn't get into calculating a lot of different ways of processing this but an option that would bring it fairly close in line with the other ones would if the city would look at for multi -family buildings like apartments, decreasing that base fee to half of what it is so instead of charging $18 per unit we would charge them $9 per unit and the same with the sewer. It would get them pretty close in line with the others. Rockvam asked what is that going to do to utility billing. Tolsma said every adjustment made will have a consequence for revenue. Rockvam said this isn't the first time for this discussion. is 6 He said it comes up periodically. He said the reality is there is a system that is an enterprise fund and it's available and it's a profit and loss situation. Rockvam feels the city is not going to start losing money because someone feels we're charging too much. He said the figures have . been gone over and he asks if there are still problems with Bayview. Tolsma said the issues have been worked out. He said nobody likes to pay their utility bill. Rockvam remembers when this was set up and they charged for the availability of having the water there and some thought that was terrible. But the reality is the system doesn't run by itself and if they can't make some money off it, there is no use to have it. Rockvam is concerned by cutting it in half, the revenue will be lost from every apartment. Tolsma said the loss would be about $13-1400 per quarter if they cut the base rate in half and multiply that by the number of apartments in the city. He said it would probably be a loss of $10-12,000 per quarter in lost revenue. Tolsma said he can come up with some more accurate figures and Rockvam thinks that would be a good idea. He said capital expenses should be looked at to see what a reasonable return would be. Rockvam said depreciation was never taken as an expense and what has to be understood is depreciation is a real expense. Hoffman also remembers this being brought up before and what has been discussed is how do we make it fair for everyone. Every family in this city pays a $18 fee. He said if families in apartment buildings don't have to pay that fee, the rest of the families have to absorb that in order to keep the income at the same level. So it has to be looked at in terms of fairness. Every person in that building has the use of the water tower and the treatment plan. Hoffman said if there are 88 units in the two buildings, there are 88 families living there. Horton wonders about the other apartments. Tolsma said they're all about the same. He said it depends upon the number of units. Rick Gorra said they have 81 units. Gorra said 75% of their units are one bedroom. Hoffman said there are houses in Spring Park that are five times the size of his house and they are charged the same rate. Rockvam said the formula has been used for many years. Tolma said it has been tweaked over the years. He said if treating LF apartments as one unit and charge them the same as LF restaurant, the majority of their water usage will go into that higher tier. 5. 6:40 — FIRE DISTRICT DISCUSSION Hughes said put that off for another meeting. 6. 6:45 — TREE LIGHTING EVENT DISCUSSION Chase thought something for the holidays would be nice and he thought maybe something could go out in the newsletter about it. Rockvam said they used to do it for years and no one would come. Chase said he was talking to some of his neighbors about that fact and the neighbors said they never knew that happened. Tolsma said an email blast could be sent out. Rockvam wonders about separation of church and state. Horton said it's a holiday event. 7 7. 6:50 - ADJOURN M/Horton, S/Hughes to adjourn Work Session. Motion carried 5-0. • Date approved: November , 2020 Dan Tolsma, City Administrator Wendy Lewin, Acting City Clerk 40