By Ryan Gueningsman
DELANO, MN - With the ditch 34 issue resolved, plans continue to move forward toward the conception and development of a business park northwest of Delano along Highway 12.
An update was presented to the Delano City Council by Delano City Administrator Phil Kern at a special work session Nov. 30.
Kern said two preliminary agreements are in place with property owners, and said one of the city’s goals for the past number of years has been the development of this area. He said it will provide jobs, and the growth will help increase the tax base, which will hopefully lead to taxes going down, instead of up.
He said the current economic climate of Delano has been positive, citing projects like Lil’ Explorers Childcare Center, Angela Kalthoff Photography, and the renovation and re-purposing of the former Delano Dodge property.
“People feel safe investing in town if others are,” Kern said. He added that Delano’s industrial park is full, and said there are existing businesses in the community that want to expand in Delano, and new businesses looking to come to Delano.
Kern reviewed some details of the pre-agreements, and said Ken Murphy and the Delano Development Partners/Westedge Properties (a partnership involving local businessman Ben Moonen) have approximately 200 acres of land (100 developable) west of Delano the city is hoping will become a mix of industrial, commercial, and retail business.
The property owners are on different ends of the “risk-reward spectrum,” Kern said, adding that Murphy wants little risk or involvement with the project, while the Delano Development Partners/Westedge Properties is interested in being more involved and shouldering risk involved with the project.
In Kern’s proposal to the council, he noted this would be a private development project, and said the city would install infrastructure to the area with special assessments levied across the private land to recoup public improvement costs.
There is an estimated cost of $4.1 million in public improvement infrastructure costs, and an additional cost of $500,000 for the first phase of land acquisition, for a total estimated cost of $4.6 million.
Kern said he is hopeful other funding sources such as a grant could be obtained to cover about $500,000 of the cost, which would bring the anticipated funding needed to $4.1 million.
He said city staff will be proposing to the council that the city issue $4.1 million in a general obligation special assessment bond. Kern said Delano Development Partners/Westedge Properties would need to agree to assume special assessments for the entire $4.1 million of improvements.
For bond repayment, Kern reviewed two “tests of security,” that show if the city is protected with sufficient collateral, and if the city has sufficient cash flow to make payments.
Several assumptions being made regarding the bond include that bond repayment wouldn’t begin for two years, that the project doesn’t begin until there are at least 100,000 square feet of construction and 10 acres of land sold, that it is a 20-year bond repayment period, and that the debt payment on $4.1 million principal is $325,000. The total principal, plus interest payments, is expected to be $6.5 million.
If something were to happen in the worst-case scenario, it would be up to the city to fund that, Kern said.
Land is being proposed as collateral, Kern said, adding that the developers “are not willing, under any circumstance, to pledge personal securities.”
He reviewed with the council the cash flow plan to make payments should the developer default in a “worst-case scenario,” which includes building a reserve fund and “laddering” existing debt.
The first test shows that, at no point, would Delano have more debt than $2.40 per-square-foot if the land ended up in possession of the city.
After the meeting, Kern explained it as not mortgaging more than it’s worth, and said the second exercise shows the city would have enough cash flow to still make the payments without going to the community with a tax increase.
The reserve fund would be built through pooling TIF (tax increment finance) dollars and economic development dollars that already exist. These “tests of security” exercises were done to minimize the impact of city taxpayers.
Delano resident Harlan Lewis asked when the property had to be annexed into the city for the bond to be issued, and it was noted the annexation would likely take place prior to the issuance of the bond.
The Delano Area Chamber of Commerce recommended instead of calling the proposal an “industrial park,” it should be called a “business park,” and encourage a mix of commercial/retail business along the highway and industrial businesses set further back.
Kern said the next steps to keep the project moving forward include proceeding with agreements with the landowners, additional study of the financial impacts and key elements of the proposal, and the first steps of marketing the project.
The project is expected to be brought back before the city council at its meeting Tuesday, Dec. 20.
Kern said he expects agreements with the property owners to be considered by the council, as well as reviewing next steps, including development of a concept plan and mapping out lots.