How to meet financial obligations regarding Cedar Grove Business Park was the first topic discussed Friday, August 28, 2009 when members of the city council, the county board, and the Cook County-Grand Marais Economic Development Authority (EDA) met with financial consultants Carolyn Drude and Bruce Kimmel of Ehlers & Associates.
Also discussed was how the city might come up with matching funds if it is awarded a federal grant for a biomass-generated energy plant.
In January 2006, the city took out a threeyear bond in the amount of $1,630,000 for installation of the infrastructure at Cedar Park. Over the course of three years, interest has caused the debt to grow by about $40,000. This bought the city some time to sell its 37 lots at Cedar Grove Business Park, but only three have sold. Thecity must pay off the bond by January 9, 2010 and could by law issue one more temporary bond to buy it more time.
Carolyn Drude of Ehlers & Associates estimated that another three-year bond would cause the city’s Cedar Park debt to grow from $1,670,000 to over $1,785,000.
Another option would be for the city to bond for a longer time, although longer-term bonds generally carry higher interest rates, Drude said. Paying off those bonds could be done through special assessments through the Public Utilities Commission (PUC), property taxes, or funds set aside by the Public Utilities Commission. City Administrator Mike Roth said the city has money in its sewer fund, but a lot of the city’s sewer lines will need to be replaced in the next 20 years.
According to Roth, the city’s original plan was to pay off the bond by assessing each Cedar Grove lot $60,000 for installation of the infrastructure. A market analysis was recently completed, and it priced the lots at between $10,000 and $60,000, with an average price of $39,242.
“I’m a little concerned about the city taking all this risk,” said City Councilor Tim Kennedy about the joint city/county/ EDA Cedar Grove project. With the slow real estate market, the lots might not sell in the next three years, and if they went with another short-term bond, they would do nothing other than incur more debt, he said.
Mike Roth wondered if the county could help with bond payments and then get reimbursed as the lots sell.
An arrangement like that should have been planned before the first bond was issued, Commissioner Bob Fenwick said. He said he would be willing to have the county help if the city had a solid plan for paying off the bond.
“We still will ultimately have to pay back the money,” Kennedy said.
Several years ago, the EDA had 14 deposits of $3,000 each toward Cedar Grove lots, EDA Director Matt Geretschlaeger said, but the businesses pulled out because of concerns regarding the economy. One potential buyer was scared off by the business park’s storm water management problems that led to significant fines. “We are not unique in the nation with this problem,” he said.
Suggestions on dealing with the debt included incorporating it into other city debt, giving the lots away for the price of the assessments, and paying for them through assessments to all Grand Marais property owners.
The Ehlers consultants presented various methods of bonding over the course of 15 or 20 years. Mayor Sue Hakes pointed out that interest rates are low right now. She suggested that they list the lots with a real estate company. (As a real estate agent herself, she would recuse herself from such a listing, she said.)
The group decided that the best plan would be to not issue another short-term bond. Beyond that, the EDA will continue to work with the city to decide how the debt will be paid.
Thepossibility of bonding for a biomassgenerated heat and electricity plant in Grand Marais was discussed next. Bruce Kimmel outlined numerous types of bonds the city could use to pay its portion of a matching grant that the cities of Grand Marais and Ely applied for together. Neither city knows yet whether they will be awarded the grant.
Bonds come in various forms, some requiring repayment from utility bills or property taxes, some that would charge users in proportion to how much energy they would use, and some that would use property taxes as collateral if the energy plant didn’t make money. Taxable Build America Bonds would have the federal government paying 35% of the interest. Clean Renewable Energy Bonds came out of the American Recovery and Reinvestment Act and would allow private companies to get a tax credit for loaning money toward energywise projects.
Financing the city’s $6 million match on the grant would cost $523,000 over the course of 20 years at a 6% interest rate, Drude said.
Bruce Kimmel said he has talked to consultant Chuck Hartley of LEH Engineering, who conducted a feasibility study on the project. Thearea would have a steady supply of fuel from waste wood within the county. From everything he’s heard, Kimmel said, it makes sense.
The project still needs a business plan and a location, said Mayor Hakes. Public input will be sought as well, she said.
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