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5.c) Memo-Potential EDA Establishment - s . S. �� ECKBERG LAMMERS MEMORANDUM To: Mayor Simonson and City Council Kristina Handt, City Administrator From: Andrew Pratt, Assistant City Attorney Date: January 3, 2013 Re: Potential Economic Development Authority (EDA) Establishment The purpose of this memorandum is to discuss the general power and authority allocated to economic development authorities ("EDA") in the State of Minnesota and the legal procedures required for the City of Scandia, Minnesota(the "City") to create an EDA. General EDA Background Information An economic development authority is another layer of government. It is a public body corporate and politic and political subdivision of the State of Minnesota, so it can sue and be sued, enter into contracts, levy taxes, hold meetings, and much more. One benefit to this separate existence is that the City is not liable for any decisions made by the EDA. In other words, anyone who is allegedly damaged by the EDA cannot get a legal judgment against the City; EDA's carry their own liability insurance policies. Another benefit is that over time the EDA can become an expert body on all things economic development, and its membership may consist of a mix of interested community members and council members, or it may be all council members. Specific EDA Powers Under state law, an EDA has the power to create economic development districts, acquire and sell property, enter into options to purchase or lease property, administer tax increment financing (TIF) districts, issue general obligation and revenue bonds, undertake eminent domain proceedings, execute development and construction contracts, become a limited partner in a partnership, acquire easements, buy supplies, make loans, supply small business capital, operate a public parking facility, and more. These powers are mostly found in Minnesota Statutes, Section 469.101, but may also be located in other sections. A lengthy discussion of specific EDA powers is beyond the scope of this memorandum, but the correct legal authorization for each proposed activity should be considered on a case-by-case basis. An EDA may also take on the powers of a housing and redevelopment authority (HRA). This authorization allows the EDA to mix and match EDA and HRA powers for housing and economic development projects as needed. Today, if a city needs to create a development authority, EDA's are almost always the choice,because of the flexibility to also serve as an HRA (in contrast, HRA's cannot cross-over into EDA powers). An EDA exercising HRA powers may also impose two tax levies: one for the EDA, and one for the HRA. A later section in this memorandum will describe EDA/HRA levies in more detail. e City of Scandia, Minnesota Re: EDA Establishment Discussion January 3, 2013 Creation of an Economic Development Authority Enablin�Resolution and Public Hearing There are several procedural steps required to create an EDA, but creation is not administratively difficult. The first step is for the City Council to call for a public hearing on the adoption of an "enabling resolution" for the EDA. Notice of the public hearing must be published in a newspaper of general circulation in the City once a week for two consecutive weeks, and the first publication cannot appear more than 30 days before the public hearing date. Minnesota Statutes, Section 469.092, contains the requirements for the Enabling Resolution, and includes many limitations that the City Council may place on the operations of the EDA. For example, the Council may require the EDA to follow the same budget adoption process as the City, ensure that all land use actions follow the City's Comprehensive Plan, submit the EDA's administrative structure to the Council for approval, and require Council approval for all EDA bond issuances. The Council may also decree that an EDA does not have HRA powers, although such a decision would drastically limit the EDA's effectiveness and is not recommended. If the Enabling Resolution is ever modified after adoption, the modification must be made pursuant to the same notice and public hearing procedures undertaken for the original approval. EDA Commissioners Minnesota Statutes, Section 469.095 provides three different membership scenarios for the EDA's Board of Commissioners: three, five and seven members. The chosen scenario must be selected in the Enabling Resolution. EDA commissioners are appointed by the Mayor with approval from the City CounciL The initial commissioner terms are staggered, and thereafter all commissioners serve six-year terms. The entirety of the EDA Board mav consist of Citv Council members. At a minimum, a three-person Board must have one council member, and five- and seven-person Boards must have two council members. When a City Council member serving on the EDA Board leaves the Council, a vacancy is created on the EDA Board, which must be filled for the balance of the unexpired term. EDA commissioners may be paid for attending EDA meetings and reimbursed for actual expenses incurred.� Finally, EDA commissioners may be removed for cause by the City Council after a public hearing on the issue. EDA Officers and Emplovees Minnesota Statutes, Section 469.096, Subdivision 2 provides that an EDA must have a president, vice-president, treasurer, secretary, and assistant treasurer. The president, secretary � State law is also strict on EDA commissioner conflicts of interest. If an EDA commissioner may be financially benefited by any potential project, generally the commissioner must state what the conflict is and recuse himself or herself from the decision-making. Failure to comply with these rules can result in criminal liability, so if a conflict arises it must be discussed promptly with EDA staff and legal counsel. 2 City of Scandia, Minnesota Re: EDA Establishment Discussion January 3, 2013 and treasurer are elected annually (typically at the EDA's annual meeting in January), and the offices of secretary and assistant treasurer need not be held by a commissioner. All duties and powers of the officers will be detailed in the EDA's bylaws. The EDA also may employ an executive director, chief engineer, and other professional consultants. EDA/HRA Tax Levies and Bud e� ting As mentioned previously, the EDA may use taxes to fund a portion of its operations. The City Council levies the tax on behalf of the EDA. The levy cannot be more than 0.01813% of taxable market value, and the proceeds can be used for any EDA purpose described in state law. The City Council may increase the levy over the 0.01813% maximum level after a public hearing. The increased levy must first be approved via referendum if a petition (signed by voters equaling five percent of the votes cast in the City in the last general election) requesting a referendum on the levy is filed with the City within 30 days after the public hearing. Assuming the EDA also exercises HRA powers, the EDA may levy a tax for HRA purposes with the consent of the City Council (i.e. the Council adopts a consenting resolution, confirming the EDA's resolution). The maximum amount of the tax levy cannot exceed 0.0185% of taxable market value. The proceeds derived from each levy should be segregated into different sub-accounts, to ensure the EDA levy is being used for EDA purposes, and the HRA levy is being used for HRA purposes. Because EDA and HRA purposes frequently overlap, a large expense could usually be paid for out of each levy, but payment options should be determined on a case-by-case basis.2 The EDA must send a budget to the City Council at a fixed time every year, ideally to coincide with the City's budget process. The budget must include a detailed estimate of the amount of money the EDA expects to need, after subtracting all expected receipts, from the City during the next fiscal year. The City may then plan to transfer available money to the EDA based on this budget. There is no limit to the amount of money the City may transfer to the EDA. Additionally, the EDA must submit an annual report to the Council, summarizing the EDA's activities and expenditures. The EDA's financial statements also must be prepared and audited in the same manner as the City's financial statements. The EDA's financial report must be sent to the State Auditor by June 30 every year. Project Financin� The EDA may issue general obligation bonds ("G.O. Bonds") to finance authorized projects. The G.O. Bonds must be authorized by a 2/3 vote of the City Council. G.O. Bonds Z Because the EDA tax levy is actually levied by the City, the EDA is not considered to be a "special taxing district," so any taxes levied are subject to levy limits imposed on the City by state law. Levy limits are not in place past taxes payable year 2013, but this policy is of course always subject to legislative change. The HRA tax is considered to be levied by a "special taxing district" and is therefore levied outside of levy limits. 3 City of Scandia, Minnesota Re: EDA Establishment Discussion January 3, 2013 must be secured by the full faith and credit of the City, which is pledged in an ordinance adopted by the City Council. The EDA must levy a tax equal to 105% of the debt service due on the G.O. Bonds, just as the City does with its G.O. Bonds. It is rare for an EDA to issue G.O. Bonds, because projects eligible for this type of financing can usually be financed through City G.O. Bonds. The EDA may also issue revenue bonds to finance authorized projects. Revenue bonds are not a general obligation or debt of the City, and are payable solely from the revenues of one or more economic development projects. In the past, EDA's have frequently issued lease- revenue bonds, whereby a project is leased to a city or other governmental entity, and the entity pays rent to the EDA. The EDA then pays debt service on the revenue bonds out of the rental payments. This was a frequent financing mechanism for city halls before the Capital Improvement Plan statute was adopted (Minn. Stat. 475.521). Sometimes lease-revenue bonds are still used for political purposes, or to avoid a reverse referendum under the Capital Improvement Plan statute. Finally, an EDA may issue conduit revenue bonds, which are tax- exempt obligations the proceeds of which are loaned to a qualifying non-profit or SO1(c)(3) organization and used for projects benefiting the organization. In such a financing scenario, the EDA has no obligation to pay the bonds, as all payrnent risk is transferred to the non- profit/501(c)(3) organization. I will be at the Council's January 8 work session to discuss this memorandum, and I am happy to assist the Council with a discussion of the policy objectives and reasons why EDA's are created. Please do not hesitate to contact me if you have any questions regarding this memorandum (651-351-2125 (direct); apratt@eckberglammers.com). I look forward to working with the City during this process. 4 , BYLAWS OF THE ECONOMIC DEVELOPMENT AUTHORITY OF THE CITY OF LAKELAND,MINNESOTA ARTICLE I—THE AUTHORITY Section 1. Name of Authoritv. The name of the Authority shall be the "Economic Development Authority of the City of Lakeland, Minnesota" (referred to herein as the "Authority"), and its governing body shall be called the Board of Cominissioners (the "Board"). The Board shall be the body responsible for the general governance of the Authority and shall conduct its official business at meetings thereo£ The Authority is governed by the provisions of Minnesota Statutes, Sections 469.080 through 469.1082,as amended(the"Act"). Section 2. Seal of Authoritv. As required by Section 469.096, Subdivision 1 of the Act, the Authority shall have an official seal,to be established and approved by the Board. Section 3. Office of Authoritv. The business office of the Authority shall be located at Lakeland City Hall, 690 Quinnell Avenue, Lakeland,Minnesota. Section 4. Establishment. The Authority was established by Resolution No. _, approved by the City Council of the City of Lakeland, Minnesota on December 20, 2011 (the "Enabling Resolution"),pursuant to the Act. The Authority has all the powers set forth in the Enabling Resolution. Section 5. Commissioners. In accordance with the Enabling Resolution, three City Council members will serve as the Board. The terms of the Commissioners are coterminous with their respective terms on the City Council. ARTICLE II—OFFICERS Section 1. Officers. The officers of the Authority shall be a President, Vice-President, Treasurer, Secretary, and Assistant Treasurer. The President and the Treasurer shall be members of the Board and elected annually. The Vice-President shall be a member of the Board and may hold office for any term designated by the Board. No Commissior�er may be both President and Vice-President simultaneously. The Secretary need not be a member of the Board, but is elected annually by the Board. The Assistant Treasurer need not be a member of the Board and may hold office for any term designated by the Board. Section 2. President. The President shall preside at all meetings of the Board. Except as otherwise authorized by resolution of the Board,the President and the Secretary(or the Vice-President, in case of the Secretary's absence) shall sign all contracts, deeds and other instruments made or executed by the Authority, except that all checks of the Authority shall be signed by the Treasurer and the Assistant Treasurer. At each meeting of the Board the President shall submit such recommendations and information as the President may consider proper concerning the business, affairs and policies of the Authority. Section 3. Vice-President. The Vice-President shall perform the duties of the President in the absence of the President, and in case of the resignation of the President, shall perform such duties as are imposed on the President until such time as the Board shall select a new President. . Section 4. Secretarv. The Secretary shall keep minutes of all meetings of the Board and shall maintain all records of the Authority. The Secretary shall also have such additional duties and responsibilities as the Board may from time to time and by resolution prescribe. Section 5. Treasurer; Assistant Treasurer. The Treasurer shall have the care and custody of all funds of the Authority and shall deposit the same in the name of the Authority in such bank or banks as the Board may select. The Treasurer and the Assistant Treasurer shall sign all orders and checks for the payment of money and shall pay out and disburse such money under the direction of the Board. The Treasurer shall keep regular books of accounts showing receipts and expenditures and shall render to the Board, at least annually (or more often when requested), an account of such transactions and also of the financial condition of the Authority. The Treasurer shall post a bond as required by Section 469.096, Subdivision 6 of the Act. The Assistant Treasurer shall act as the Treasurer's agent and assistant to perform the above-described duties, subject to the Treasurer's approval thereof. Section 6. Additional Duties. The officers of the Authority shall perform such other duties and functions as may from time to time be required by the Board or these Bylaws, or the rules and regulations of the Authority. Section 7. Vacancies. Should the office of the President, Vice-President, Treasurer, Secretary or Assistant Treasurer become vacant, the Board shall elect a successor at its next regular meeting, or at a special meeting called for such purpose, and such election shall be far the unexpired term of said officer. Section 8. Additional Personnel. The Board may from time to time employ such personnel as it deems necessary to exercise its powers, duties and functions. The selection and compensation of such personnel shall be determined by the Board. ARTICLE III—MEETINGS Section 1. Regular Meetin�s. The regular meetings of the Board shall occur according to a meeting schedule,if any,adopted or revised from time to time by resolution of the Board. Section 2. �ecial Meetin�. Special meetings of the Board may be called by the President or by any two members of the Board for the purpose of transacting any business designated in the call for special meeting. The call for special meeting may be delivered at any time prior to the time of the proposed special meeting(in accordance with state law notice requirements)to each member of the Board or may be mailed to the business or home address of each member of the Board. Notice of any special meeting shall be posted and published as may be required by law. Section 3. uorum. The powers of the Authority shall be vested in the Board. Two Corrunissioners shall constitute a quorum for the purpose of conducting the business and exercising the powers of the Authority and for all other purposes. When a quorum is in attendance, action may be taken by the Board upon a vote of a majority of the Commissioners present. Section 4. Rules of Procedure. The meetings of the Board shall be governed by the most recent edition of Robert's Rules of Order. Section 5. Manner of Votin�,=Adoption of Resolutions. Voting on all questions coming before the Board shall be by voice vote unless any Commissioner calls for a roll call vote. The yeas and nays shall be entered upon the minutes of such meeting. Resolutions need not be read aloud prior to vote. Resolutions are deemed adopted if approved by at least a simple majority of all Corrunissioners present, unless State law requires otherwise. ARTICLE IV—MISCELLANEOUS Section 1. Amendments to Bylaws. These Bylaws shall be amended only by written resolution of the Board. Section 2. Fiscal Year. The fiscal year of the Authority shall coincide with the fiscal year of the City of Lakeland, Minnesota. Approved: December 20, 2011. President ATTEST: Secretary