Hm. Looks like they might not really have the money for the financing secured. And a few other issues.
According to the city attorney, here’s just a few of the problems they have at the moment.
1. $74.5M has to be financed and the commitment letter from the bank is $33.5. Where is the rest of the $41M in financing coming from?
2. The financing commitment needs to be confirmed in light of the appeal to the Supreme Court.
3. They need proof of pre-sales of the condos because the financing commitment is contingent on that.
4. They need proof that they use all other sources of financing before TIF.
5. The financing commitment letter says that the TIF loan has to be “deposited at closing” and they give the money based on construction draws.
6. They have not received the construction contracts required.
7. They haven’t negotiated the terms TIF disbursement agreement.
8. There is no New Market Tax Credits, but Midwest Disaster Area Bonds instead, which are different and impact the negotiations and structure of the agreement.
9. Because the TIF money wasn’t borrowed with the rest of the money, the Council has to approve, with 15 votes, the borrowing by the end of the year. Or they have to approve something else, but it all takes 15 votes.
Here it is, in more detail. (I didn’t type this, it was a conversion program so if something doesn’t make sense its cuz this was a pdf I couldn’t cut and paste – as usual.)
December 1, 2011
Michael S. Green
Michael, Best & Friedrich
One South Pinckney St., Suite 700
Madison, WI 53703RE: The Edgewater Project
Dear Mr. Green:
Mayor Soglin and I received a letter dated yesterday, November 30, 2011, from Robert Dunn regarding the Edgewater project. The Mayor asked that I respond, and therefore, I am sending this to you, with a copy to Mr. Dunn.
We appreciate the efforts of Landmark X, LLC (Landmark) to move forward on TIF financing for the Edgewater project. The City has acted in good faith in attempting to reach resolution of the many issues that have kept the project from proceeding. Despite those good faith efforts, the world has changed significantly since the Common Council first approved most aspects of the Edgewater project in May, 2010. Most significantly, over 16 months have passed without Landmark providing the City with evidence that it had satisfied the conditions necessary to proceed.
In the interim, the Common Council voted not to extend its 2011 appropriation of $16 million in TIF financing into2012. The appropriation was based upon the City borrowing the funds for the TIF loan, but with no viable project, no funds have been borrowed to support the 2011 appropriation. Landmark has been informed by the City over that 16 month period that no TIF loan can be made without City borrowing to support it.
At the Common Council meeting of November 15, 2011, Mr. Dunn and I agreed that it was almost impossible that the TIF financing could be completed in 2011. The events of the last two weeks make it even less possible. In his recent letter, Mr. Dunn appears to have changed his mind and is asking the City to attempt to fund the project this year.
This letter is to set out how that result might be accomplished.
1. Financing Commitment.
On November 15, 2011, the night the Council was considering the City’s annual capital budget, the City received a communication that Landmark believes satisfies the financing contingency to proceed with TIF financing. The City disagrees.
(a) The City’s commitment was for $16 million in TIF financing out of a total project cost of $90.5 million. That leaves $74.5 million to be financed. The commitment letter provides for $33.5 million in lending. It is not clear how that lending will occur,
which complicates the City’s ability to prepare a TIF financing agreement. Setting aside
that issue for now, there is no evidence of how the remaining $41 million is to be financed. The City needs adequate evidence of that.(b) The financing commitment was issued prior to the recent decision by Mr. Mohs to petition the Supreme Court to review the court decisions upholding the City’s approval of the Edgewater. The City needs evidence that the commitment still stands in light of that legal challenge.
(c) The financing commitment is conditioned on evidence that the proposed condominiums have been pre-sold. The City needs clarification on this contingency prior to drafting any TIF financing agreement, and will need to review the pre-sales agreements prior to releasing any TIF funds.
(d) The financing commitment requires Landmark to use all other sources of financing before using the funds to be loaned. The City needs clarification of this requirement since the City’s TIF financing may only be used for the Public Access Components of the project.
(e) The financing commitment refers to the City of Madison TIF Loan being “deposited at closing.” The City needs clarification to determine that this language is not inconsistent with Common Council authorization to disburse the TIF Loan in accordance with a disbursement agreement (yet to be drafted – see below) upon review and approval of construction draws by a Supervising Architect to be retained by the City.
(f) Several other aspects of the financing commitment impact the City’s ability to draft a TIF financing agreement, as discussed below.
2. Construction Documents.
The City has not received the required construction contracts. Once received, the City requires adequate time to review those documents. Until this step is completed, the City cannot adequately draft either the Disbursement Agreement or the TIF Financing Agreement.
3. Disbursement Agreement.
The City and Landmark have not discussed or negotiated the terms of the required disbursement agreement.
4. TIF Financing Agreement.
In its November 30, 2011, letter, Landmark suggests that the TIF financing agreement is near completion, based on preliminary negotiations that ended over 6 months ago. We disagree.
To the extent the City understands the proposed financing structure, it is very different than that contemplated when Landmark and the City were negotiating the preliminary terms of a TIF financing agreement. There no longer is any use of New Market Tax Credits. The financing commitment offers either a loan or the use of Midwest Disaster Area Bonds. The TIF financing agreement will be very different depending on which of those methods is used.
Because the $16 million in TIF financing was based upon the City borrowing those funds, any TIF financing agreement will be contingent upon Common Council approval of such borrowing. This always has been a condition the City has insisted on, and remains necessary given the recent action by the Common Council on the 2012 Capital budget. Any borrowing by the City will require 15 votes of the Madison Common Council. Had all documentation been completed early this year, and had the project been ready to proceed, this borrowing could have been included in the City’s annual borrowing resolution approved on September 20, 2011.
Unless the funds are encumbered prior to December 31, 2011, the TIF financing agreement also will be contingent upon the Common Council approving a budget amendment to spend the $16 million in 2012. Such a budget amendment will require 15 votes of the Madison Common Council.
5. Other.
There are, of course, a number of other contingencies that are required before the City will be able to close, as set forth in the City’s TIF resolution. I assume your familiarity with them.
6. An Alternative.
As the above indicates, Mr. Dunn and I were accurate in stating on November 15 that it is nearly impossible to complete the TIF Financing by the end of this year. I continue to believe that is an accurate assessment.
In its continuing good faith effort to resolve this issue, the City offers an alternative. Because the $16 million in TIF financing was approved in the 2011 City budget, no budget amendment would be needed if the funds are encumbered by the end of 2011.
While this solves the budget amendment problem, it does not solve the problem of the lack of available funds. If approved by the Common Council at its final meeting on December 13, the City theoretically could appropriate these funds from its General Fund Balance. Such an appropriation would require 15 votes of the Madison Common Council. It also would reduce the Fund from its current balance of approximately $29 million to $13 million. According to the City’s Finance Director, standards set by the bond rating agencies call for a larger general fund balance than currently established by the City. As such, a dramatic reduction in the City’s general fund balance could have an adverse effect on the City’s AAA bond rating.
A final alternative would be for the City to seek some short-term borrowing prior to year end, to be refunded with the City’s annual borrowing in 2012. Such action would also require 15 votes of the Madison Common Council. Since the City has made no inquiry about such a borrowing, we have no idea whether such borrowing is possible, nor what the terms might be, which would influence the terms of any TIF Financing Agreement.
If Landmark desires to pursue either of these alternatives, please contact me or Assistant City Attorney Anne Zellhoefer as soon as possible. In order to place such matters before the Common Council meeting on December 13, the appropriate resolutions must be prepared prior to December 7, 2011.
We look forward to hearing from you. Sincerely,
Michael P. May
City AttorneyCC: Mayor Paul Soglin
Dave Schmiedicke, Finance Director
Steve Cover, Planning and Development Director
Anne Zellhoefer, Assistant City Attorney
Robert P. Dunn
Can we spell “stake driven through heart”? I thought we could. Bobby Dunn has held both the stake and the hammer driving it.