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02-05-2008 Continued Work Session CONTINUED WORK SESSION OF THE ISLE OF WIGHT COUNTY BOARD OF SUPERVISORS HELD THE FIFTH DAY OF FEBRUARY IN THE YEAR TWO THOUSAND AND EIGHT PRESENT: Stan D. Clark, Chairman James B. Brown, Jr. (Vice-Chairman) Phillip A. Bradshaw Al Casteen Thomas J. Wright, III Also Attending: A. Paul Burton, Interim County Attorney W. Douglas Caskey, County Administrator Patrick J. Small, Assistant County Administrator Carey Mills Storm, Clerk Chairman Clark called the continued work session to order at 4:00 p.m. // Supervisor Wright delivered the invocation. // The Pledge of Allegiance was conducted. // Supervisor Bradshaw reported that the Finance Committee has directed staff to obtain information from the County?s consultants relative to moving forward at this time with securing bonds due to favorable market conditions and bring a recommendation back to the Board at its February 21, 2008 meeting. Supervisor Bradshaw reported on proposed legislation under consideration by the General Assembly involving the elimination of proffers with impact fees. He advised that the proposal under consideration is to limit that amount to $5,000 per lot, effective January 1, 2009. He stated that if this legislation is approved, it will have a significant impact on the County. Supervisor Bradshaw further reported that the General Assembly is proposing the elimination of the Machinery & Tools Tax as of January 1, 2010. He advised that he and Supervisor Wright have contacted Senators Lucas and Quayle to voice their opposition. Supervisor Bradshaw moved that the Board direct staff to draft a letter of the Board?s opposition to House Bill 124 (Elimination of Machinery & 1 Tools Tax) to Senators Lucas and Quayle. The motion was adopted by unanimous vote (5-0) with Supervisors Bradshaw, Brown, Casteen, Clark and Wright voting in favor of the motion and no Supervisors voting against the motion. Supervisor Bradshaw requested that the letter of opposition be placed on the County?s website requesting citizens to call Senators Lucas and Quayle. Supervisor Bradshaw reported that the Governor will be speaking at the VACo VML Legislative Day and that he would also be in attendance at the reception that is being held for the General Assembly members afterwards. // Chairman Clark called for Approval of the Agenda. Supervisor Wright moved that the agenda be approved. The motion was adopted by unanimous vote (5-0) with Supervisors Bradshaw, Brown, Casteen, Clark and Wright voting in favor of the motion and no Supervisors voting against the motion. // Chairman Clark addressed the opinion of the Attorney General in which Supervisor Bradshaw referred to at a previous meeting regarding the boundaries of a Community Development Authority. He stated that the case cited by Supervisor Bradshaw, Taylor vs. Northumberland County, was heard in 1992, five (5) years prior to the CDA law coming into effect and it, therefore, has no relation whatsoever to CDA?s in any respect, but it did speak to how the General Assembly defined abutting. He stated that the Attorney General?s opinion refers to a request by the County Attorney for Spotsylvania County in 2006 seeking an opinion regarding abutting within the jurisdiction of the CDA. He stated that the Spotsylvania County Attorney was interested in knowing if that county?s CDA referenced property on a water line, a road or on an improvement, if it abutted that improvement, did it qualify for the assessment. He stated the question is what is abutting, is it contiguous to or does it mean deriving a benefit from a water line or a road. He stated abutting is clearly a property that was not contiguous within the jurisdiction that derived a benefit, such as a lane, even though it is not abutting or service by a water line that was not abutting. Attorney Mark Williamson, McGuire Woods, explained that the Attorney General?s opinion, in the past, has always dealt with taxes within the CDA district, not outside the CDA district. He stated with respect to the County, it has improvements within the proposed district and improvements to Route 258 which are technically outside the district, but they abut the 2 district. He stated the Attorney General?s opinion is that even though not all of the improvements abut a piece, even though the parcels owned at one (1) time by one (1) owner and subdivided to other owners, that the abutting requirement is met. He explained that the reason that the abutting requirement needs to be met is that for the improvement to be financed with CDA funds, the improvement to be financed has to be abutting or in the district itself. Interim County Attorney Burton explained that Supervisor Bradshaw?s concern was related to property owners being forced to pay taxes on property that was located outside the CDA district, specifically Muddy Cross Road. He advised that individuals can not be taxed on property that is not located in the district. He stated that it is clear that only property in the CDA district can be taxed to pay for the improvements for the CDA. Supervisor Bradshaw inquired if the Board has the authority to dissolve the CDA at any time. Attorney Williamson advised that the Board will not be able to dissolve the CDA after the bonds have been issued because there is no way that anyone will agree to finance this project if that possibility exists. He stated the special assessment is a one (1) time levy at the beginning of the process and once that assessment is levied, the Board has no ability to undo the levy. He stated once the bonds have been issued, they will be secured by an additional real estate lien on the property and if someone can not make their payments, the remedy will be to foreclose on the tax lien. He stated it takes four (4) to six (6) months to get from establishing the CDA to issuing the bonds and there will be substantial analyses done to ensure that there is a sufficient revenue flow so that the bonds can be paid off. He stated with respect to the concern voiced earlier regarding the survival of the CDA if the rezoning application was not approved, he has added a proposed amendment to the Benn?s Grant CDA that states that the ordinance shall not be effective unless the Board approves the rezoning applications as described in the petition and in the event that the Board denies the rezoning application, the Benn?s Grant CDA shall be revoked and terminated. He advised that user fees are not authorized under the Benn?s Grant CDA and he offered to add a statement to the ordinance that in no event shall anyone charge any user fee. He stated that the property contained within the CDA district, which is the only property that is subject to the special assessment, is defined in the petition and does not include the Riverside property. He stated that there is some possibility that certain property may be conveyed to the County and, therefore, there is a provision in the ordinance that states if it is conveyed to the County, it comes out of the CDA district. He stated at the Board?s discretion, the civic/IDA property can be removed from the CDA district. He stated that Exhibit ?B? delineates the improvements to be financed at a hard cost of $35 million, which consists of the internal road system, the water and sewer system, stormwater management and all infrastructure, plus the Routes 10/258 improvements. He stated that the CDA is going to issue 3 bonds to finance these improvements and the bonds will be secured by the revenue flows from the assessment within the district. Supervisor Wright stated that his earlier concern with respect to the suitability of the soils for building purposes has been addressed by Richard L. Turner, the applicant, who advised him that out of the 600 acres, only 150 of them had been used as a borrow pit and have now been filled. Jimmy Sanderson, Davenport & Company, reported that he had spoken with officials of Loudon and Hanover Counties, as well as the City of Hampton, with respect to what extent County staff will be burdened by the general functioning of the CDA. He advised that each of those localities charge a $30,000 annual fee to engage an outside consultant as the administrator of the CDA. He stated that the assessment collected from the landowners is done so by the County and at the time that those funds are transferred to the CDA, the County retains the funds that are associated with the County?s costs, which is an amount that is agreed upon upfront. He stated that the County can request an increase in funds to the CDA on an annual basis if it desires. He advised that the County will be asked to approve a Memorandum of Understanding which will contain the amount that has been determined to be the additional cost associated with the CDA. He stated that Hanover County charges $5,000 annually to account for its staff time involved with the CDA. Chairman Clark requested Mr. Sanderson to poll counties that mirror Isle of Wight County regarding any charges they incurred with respect to CDA?s and that he respond back to the Board by memorandum. // Chairman Clark, addressing the issue of homelessness, requested that County Administrator Caskey ensure that the County is being a good regional partner and is being completely involved with respect to the issue of homelessness. Supervisor Bradshaw advised that there is a group of local churches that have recently organized in an effort to combat the issue of homelessness by providing shelters and food during only the winter months. He stated that 36 children have been identified as homeless in the County. // Mr. Sanderson stated with respect to credit considerations, included in the CDA policy is a statement that no CDA shall have any impact on the County?s credit rating. He stated with respect to bank qualified debt, CDA debt does count against the County?s bank qualified limit. He stated to the extent the County intends to issue greater than $10 million in debt in any calendar year, a CDA bond issuance will not impact the County. 4 Supervisor Casteen asked Mr. Sanderson what his opinion was on the residential versus commercial aspect. Mr. Sanderson replied that some jurisdictions require that the assessment on residential property be prepaid; some run it for the life; and, some will not approve CDA?s that have residential components. Supervisor Casteen inquired how much of this CDA relates to the residential aspect versus the commercial aspect. Mr. Sanderson stated that the administrator hired by the CDA determines the apportionment of the assessment to the different uses within the CDA. Supervisor Casteen requested that Mr. Sanderson brief the Board on the CDA for the Peninsula Town Center done by the City of Hampton. Mr. Sanderson responded that the Peninsula Town Center project consisted of mostly commercial and that the developers had requested that they either receive assistance from the City of Hampton in filling the stores or they were going to close the doors. He stated that the City formed a CDA and issued bonds and the first line of repayment to the CDA bond holders was incremental tax revenue produced in the commercial district. He stated there was also an assessment placed on that property to the extent that the project did not move forward and those incremental tax revenues were not produced, then there would be a backup assessment on the property and the property owner would have to pay the debt service on the bonds. Supervisor Bradshaw questioned why CDA?s are formed in Virginia. Attorney Williamson replied that CDAs were intended to be an economic development incentive tool. Supervisor Casteen called the Board?s attention to a letter that he had distributed to the Board members earlier from Lawrence Pitt making reference to an article on what is occurring in New York with respect to CDA?s. Supervisor Bradshaw questioned the reasoning behind why the Department of Economic Development supports the concept of a CDA. Patrick J. Small, Assistant County Administrator, stated a premise behind CDA?s is that by lowering the developer?s costs in terms of borrowing, excess capital is freed up and, negotiated correctly, that excess capital is split equally. He stated the use of a CDA does allow a locality a better negotiating position when it comes to what you get out of a project. 5 Supervisor Bradshaw questioned why staff has not pursued a CDA with the owner of the Airway Shopping Center. Mr. Small stated that CDA?s do not become an effective tool until a borrowing reaches a certain amount to make the project viable. Supervisor Bradshaw stated there are multiple properties there that are vacant that could have been capitalized. Mr. Small stated what would likely be a more viable unconventional finance tool is be a tax increment finance district but, the economics and the population base at that location are thin enough that the retail economics of that district are challenging and a tax increment financing district probably would not yield sufficient revenues off the incremental development. Supervisor Bradshaw stated that the area is zoned light and heavy industrial with commercial and there have been many business opportunities lost because of the lack of infrastructure at that location. Mr. Small advised that there has been limited interest in that area from the development or industrial communities. He stated that the County once considered publicly purchasing that property at one time. // Chairman Clark moved that the Board take a five (5) minute recess. The motion was adopted by unanimous vote (5-0) with Supervisors Bradshaw, Brown, Casteen, Clark and Wright voting in favor of the motion and no Supervisors voting against the motion. Chairman moved that the Board return to open session. The motion was adopted by unanimous vote (5-0) with Supervisors Bradshaw, Brown, Casteen, Clark and Wright voting in favor of the motion and no Supervisors voting against the motion. // Chairman Clark requested that Mr. Sanderson be allowed to give his economic impact summary without the interruption of questions or comments from the Board. Mr. Sanderson stated that he was engaged by the County to assist with looking at the potential cost benefit associated with the Benn?s Grant development. He stated that having a recognizable developer such as Armada Hoffler is important. He stated the majority of his work over the past year was associated with taking a look at the fiscal impact analysis produced by ERA and putting it into his firm?s model to ensure that it was functioning correctly, while stressing it to provide the County comfort with 6 its ultimate results. He stated key considerations associated with the development are cash flows. He stated that identified early on was whether the 5,000 square feet of office space was realistic; what were the potential impacts on school capacity needs; and, whether it was plausible to create a capital reserve fund from proffers and net revenues that can be used to offset infrastructure needs that the County has. He stated the impact analysis breaks out revenues and expenses to the County, both from a low and high perspective. He stated that the base case analysis reflects net positive income revenues beginning in year one (1) of $1.2 million and levels out in year eleven (11) at $1.4 million annually. He stated the build out for Wal- Mart and the home improvement store is one (1) year; other retail is six (6) years; office park is twenty (20) years; other commercial in year one (1); hotel five (5) years; and, housing ten (10) years. He stated the average annual cash flow under the base case is $1.3 million net revenues to the County. He stated that under case two (2), which is the slow growth scenario, the Wal-Mart and home improvement store will come online in year two (2); other retail is developed within a fifteen (15) year period; office park at twenty (20) years; other commercial in two (2) years; hotel in year ten (10); and, the housing is built out over eleven (11) years. He stated in year one (1) under case two (2), there is a net negative revenue to the County of $146,000 because the residential component has been maintained going forward and slowed the commercial development and moved it to year two (2), resulting in the County taking a hit in year one (1) of all the cost associated with the residential piece, but no benefit from the commercial piece. He stated the commercial comes on-line in year two (2) and the revenues jump to $1.1 million. He stated that the average annual cash flow under this assumption would be $781,000 annually net positive, assuming no development for the office park. He stated that net revenues to the County are exclusive of any proffers. He stated ERA listed out the total proffers associated with the project of approximately $11.8 million and also listed additional developer contributions of $19.2 million. He stated that his firm has suggested the creation of capital reserve funds to its previous clients. He stated he is suggesting that the County set aside the annual net revenues associated with the project, as well as the school proffers, for the first five (5) years of the project to be applied directly to construction costs to offset the cost of any new school. He stated initial observations show that Benn?s Grant should provide a net fiscal benefit to the County. He stated a Memorandum of Understanding with a CDA does provide an opportunity to ensure that the project is what the Board wants. He stated that the Board should recognize that while CDA indebtedness is going to be a direct cost to the CDA, this will be an overlapping debt to the County; discussions should be held with the rating agency to ensure that there is no impact on the County?s rating associated with this project; it is often the case that these projects are looked at as economic drivers rather than negatives in an area; that the developer is not requesting that the County put up additional tax revenues, as seen in other jurisdictions; and, the Board should use its legal and financial consultants to ensure that the County is protecting in forming a CDA and in executing the plan of finance through the Memorandum of 7 Understanding. He advised that he has reviewed and provided comments to ERA on its impact analysis which have been incorporated into its analysis regarding the inclusion of a social services cost. Supervisor Bradshaw requested Mr. Sanderson to be prepared to address the following at the Board?s work session scheduled for Monday, February 11, 2008 at 4:00 p.m.: Employment numbers; retail space with respect to when it is coming on line; the operating cost of the school; if the action that the General Assembly is in the process of approving with respect to the elimination of proffers and the institution of impact fees of $5,000 per lot is approved before July 1, 2008, would it be at the recordation of the deeds or when the rezoning occurs; and, how the Homestead Act, which allows a 20% reduction in real estate, will impact this development and the Community Development Authority. Supervisor Casteen requested Mr. Sanderson to be prepared to address the following at the Board?s work session scheduled for Monday, February 11, 2008 at 4:00 p.m.: Expectation of the sales of the homes and the timing of those sales and how that correlates to recent history of the County. // Chairman Clark moved that the Board recess its meeting until Monday, February 11, 2008 at 4:00 p.m. The motion was adopted by unanimous vote (5-0) with Supervisors Bradshaw, Brown, Casteen, Clark and Wright voting in favor of the motion and no Supervisors voting against the motion. __________________________ Stan D. Clark, Chairman ______________________ Carey Mills Storm, Clerk 8 tt x U~Wlreq;) ')fl~[;) 'a U~lS ~-p 'UOnOW ~qllSU!~~~ ~U!lOA SlOS!Al~dns ou pUB UO!lOW aqUo lOM] U! ~U!lOA lq~!lA\. pUB )fl~1;) 'Uaa1SB;) 'UMOlg 'MBlfspBlg SlOS!Al8dI1S lmM (O-~) ~lOA snow!utmn Aq P~ldopu SUM UO!lOW 84.1 'w'd 00:17 lB 800l 'II AlBl1lq~d 'ABPUOJ'\{ mun ~Ur~::l~W Sl! 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