FARGO - The city will issue bonds worth as much as $17.8 million to finance the construction of a new parking ramp as part of the Block 9 high-rise project downtown, city leaders agreed Monday, July 30.
Repayment would come from developers, some of which would otherwise be paid as property taxes.
"(I'm) very pleased that this is finally coming forward; this means block 9 project is going forward as well," Mayor Tim Mahoney said.
The city struck a deal with the developers, the Kilbourne Group and RDO, in May 2016 and several deadlines have slipped. But developers said earlier this month they would break ground on the 18-story tower and adjacent 379-stall parking ramp by U.S. Bank in late August or early September.
The Kilbourne Group, which specializes in building downtown, is owned by Gov. Doug Burgum, though he no longer has day-to-day control of the company.
Perhaps because of the past delays, City Commissioner Tony Grindberg wondered what the city would risk if developers ended up not building the high-rise at all.
City Attorney Erik Johnson said the city's deal with developers allow the city to take ownership of the ramp and use parking revenues to repay the bond holders.
Terri Heaton, a senior vice president at Springstead, which helps the city issue bonds, said there would be no risk to the city's credit rating so long as bond holders are repaid fully.
City commissioners voted 4-1 with Commissioner Tony Gehrig dissenting because he disagrees with the city providing tax breaks to developers. He said homeowners don't get such a good deal.
Commissioner John Strand said the city already agreed to do this in May 2016 when city leaders had a chance to debate the merits of tax breaks. Issuing the bonds now is simply honoring that commitment, he said.
Jim Gilmour, the city's economic development chief, estimated the total value of the tax breaks at $16 million over 25 years. City leaders earlier approved the incentives in hopes of increasing the value of the properties, which are now parking lots that pay little in the way of property taxes.
According to Heaton, the city's aim is to raise $15 million for the parking ramp, including skyway connection to nearby buildings and a public plaza. But because the bond is not like a typical city bond, which are tax exempt and tied to a tax levy, the borrowing costs are higher. Bonds for private projects aren't tax exempt, increasing the interest rate. And the payback will come from parking revenue not taxes, which are seen as more of a sure thing.
For example, Heaton said, a $1.2 million reserve is needed to make the bonds "marketable" and the city will need the services of an underwriter.
The land that the parking ramp will be built on now belongs to the city, but it'll be turned over to developers for construction, and then revert back to the city after construction. The city will then sell the entire project to developers who have promised to pay $1.1 million a year, according to Heaton. Another $100,000 a year will come from a tax-increment financing, or TIF, district, which essentially uses property taxes the developer would otherwise pay into city coffers to pay for development of the land.