The Blaine City Council on April 6 unanimously approved a housing program, a senior housing revenue note and revenue bonds to help Catholic Eldercare acquire Crest View Senior Community.
The request included not only city-issued conduit financing for the purchase, but also assignment of an existing tax increment financing note tied to the property, a point that drew questions from the council.
Council Member Chris Massoglia asked whether the council had any interest in not extending the TIF note, which would return that money to the city’s tax base.
“If we can help Catholic Eldercare get an interest rate from 6% or whatever the market rate is down to 3%, that’s saving them millions and millions of dollars,” Massoglia said.
Council Member Leslie Larson understood the broader action to be routine and asked whether declining to extend the TIF note would also be routine.
Finance Director Jason Zimmerman said assignment of the note is customary in a property acquisition like this one and is critical to making the deal work.
Catholic Eldercare had asked the city to issue a conduit debt note of up to $40 million through Blaine Senior Living LLC for the purchase. The organization also requested assignment of the existing pay-as-you-go tax increment financing revenue note from Crest View.
The request stems from the property’s location in a TIF district and from conduit financing used when the project was built in 2015. The TIF note also was created in 2015 along with the district plan.
Zimmerman explained that conduit bonds are a financing tool that can help organizations lower borrowing costs by allowing a government entity to issue bonds that may qualify for tax-exempt status. Because the interest paid to investors is excluded from state and federal taxable income, investors are generally willing to accept a lower interest rate, reducing costs.
Common conduit bonds in Minnesota include those for nonprofits such as hospitals, nursing homes and schools; housing revenue bonds for for-profit housing developments serving low-income residents; and small-issue manufacturing bonds for facilities.
Under that structure, Zimmerman said, the city would issue the bonds and provide the proceeds to the borrower, which would remain responsible for repaying principal and interest. Repayment typically comes from revenue generated by the project, while the city’s role is to provide access to a tax-exempt financing market.
The city is not obligated to make payments on the bonds and that all expenses related to issuance would be paid by the borrower. The borrower also would be required to indemnify the city and the Economic Development Authority against potential liability.
Zimmerman said the bonds would not be backed by government credit and that the financial benefit to the borrower comes from the tax-exempt status of the bonds.
City policy typically requires fees based on the principal amount of bonds issued to recover administrative costs, Zimmerman said. In this case, however, he said the city manager and finance director negotiated a $90,000 fee rather than the standard $166,250. He said the principal amount is about $36.5 million.
Massoglia also asked about the amount of the TIF note. Zimmerman said the original note had been $2.8 million and that, because of the state’s lag in property valuation and tax collection, the remaining balance is now about $2.2 million.
Greg Baumberger, chief executive officer of Catholic Eldercare, said the organization has served seniors at its two northeast Minneapolis campuses for 43 years. He said the Crest View acquisition would be financed through the city-issued debt along with the remainder of the tax increment financing note.
Aaron Youngdahl of Northland Securities said the tax increment financing note was part of the acquisition plan because some units in the facility are set aside for lower-income residents.
“The TIF note really is an integral part to keep that building strong for a nonprofit such as Catholic Eldercare to serve people in all spectrums of income,” Youngdahl said.