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9/21/04 Memo to: Roseville City Council From Harlan M. Smith Re: Twin Lakes Hearing Last night's hearing was instructive to me as well as to others, and my comments should be supplemented as follows. I have insufficient knowledge of TIF financing of development projects. I had been assured that the money provided developers would be returned to the city through tax increments on the development but had no assurance there would be no risks to the city. I still wondered if the bonds could be sold if repayment depended upon the success of the development yielding enough tax increments to repay them. No prudent investor would buy a bond that would not have a city guarantee to redeem it in full at maturity, so the risk cannot be shifted to the TIF bond purchaser. Are TIF bonds bought by the Federal Government, & does it take the risk? Does not the tax increment from the development have to be used to payoff the bonds at maturity, & interest on the bonds meanwhile, if development succeeds in generating enough tax increments? Would the city default & injure its credit rating even if worst came to worst? A business development is always a risk, one developers have to decide whether it is worth their taking, since a good profit might result. But taxpayers should not be asked to take a risk from which they could not even receive a profit, & taxpayers or council cannot evaluate that risk in advance. Some of the truth I learned last evening. The property yields some taxes now & likely will yield a little more in the future. If the developers get the full amount the contract says that TIF financing will provide once those bonds are issued to reimburse them for certain approved expenditures (that they presumably have already made), that full amount is a subsidy to the developers from the city. For if developers financed the entire project all the tax increment financing would be available to the city for other uses, instead of hopefully paying off the bonds that enabled the city to subsidize the developers. And if the development does not payoff as both developer & city hope, & the development fails, there may be very little if any tax increment. The city could have a "white elephant" on its hands which it had subsidized & got too little even to payoff the TIF bonds in full. I understood that the city would not subsidize the developers in any case and not even lend them money. That is not what is contemplated if the Council goes ahead with the present developers as even the preliminary contract makes abundantly clear. It is clear that the developers expect a big subsidy. If the Council will not subsidize the developers, as some members have already said they would not, the council must say before Sept. 30 that the city cannot continue on the basis desired by developers & withdraw unless developers agree to develop without a TIF financing subsidy.