Lake County Gazette

City of Highland Park Committee of the Whole met May 24.

Here are the minutes provided by the committee:

CALL TO ORDER

At 5:59 PM, Mayor Rotering called the meeting to order and asked for a roll call:

PRESENT: Mayor Rotering, Councilmembers Tapia, Stolberg, Stone, Blumberg, Lidawer

ABSENT: Councilmember Holleman

STAFF PRESENT: City Manager Neukirch, Fire Chief Amidei, Community Development Director Fontane, Police Chief Jogmen, Public Works Director Kanapareddy, Finance Director Logan, Assistant City Manager Sabo, Senior Planner Later, Deputy City Clerk Palbitska

ALSO PRESENT: Corporation Counsel Elrod, Housing Chair Berkun, Commissioners Abreu, Bernstein, Dennison, Fernandez Sykes

APPROVAL OF MINUTES

1. Approval of the Minutes of the Special Meeting of the Committee of the Whole Held on May 7, 2021 and Approval of the Minutes of the Regular Meeting of the Committee of the Whole Held on May 10, 2021

Councilmember Stone moved to approve the Minutes of the Special Meeting of the Committee of the Whole held on May 7, 2021 and the Minutes of the Regular Meeting of the Committee of the Whole held on May 10, 2021. Councilmember Stolberg seconded the motion. Upon a roll call vote, the Mayor declared the motion passed unanimously.

RESULT: ADOPTED [UNANIMOUS] MOVER: Kim Stone, Councilmember SECONDER: Adam Stolberg, Councilmember AYES: Mayor Rotering, Councilmembers Tapia, Stolberg, Stone, Blumberg, Lidawer ABSENT: Councilmember Holleman

SCHEDULED BUSINESS

1. Review of Various Financial Strategies for Peers and Ravinia Housing

Mayor Rotering welcomed the Housing Commission to the joint meeting with the Council. She explained that this was an opportunity to explore the different options that the Housing Commission had considered concerning a financing strategy for Peers and Ravinia Housing.

Commissioner Dennison clarified that the discussion tonight was not to move forward with one of the options but to allow staff and the Commission to research the option of moving forward with the Low Income Housing Tax Credits ("LIHTC").

Mayor Rotering noted that this is the Committee of the Whole and there is no action taken during the meeting but it is an opportunity to have a policy discussion and analysis. She thanked the Housing Commission members for their time in assisting the Council understand the analysis that has already been completed.

Community Development Director Fontane presented information on the review of various financial strategies for Peers and Ravinia Housing. Staff requested feedback to explore and potentially pursue a financing strategy for the Ravinia and Frank B. Peers housing properties.

Councilmember Stone asked what the value of the buildings currently are; the Peers building and the combined value of the Ravinia buildings.

Community Development Director Fontane noted that he did not have that information available at the moment but as part of any refinancing, a current assessment would have to be completed.

Mayor Rotering voiced her appreciation of being able to have a more in depth look at the three options that were previously reviewed by the Housing Commission. She noted that Director Fontane mentioned changes to the tax code and asked if the City moved forward with LIHTC, would that trigger capital gains and create some sort of tax implication that hasn't really been taken in to consideration given the somewhat longer and drawn out timeline that is involved with that process.

Community Development Director Fontane stated that he is not a LIHTC or tax expert but if the tax code changes, the credits from the LIHTC option become more or less valuable depending on what type of taxes the investor class faces.

Mayor Rotering asked that the tax question continue to be reviewed because there is also the risk that by virtue of changing ownership of the asset, the trigger of a capital gain occurs and that may include all kinds of costs that may not have been reviewed previously.

Community Development Director Fontane noted that he understands what the Mayor is communicating and the Commission and staff will have to fully understand what the implications are if a partnership was entered into.

Mayor Rotering urged that the review be completed and the information be gathered for that type of situation. She requested information as to cost of administration, percentage of administrative cost to total gains, as well as cash flow opportunity for the City for all three options and what the administrative costs are versus the amounts that would be liquid to be able to put in to improving the assets. She asked what would be done for the individuals that are currently living in the housing units while rehab work is being completed. She asked if there has been an assessment completed in regards to protection that can contractual be brought to address the possible risk with the change of ownership, temporary or not, to make sure the City is not being put at any increase of risk. She asked what the impact of LIHTC was in terms of the City's debt capacity and how that will impact other projects due to the City's total debt capacity. She asked what risks there would be if the City was accruing a significant amount of debt in terms of putting the City at a risk for its credit rating. She voiced her appreciation for the desire to improve the properties and take advantage of the economic opportunity but in the broader scale of things, there are concerns in regards to the City's finances overall and diminishing the risk of exposure. She asked if the potential conflict of interest has been assessed in regards to Evergreen in terms of them taking a look at the buildings, what needs to be done and having someone from their development branch taking these projects on.

Councilmember Stolberg voiced his concerns regarding the triggering of a capital event, conflict of interest, performance standards being met and what the risk/reward would be.

Councilmember Stolberg and Community Development Director Fontane discussed the amount of debt the City would carry in regards to refinancing. They discussed how the refinancing option is simple, quick and accomplishes all of the goals over the next 10 years. They discussed what is in the current reserves and entity funds.

Commissioner Dennison provided responses to Councilmember Stolberg's questions in regards to what the EBI Assessment covers, an increase in potential revenue from the buildings, and the tradeoffs with moving forward with the LIHTC plan. He explained that the Commission and staff are eager to understand what the risks may be before going forward. He agreed about the notion of a conflict of interest and that a Request for Proposal should really be presented. He noted that a lot of great questions have been asked and the Commission is seeking approval to move forward in researching those questions and finding the answer.

Councilmember Stolberg noted that it is not prudent to rehab all of the units at once and phasing would be the better option. He discussed additional debt, prioritizing certain units and creating a sound plan.

Commissioner Dennison noted that the first question that was asked was what would happen to the current residents while a unit is being updated. He agreed that the ability to have cash flow is a great path and could work very well in terms of a solution. He stated that the Commission and staff would like to be able to review all of the information with every consideration in mind. He noted that through research, there may be the possibility of adding units.

Councilmember Stolberg noted that it is great to have low interest rates but taking on additional debt is worrisome.

Commissioner Abreu asked for clarification as to taking on additional debt.

Councilmember Stolberg noted that he understood that there was no additional debt for LIHTC but the cash out option is additional debt. He noted that with LIHTC there are tax implications and potential partnership conflicts.

Commissioner Abreu noted that he appreciates all of the questions that have been asked. He stated that based on his perspective this is the direction the Commission wanted to go with this presentation; not that this is the right answer and this is the wrong answer but let's explore this more fully because it is potentially beneficial.

Community Development Director Fontane noted that the reason why the Commission is before the Council is because in order to answer a lot of good questions, it will require a lot of work and expertise.

Mayor Rotering explained that the Council needed the context and clarity behind the three options because the original presentation to the Council felt predetermined.

Councilmember Tapia noted that within this opportunity for exploration, it is important to conduct a review of those items that are on the wish list or not on the wish list that need to be addressed. He stated that a big question is, what cannot be accomplished in either the near future or over the next 10 years if the available cash would not be available. He explained that he had been waiting to review the Capital report and it came back that the quality of the buildings is relatively good and the cost of Capital improvements will not be that great but it is recommended that it be explored a little further.

Councilmember Stolberg agreed with what Councilmember Tapia discussed. He asked what the harm may be if refinancing was completed sooner and then explore these other options a little bit down the road.

Councilmember Blumberg noted that if the City begins to alter how the debt is finance for the projects in a way that affects the ownership rights, there may be potential issues with the City and Commission being able to make decisions independently of other interests. He stated that this needs to be thought about as research is being conducted.

Community Development Director Fontane noted that if a deal is made with LIHTC, it will be prescribed what performance deals need to be made within the first 15 years. He explained that private sector organizations see that as being a negative but to an organization like the City, that does not seem to be an issue. He explained that the City would engage in a turn-key type of operation. He noted that it is a complicated deal and it will take time to review. He stated that the interest rate is a risk and there is an even bigger risk if something is not done soon.

Chair Berkun noted that to review the LIHTC path, there needs to be a comparison with the current market; an encouragement to get out of the current situation. He asked if the refinancing option was chosen if it would get the City away from the mark to market.

Community Development Director Fontane stated that all three options would get away from the mark to market; the second loan would be paid and that would be the goal.

Chair Berkun asked if there was a group of consultants that could be brought in to assist with the decisions.

Community Development Director Fontane explained that the services would have to be procured for both legal and financial services in order to proceed forward with any of the options. He noted that if all three options need to be explored, it will take some time because it is a broader scope for those involved.

Mayor Rotering stated, to Councilmember Stolberg's point, wouldn't it be beneficial to at least go forward with refinancing while simultaneously completing an analysis on the other options.

Community Development Director Fontane noted that it could be done but there are some unknowns as to whether or not that would frustrate a LIHTC and there would end up being a locked in rate on a loan with penalty clauses on debt.

Councilmember Lidawer agreed with Councilmember Stolberg. She stated that she would be uncomfortable with taking on additional debt. She voiced concerns with fees for penalties and fees for refinancing if things were to switch midway through.

Commissioner Dennison asked if the refinancing can be completed without pre payment penalties, if available, in a rapid fashion while exploring the other options.

Community Development Director Fontane noted that he was not sure about no penalties or the implications. He stated that research can be conducted to be able to answer that question.

Commissioner Dennison noted that the Commission is before the Council to approve using staff's time to research LIHTC and wanted to know if it would be okay to move forward with refinancing and researching LIHTC at the same time.

The Council was supportive of reviewing the refinancing first and then researching the other presented options.

Chair Berkun noted the time pressure and asked if there was an estimate as to how long it would take to review the information with an expert.

Community Development Director Fontane stated that an expert needs to be procured, no matter which option is chosen. He explained that, dependent on the direction from the Council, an expert can most likely be procured within 30 days and then the expert would need time to be able to respond to the request.

Mayor Rotering asked if Finance Director Logan would be able to assist with some of the refinancing questions that have been asked.

Finance Director Logan explained that because these are specialty properties, she is unsure if the counsel that is used for City debt would be consistent with the legal counsel needed here. She noted that she would have to talk to the City's current debt counselor. She stated that she does not have an opinion as to what type of counsel should be used.

Commissioner Dennison asked for confirmation if the refinancing and research would be completed simultaneously or one at a time.

Finance Director Logan noted that with the proper counsel, staff would have the capacity to move forward simultaneously but proper legal counsel has to be available.

Mayor Rotering noted that answers may be provided in the next day or so and then staff can move forward with planning.

Councilmember Tapia asked if the regular refinance can be fast tracked given Councilmember Stolberg's point. In reviewing the capital improvements, he noted that it was good to see a lot of the improvements prioritized that would allow for 100% ADA compliance and to really accelerate those improvements once the financing is in place.

Councilmember Stolberg asked who owned the notes on the property.

Community Development Director Fontane explained that it is Red Capital and HUD for Ravinia and HUD for Peers.

Councilmember Stolberg asked if there was a representative from HUD that staff could contact with a straight refinancing question.

Community Development Director Fontane noted that staff could but the response time from the organization is unknown.

Councilmember Stolberg noted his interest in the pre-payment penalty for the existing notes on the properties.

Community Development Director Fontane noted that time has passed on the current notes in regards to pre-payment penalties but the current notes can be reviewed to get an idea as to the pre-payment penalties.

Councilmember Stolberg agreed with Councilmember Tapia regarding fast tracking the refinancing.

Mayor Rotering thanked everyone for the productive conversation and that it sounds like the Council is interested in moving forward with securing the refinancing while researching the other options.

Community Development Director Fontane confirmed that staff will work with the Commission to pursue the refinancing, secure professional services, as well as looking into the LIHTC options.

Councilmember Stone noted that research should be conducted to see if there are loans available without termination or pre-penalty fees.

Community Development Director Fontane noted that the HUD loans are very favorable and will be able to provide the reasons why they are favorable.

Finance Director Logan noted that the City's obligation debt has some type of pre payment penalty because of the type of debt that is being reviewed.

ADJOURNMENT

Councilmember Stone moved to adjourn. Councilmember Lidawer seconded the motion. Upon a roll call vote, the Mayor declared the motion passed unanimously.

The Committee of the Whole adjourned its meeting at 7:18 PM.

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