City Council Minutes 01-08-2007 Special
MINUTES
SPECIAL MEETING - MONTICELLO CITY COUNCIL
Monday January 8, 2007 - 5:30 p.m.
Members Present:
Clint Herbst, Wayne Mayer, Tom Perrault, Brian Stumpf and Susie
Wojchouski
Members Absent:
None
Others Present:
Mark Ruff, Ehlers & Associates; Martha Ingram, Kennedy & Graven; Darrin
Lahr, Xcel Energy.
1. Call to Order.
Mayor Herbst called the meeting to order at 5:30 p.m. The purpose of the workshop meeting
was to review the revenue stabilization agreement with Xcel EnergylNSP.
2. Review of revenue stabilization ae:reement.
Martha Ingram from Kennedy & Graven discussed a number ofterms in the agreement that
needed clarification and items that could be considered for negotiation. She stated that there are
number of terms that are not clearly defined with one ofthe key terms being the base year. As
written in the agreement the concept is not clear. Also needing clarification is the term of the
agreement itself.
Possible points for negotiation include the base year. Martha Ingram felt this would be better
identified as taxes payable year. The City felt that using the base year as the taxes payable in
2006 would be more advantageous for the City. Another issue is the compounding of the
abatement. If the City levies for funds to rebate to Xcel EnergylNSP for payment of taxes in
excess of the amount due for the base year, that levy amount should not be included in the
calculation for the next year's abatement. The abatements should be separate payments not
compounded.
Martha Ingram noted that if the projects the City plans on doing fall into place, property taxes
could increase rapidly and for that reason it would make sense to have an abatement cap.
However Xcel EnergylNSP would not be likely to approve this. She also discussed the
extraordinary investment percentage and what that means for the City. IfXcel EnergylNSP
makes improvements to their facilities that would cause their taxes to increase over what they
would have paid in the base tax year, this amount would be excluded from the abatement
process. It was not certain whether the percentage of investment was a negotiable item. She
also felt the binding arbitration process as provided for in the agreement was there to stay. Of
all the points noted, she felt the base tax year and the compounding of abatements had the most
impact for the City.
Brian Stumpf asked ifthere was a time frame that negotiations would cease. Darrin Lahr said
they would to see the agreement done before the legislative session begins. He stated that in
Xeel EnergylNSP's view the points noted had been discussed for two years during the period
they worked with Red Wing and Goodhue County on their revenue stabilization agreement.
The agreement being presented to Monticello is basically the same as those agreements with the
difference for Monticello being that the dry cask storage is outside the agreement.
Darrin Lahr explained that point of extraordinary return on investment. IfXcel Energy/NSP's
taxes were above the base amount because ofNSP's investment in their plant and it put the City
in the abatement process the City could then get out of the agreement or opt to stay in the
agreement and pay the abatement. The question is what should be the percentage of
extraordinary return on investment. Xcel Energy/NSP wanted 10% but 7% would be a low as
they would go. Things that would be considered extraordinary investment would be items like
repowering the plant or extended life improvements. Dry cask storage investment will go on
one PID # which the county will set up. Darrin Lahr stated because the overall value of the
Xcel Energy/NSP facilities will drop if the change in rules goes into effect, Xcel Energy/NSP
would guarantee payment in taxes in the amount of taxes paid in the base year. This agreement
will not go into effect unless the tax changes are made. The value used for the base year taxes
is the value existing in the year when the tax changes go into effect.
Brian Stumpf stated with or without the agreement would the City still receive taxes but the
amount of taxes generated by Xcel Energy/NSP would be reduced as their tax value is reduced.
If there was an abatement, the City may have to levy for the shortfall. NSP would pay a set
amount every year regardless of whether there is an abatement.
Wayne Mayer noted $900 million is going into the Sherco plant and the dry cask storage facility
at Monticello would be $50 million. With the dry cask storage to be started in 2007, he asked if
it would it be more advantageous to the City to wait until the changes were completed at
Sherco.
Mark Ruff discussed the financial implications for the City noting that the City tax base
continues to grow. The 20% drop in value for Xcel Energy/NSP's facility would be phased in
over 3 years. The city used cash reserves for one year to for bond debt so the levy for debt
service will have to increase to take care of debt service for future years. Mark Ruff stated that
the information he is providing focuses on the general fund. Mark Ruff stated that there are
some special projects such as the YMCA, Public Works, etc. He indicated that previously the
City had been good in finding ways to have property owners pick up costs. These special
projects will require more of a contribution from the City's general fund. The purpose is not to
predict what projects the City will be doing but if these projects happen what impact they would
have on the abatement process.
Darrin Lahr said if abatement is less than 15% of the base tax it is tracked but not payable.
Nothing is payable until it gets over 15%. Mark Ruff said the minimum abatement would be
$275,000. Ifthe City could go back to taxes payable 2006 as the base year, the City would not
pay any abatement. Martha Ingram did not feel that NSP would change the base year to taxes
payable 2006.
Wayne Mayer stated that is seems like the City is being penalized for cutting taxes. Jeff
O'Neill stated the assumptions in Mark Ruffs projections implied a certain growth rate which he felt was ambitious. Bret Weiss stated a lot of the projects proposed would have to be
done
regardless of growth because the infrastructure needs to be replaced.
Darrin Lahr said the theory behind the numbers is that the tax is based on what it was before the
rules changed. Mark Ruff said that much depends on what the City's tax rate is going to be.
The City's tax rate is now in the low forties and it could go up to the sixties. The Council stated
that they have been frugal in managing the City's resources. Darrin Lahr pointed out that Xcel
EnergylNSP has nothing to do with the City's budgeting process.
Clint Herbst stated these are points for negotiation. The City has to realize what the impacts
could be. leffO'Neill asked if an abatement could impact the city's bond rating. Mark Ruff
felt the drop in value would have some impact on the bond rating. He didn't see a downgrade
but he felt it would be awhile before the City could upgrade their rating. He did state that if
both the city and school added a lot of debt then the bond rating could go down. Darrin Lahr
didn't feel Xcel EnergylNSP would negotiate any of these points.
Clint Herbst asked if the City approves the agreement and there is no rule change, how does this
affect the agreement. Damn Lahr stated the agreement would expire December 2008. The base
year is always defined as the year before the rule changes take effect. Clint Herbst stated that
while Xcel EnergylNSP has been negotiating in good faith, the company has a lot to gain from
this. Susie Wojchouski asked what would happen ifXcel EnergylNSP would sell their facility.
Darrin Lahr indicated the payments would still be made.
Martha Ingram felt the compounded abatement is something the City should negotiate. Darrin
Lahr said part of the idea was to keep the math in the agreement simple which is why Xcel
EnergylNSP didn't ask for anything to be broken out from their value decreasing if the City's
overall market value increased.
If as a result of negotiations, the agreement changed another hearing would have to be
conducted since it would be considered a new agreement. Martha Ingram felt the base year
concern was significant enough to require another hearing. A hearing could be scheduled
within three weeks. Xcel EnergylNSP would not take the agreement off the table if it was not
approved tonight but Darrin Lahr didn't think Xcel EnergylNSP would agree to any of the
negotiation points discussed. There was some discussion on clarification of some terms, which
while they wouldn't change the substance of the agreement, the consultants felt were important.
Darrin Lahr said Xcel EnergylNSP wouldn't sign the agreement until any language changes had
been written. He suggested tabling action on the agreement, get the clarifications made and set
another public hearing.
The workshop closed at 6:45 p.m.
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