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HomeMy WebLinkAbout08/11/2014 Council Work Session August 11, 2014 4:10 p.m. Harold E. Getty Council Chambers Roll Call. Approval of Agenda, as proposed or amended. 1. SportsPlex Development Agreement—Submitted by Mayor Buck Clark. ADJOURNMENT Suzy Schares, CMC City Clerk/Human Resource Director The answers in red italics below have been provided by Ahlers & Cooney, P.C. Original Message From: MAYOR CLARK [mailto:BUCK.CLARK@WATERLOO-IA.ORG] Sent: Thursday, August 07, 2014 2:08 PM To: William J. Noth Subject: FW: Questions for Sportsplex Work session Questions. Thank You, Mayor Buck Clark City of Waterloo Iowa 715 Mulberry Street Waterloo, Iowa 50703 319-291-4301 Original Message From: MICHELLE WESTPHAL Sent: Thursday, August 07, 2014 1:20 PM To: MAYOR CLARK Subject: FW: Questions for Sportsplex Work session Original Message From: herodsfoote@mchsi.com [mailto:herodsfoote@mchsi.com] Sent: Thursday, August 07, 2014 12:56 PM To: MICHELLE WESTPHAL Subject: Questions for Sportsplex Work session The following questions are primarily focused on the possibility of removing what is commonly referred to as the "Put Option" from the two Agreements, Development and Property Transfer Agreement" and "Lease Purchase Agreement between City and Developer." The question is, which is best for the people of Waterloo? The answer to this is in two parts, debt on the project and the capability of the project to make a profit. As can be observed in Development and Property Transfer Agreement in the current version (with the Put Option included) the debt must be eliminated before the City assumes ownership. To our knowledge there is nothing in the Development and Property Transfer Agreement that requires the debt to be eliminated before the City exercises the Put Option. In fact, the Lease Purchase Agreement states that the City may elect, in its sole discretion, to pay off all liens, including the existing mortgage, upon exercising the Put Option in Article XIII. The Development Agreement is largely performed and of little relevance to the current obligations of the parties. Interestingly in the Lease Purchase Agreement it appears that the City could assume ownership with debt remaining. However, with the Put Option in place the City can chose to just not to assume such ownership, that is, the citizens are protected from such debt. So, if the Put Option is removed there is no gain for the citizens of Waterloo in the context of the debt even though there is an offer to guarantee that the debt will be paid off if the Put Option is removed. My understanding is that the guarantee will be executed as a contract. Yes, the guaranty will act as an additional security measure for the City that the debt will be paid off before legal title is transferred to the City. Certainly establishing such a guarantee by contract between two private parties is okay to do as long as both private parties agree, but that doesn't apply here as one party (the City) represents the people. In this case a contract does not protect the people unless there are 'hard assets' provided by the one guaranteeing the pay off of the debt. This can easily be accomplished by the one guarantor providing something like a letter of credit or establishing a bank relationship which stands good for the guarantee. Limiting a guarantee to a contract is not good enough when representing the people's interest. Unsecured corporate or personal guaranties are frequently used as security for the obligations of both public and private entities. Yes, other possible security measures, such as a letter of credit, do exist and would provide additional security for the debt, but would come at an additional cost. The adequacy of a guaranty depends largely on the balance sheet and liquidity of the guarantor. However, the main reason for the 'Put Option' is for the City to not be encumbered with an operation which is running in the red. Everyone wishes this venture to make money. Everyone hopes this venture will succeed. However, wishes and hopes do not take the place of reality. So the 'Put Option' is primarily there to protect the people from a venture that turns out to be no more than a White elephant. To remove the 'Put Option' is to not act in the best interests of the people. Development and Property Transfer Agreement Article IV—Closing. ********* In section 4.2 (j)— "Receipt by the City of a legal opinion rendered on behalf of the Developer, in the form reasonably requested by the City." Question: Which firm delivered this legal opinion? Was it Law Firm of Kristin Billingsly Cooper Ahlers and Cooney. P.C.? The primary function of the Development and Property Transfer Agreement was to establish the conditions for the transfer of the original property from the City to WDC. That agreement has been largely performed (closing took place in early 2013). Section 4.2 of the Development and Property Transfer Agreement lists conditions to closing (the closing where WDC took title from the City). As a condition of that closing, Section 4.2(1) required a legal opinion on behalf of the Developer to be given to the City. Our firm would not have executed such an opinion because it was being rendered on behalf of the Developer. Ahlers & Cooney, P.C. represents the City. Although we do not have a copy in our files, we assume this was received from WDC's counsel. ******** In section 4.2 (k)— The City Council shall have approved, following the public hearing thereon, the issuance of the Deed to the Developer and the execution and delivery of the Lease Purchase Agreement, and the City and Developer shall have entered into the Lease Purchase Agreement. QUESTION: This act is solely the responsibility of the City Council and it has occurred? The deed was approved and issued in January 2013 and was recorded on 1/22/2013; otherwise the City would still retain title. (This section refers to the original deed from the City to WDC.) ******** In section 4.2 (m)—There has not been a substantial change for the worse in the financial resources and ability of the Developer to construct the Improvements as contemplated in this agreement, which change(s) makes it likely, in the reasonable judgment of the city, that the Developer will be unable to perform its covenants and obligations under this Agreement. This is another condition of closing, and applied at the time of the original transfer of the property to WDC in January 2013. It has no relevance to the current situation. QUESTION: Under this current Agreement, the Developer's stated concern of not being able to receive the (estimated) $500,000 sales tax rebate from the State of Iowa is a recognition of a 'change for the worse in the financial resources' and therefore is a change which makes it unlikely that the Developer will be able to perform its covenants and obligations? Some may consider this to be an overstatement of the circumstances but until made clear city council must take this as a 'change for the worse.' For the reasons mentioned above, this condition of closing is no longer relevant because it related to the original transfer of the property to WDC in January 2013, not the transfer of the property to the City being contemplated now. Article VII I section 7.2 —Management of Project Funds and Accounting. (a) The parties contemplate that Developer will hold, control, manage and disperse all funding for the constructing of improvements. (b) Any funds remaining after completion of the improvements and payment of all expenses relating to construction of same shall be delivered to City and used to defray the ordinary and necessary expenses of operating the improvements. QUESTION: These demonstrate the use of funds applicable to operational expenses. ******** (c) Because the Project is being undertaken for public benefit, and because City will control the Property and have the right to take ownership of same under the terms of the 'Lease Purchase Agreement,' the parties acknowledge and agree that the Property and improvements will constitute public property at completion of the Improvements, and accordingly Developer and City shall cooperate with each other in applying for a refund of Iowa sales axes paid in connection with the Project. The parties acknowledge that a refund of sales taxes required approval of the Iowa Department of Revenue, and that gaining such approval is dependent on the Department's interpretation of applicable law and therefore cannot be assured. QUESTION: True or Not: This demonstrates that this possibility was known by all parties at the date of signing this agreement, December 19th 2011, and that the possibility of such a refund not occurring was 'not' to be counted on. Therefore, preparation for using other funds in place of the tax refund should have been made or, the this contract should be null and void. There was no assurance at the time of execution of the original documents that the sales tax refund would be given, as it depended upon the action and legal review by the Department of Revenue. The parties agreed to work together to secure the refund, if a refund was a possibility. ********* 7.3 Lease of Facility and Operational Management; Right to Purchase. (This states in part) At the Termination Date, City shall purchase the Property from the Developer (the "Purchase Right") on the terms set forth in said Lease Purchase Agreement, or in the alternative City may, in the circumstances provided in this Agreement and in the Lease Purchase Agreement, exercise an option (the "Put Option") to waive and cancel the Purchase Right, terminate the Lease Agreement, and compel Developer to assume operation and management of the Property and Improvements. QUESTION: This is the singular protection for the Citizens of Waterloo. While the debts must be paid before this Purchase Option can be addressed, the question becomes one of operational viability not debt. If this is running as a financially profitable venture, the City can accept title and ownership without harm to the City's tax payers. If it is running a deficit the City can give up the option to Purchase and cancel the Lease Purchase Agreement. To remove the "Put Option" removes the only financial protection for the Citizens of Waterloo, True or not true? The existing documents do not require the mortgage to be paid off prior to the City taking title. If the City decided it did not want to assume the debt, it could refrain from exercising its purchase option. The proposed amendments do provide financial protection for the City, through the proposed Agreement for Debt Payment and related guaranty(s). The City essentially is being asked to give up its right to walk away from the project, in exchange for the ability to use the refund to pay down the debt and the WDC and guarantor commitments to finish that debt pay-off before the City takes title. QUESTION: More over, to remove the "Put Option"provides no gain for the City. It has been asserted that removing the "Put Clause"is the only way to assure that the $500,000 tax rebate will be returned to Waterloo and this is a highly suspect conclusion (although apparently supported by the State of Iowa). First, such funds will not come to Waterloo but rather should be used to reduce the debt on the project. Waterloo will not see any benefit from that as the Developer is required to eliminate the debt whether the tax rebated funds are available or not. Is this true or not? Under the current documents, no, the Developer is not required to eliminate the debt. QUESTION: Secondly, even if the "Put clause" is removed there is no guarantee the the State of Iowa Revenue Department will consent to deliver these monies to this project. The Department of Revenue has provided a policy letter giving their informal opinion on the matter. We have no reason to believe they would come to a different conclusion than their opinion stated in the letter, which is that if the proposed amendments are approved, the Project would be eligible for a refund. However, it is true that policy letters are not "guaranteed"as binding on the Department. QUESTION: With the current Agreement It appears that the City does not fully meet the criteria of the Iowa Department of revenue for the tax rebate funding to be released. Reference the letter issued by the Iowa Department of Revenue to the Law Firm of Kristin Billingsly Cooper Ahlers and Cooney. P.C. Dated June 20, 2014. Of the three criteria items required by the State it appears that the third one "Whether the Property Becomes Public Property at the Completion of the Project" bars this project from receiving the Tax Rebate. Is this true or not ? Under the proposed amendments, which eliminate the "Put Option", the Project would become public property at the completion of the Lease Term. The policy letter from the Department of Revenue indicates that it would approve a refund based on the currently drafted documents. QUESTION: Whatever the cause, to change the agreement to meet the criteria of the State of Iowa code will force change to the current agreement(s) by removing the Put Option and thereby removing the option of the City to accept title or not based solely on the City's discretion and instead guarantee that the City will accept ownership of the project. This removes any protection for the City's tax payers. It is true that removal of the Put Option would remove the City's option to accept the Property at the end of the lease term. However, that would still be dependent upon the City receiving marketable title in accordance with Iowa law and the Iowa title standards, the standards typically required in property transfers (See new section 13.03 of the First Amendment to the LPA). QUESTION: It would seem that a compromise could be worked out with the State of Iowa where the 'Put Option' would not have to be removed and the $500,000 could still be available. That is, have the State (or the Project) escrow the entire $500,000 until the end of the project at that time if City takes complete ownership the monies in escrow are released to the project and if the City elects not to assume ownership the monies (and accrued interest) are returned to the State. Would not such an approach satisfy all parties? We have not discussed this scenario with the Department, but there is nothing in Iowa law that would authorize the Department to make such a "conditional"refund. It can only issue refunds in the manner, and for the purposes, described in the Iowa Code. ************** Article VIII 8.3 Here it states in part, Upon the Termination Date City shall accept fee title to the Property under the Purchase Right, provided that the Developer's mortgage financing with respect to the Project is paid in full no later than the date of the transfer, unless such condition is waived by the City in Writing. The fact that the City can waive the right to have the mortgage paid off indicates that the mortgage debt does not necessarily need to be paid off. In such a scenario, the City's option is to not exercise the purchase right; Section 7.3 is similar - the City may elect to pay off the debt and exercise the purchase right, or not. The Purchase Right, as that term is used in the Development Agreement, means the Purchase Right according to the terms set forth in the Lease Purchase Agreement. QUESTION: Doesn't this clause demonstrate that the current agreement (with the put Option) ensures that City will not take ownership unless all debts are paid? No,for the reasons stated above. ******************* Lease Purchase Agreement Between City and Developer. On page one the Waterloo Development Corporation (WDC) is defined as a nonprofit corporation. In this 'Lease Purchase Agreement' the WDC is the Landlord? WDC is referred to as the "Developer" in the Lease Purchase Agreement, not as the "Landlord." That is appropriate because, as in many other municipal lease purchase arrangements, the lessor and lessee are not engaged in a typical landlord/tenant arrangement. However, under some uses of the word, we can understand WDC being referred to as the "Landlord" because it is the Lessor of the property. QUESTION: If the WDC is a Landlord within the context of this agreement can it still function as a nonprofit or does it become a 'for profit' company within this context? If this is true would not this alter the tax requirements? We know of no reason why the current lease purchase arrangement would cause WDC to become a for profit corporation, or any reason why WDC's position as a Lessor would have any effect on the tax requirements for obtaining the refund, including the eligibility requirements in Iowa Code Section 423.4. Under Iowa law, a non-profit corporation has broad powers to accomplish its stated purposes. **************** Article XIII (1)To exercise the Purchase Right. QUESTION : In sections (a) and (b) in is entirely in the power to purchase or not whether there is remaining debt or not, is this true? The current Lease Purchase gives complete discretion to the City as to whether or not to exercise the Purchase Right (regardless of whether there is debt). Additional questions I was asked to send to the Mayor: • QUESTIONS FOR SPORTSPLEX WORKSHOP — 8/11/2014 1. Will attorneys from the firm of Des Moines firm of Ahlers & Cooney, representing the City in the matter of the SportsPlex, be present at the workshop to answer questions? We have not been asked to attend any meetings, but have had numerous discussions with Mayor Clark and Michelle Weidner concerning the proposed amendments. 2. The State's letter(next to last paragraph, page 4) references the City as qualifying for the sales tax refund. If the City is to receive the sales tax refund how will that be of benefit to the Developer? Is there an agreement for the City to turn over that refund to the Developer or did the author of the State's letter mis-speak? Assuming a refund is obtained, the City expects to apply the same directly to payment of the current indebtedness. 3. A. The Development Agreement, Section 1.1, shows the Termination Date of the Project to be June 20, 2023. B. The Lease/Purchase Agreement, section 3.2 states: "The Term of this Lease/Purchase Agreement (Term) shall commence on the "effective date" and shall continue thereafter for eight (8) years (Lease/Termination date) unless earlier terminated pursuant to the provisions of this Lease/Purchase Agreement or the Development Agreement. The Lease/Purchase Agreement may be terminated earlier than the Lease Termination Date under the following circumstances: - The occurrence of an Event of Default, which is not cured, which results in termination of this Lease/Purchase Agreement under section 10.02. - The exercise by the City of its option to purchase the Property and its Improvements through the Purchase Right in section 13.01(1) or; - The exercise of the Put Option by the City under section 13.01(2). IT IS EASY TO CONFUSE THE DEVELOPMENT AGREEMENT "TERMINATION DATE" AND THE LEASE/PUCHASE "EFFECTIVE DATE" FROM WHICH THE EIGHT (8) YEAR CLOCK BEGINS TICKING. As per Lease/Purchase Agreement section 3.02.1, the "effective date" is to be the date the City has issued a certificate of occupancy. 4. What was the date of the issuance of certificate of occupancy? We do not have this information. 5. Will eight(8) years from that date be the Lease Termination date? Yes 6. If the Lease Termination date is different from the Development Agreement, Section 1.1, Termination Date, i.e., June 20, 2023, then for the purpose of determining when the City might need to decide on taking ownership of the facility or deciding on whether or not to exercise the Put Option, which date takes precedent? The Lease Purchase Agreement is the controlling document on this point, because the goals and purposes of the Development and Property Transfer Agreement, which govern the original sale of the Property to the Developer (WDC) and construction of the facility, will largely have been fulfilled. 7. Who will get the state sales tax rebate monies? The City 8. Exactly how much would that be? We do not have that information. 9. Who holds the mortgage? The Iowa Land Records show the mortgagee as U.S. Bank. 10. Who (whom) are the mortgagee(s)? U.S. Bank 11. What is owed presently on the mortgage? We do not have this information, as it is not a matter of public record. 12. How will the City know the sales tax monies have been used to reduce the existing mortgage? As stated above, the City expects to apply any sales tax refund directly to payment of the current indebtedness. In addition, as mentioned previously, WDC is agreeing to pay off the debt in full pursuant to the Agreement for Debt Payment. 13. Mr. Young felt the mortgage shortfall could easily be made up from pledges. How many of those pledges have been paid since he first made his proposal? We do not have this information. 14. What are the names of the outstanding pledgees? We do not have this information. 15. Leisure Services had initial start-up costs. Where did the money come from and who authorized same and when? We do not have this information. 16. If for#14, the money came from the General Fund, how is it to be replaced so that the taxpayer is not obligated for those start-up costs? We do not have this information. 17. What expenditures are anticipated to be needed that have as yet not been accounted for? Where will the money to cover those costs come from if the monthly revenue has a shortfall? We do not have this information. 01043995-1111310-093 Council Work Session August 11, 2014 4:10 p.m. Harold E. Getty Council Chambers Roll Call. Approval of Agenda, as proposed or amended. 1. SportsPlex Development Agreement—Submitted by Mayor Buck Clark. ADJOURNMENT Suzy Schares, CMC City Clerk/Human Resource Director Cedar Valley SportsPlex -Questions and Answers Why did the City Council approve the development agreement and lease purchase agreement for the SportsPlex? The City has partnered with the Waterloo Development Corporation (WDC) to redevelop downtown Waterloo since its inception. (The WDC is a non-profit corporation made up of community leaders and business people that came together because they saw a need for downtown redevelopment.) The WDC has worked with the City on many downtown projects, including the Vision Iowa River Renaissance projects (such as the dam,Amphitheater, and recreational trail loop) in addition to other projects such as the Sans Souci wing dam repairs. The Cedar Valley SportsPlex is the single largest construction and fundraising project that the Waterloo Development Corporation has undertaken.The $25 million to be raised for the SportsPlex is the largest amount given to the City from private sources for a single project. Several major employers have told City officials that amenities like those built as part of the River Renaissance project and the SportsPlex were needed to help them attract the types of employees they need. John Deere, for example, has invested hundreds of millions in their Waterloo facilities and needs to attract skilled workers and professionals to replace retirees. Other surrounding communities,such as Waverly and Cedar Falls, have indoor recreation facilities. Many Cedar Valley families were commuting as far away as Cedar Rapids to be able to take advantage of indoor soccer facilities.The WDC and the City believed there is a need and demand for this type of facility in Waterloo. The Blue Zones Healthy Lifestyle initiative underscored the need for indoor opportunities for citizens of all ages to be physically active year-round. Studies completed by the author of the Blue Zones document that healthier life styles, including exercise, can reduce expenses for health care costs. We hope that the investment in the SportsPlex will help to improve citizens' health, lengthen lifespans and reduce health care costs. Didn't the public already vote NOT to establish a recreational facility in Waterloo? One Vision Iowa project proposal included a Wellness Center. It did not include soccer fields or other public amenities that are available at the Cedar Valley SportsPlex.Voters were asked whether they were willing to reallocate a portion of the one cent local option tax to be used to fund construction of that facility. The vote regarding the funding mechanism for the Wellness Center project was rejected. If ownership was a good idea,why didn't the City build and own it in the first place? The WDC agreed to raise the funds to construct the facility. Many contributors wanted to pay their contributions over a period of time, requiring a mortgage to be taken out to pay the construction expenses.The lease purchase arrangement allowed the debt to be held by the WDC and not the city and therefore the taxpayers. The current agreement does require that net earnings not needed for operations or equipment reserves be applied to pay down the mortgage.All funds raised from other sources reduce both the City's potential obligation to pay off the mortgage and the WDC's obligation. Why was the provision referred to as the Put Option included in the original agreements? Because there was a substantial amount of fundraising yet to be done at the time the development agreement was negotiated and approved,the option called the Put Option was included in the agreement.The City was concerned about taking ownership of the building if there was debt still outstanding and requiring the taxpayers to fund the mortgage repayment. The Put Option language allows the city not to take ownership of the building. However, any Surplus Revenue earned during the lease period would be used to pay down the mortgage, with any excess being paid to WDC as the developer for future operations and maintenance. Why are amendments to the development and lease purchase agreements being considered now? The City and the WDC were recently informed that in order to receive a refund of the construction sales tax paid for facility materials, the facility must be owned by the City without any option not to take ownership. If the agreements are changed to reflect that, approximately$500,000 will be saved on the facility construction, because the sales tax will be refunded and used to pay down the mortgage. Was the$500,000 sales tax refund included in the capital budget? Obtaining a refund of the sales tax was included in the original financing for the SportsPlex.The parties were aware that this is a unique situation and that we would need to ask the state whether this arrangement qualified. Because the put option protected the citizens, it was agreed to pursue asking the state how the refund could be obtained. What if the sales tax refund isn't received? If the sales tax refund isn't received,that amount of funds will have to be raised from the local community instead of receiving it back from the State of Iowa. If the WDC has to pay it, that would reduce funds available for other improvement projects. If Surplus Revenues from the SportsPlex have to be used to pay down this mortgage,those funds would not be available for equipment replacement or other SportsPlex needs. What collateral is being given by WDC in the Debt Payment Agreement? The debt payment agreement requires the WDC to pay off the project indebtedness, protecting the City and taxpayers so that they won't have to. In addition, a personal guaranty is being obtained by WDC. According to the Ahlers&Cooney law firm, the City's legal counsel for many technical issues,the agreement and guaranty are enforceable, meaning they would stand up in court and the WDC and individuals would be required to pay off any debt remaining on the facility at the lease termination date. What if the City no longer wants to operate the SportsPlex at the lease termination date? The City will own the SportsPlex with no debt if the amendments are adopted.The City will be able to sell or re-purpose the facility at that point. When is the City obligated to make a decision whether to accept ownership of the facility? Under the current agreement, the City must decide whether to accept ownership at the lease termination date in approximately 8 years, or the fall of 2022. Under the proposed amendments, the City would make that choice now. If they are adopted,the city can avoid taking over mortgage debt on the facility and use any Surplus Revenues for equipment replacement and maintenance reserves. CITY OF WATERLOO IOWA CITY CLERK AND FINANCE DEPARTMENT "(it14 715 Mulberry Street • Waterloo,IA 50703 • (319)291-4323 Fax(319)291-4571 0/1erlo0 Council Communication City Council Meeting: August 11, 2014 Prepared: August 5, 2014 Dept. Head Signature: Number of Attachments: Two SUBJECT: Debt Payment Agreement with Waterloo Development Corporation Submitted by: Mayor Clark Recommended City Council Action: Adopt a resolution approving the Agreement for Debt Payment with the Waterloo Development Corporation for the SportsPlex facility. Summary Statement: As you know, the Waterloo Development Corporation and Rick Young have requested that the City amend the SportsPlex Development and Property Transfer Agreement and the Lease Purchase Agreement to remove the option that currently allows the City to not take ownership of the SportsPlex property at the end of the lease term. This agreement formalizes the commitment that the Waterloo Development Corporation has made to pay any debt balance remaining at the Lease Termination date so that the City would not need to fund any remaining mortgage balance. This agreement has been reviewed by the Ahlers law firm on behalf of the City. The agreement includes a provision that the Waterloo Development Corporation obtain personal guaranties in a form satisfactory to the City. A copy of the form of that guaranty is attached, together with a memo from the Ahlers law firm regarding its enforceability. Expenditure Required: None. Source of Funds: N/A Policy Issue: This document relieves of the City of any potential liability remaining at the Lease Termination date. Alternative: The City could choose to repay any mortgage balance and approve the amendments, or the City could choose not to approve any of the documents. Background Information: None. CITY WEBSITE:www.cityofwaterlooiowa.com WE'RE WORKING FOR YOU! An Equal Opportunity/Affirmative Action Employer AGREEMENT FOR DEBT PAYMENT This Agreement for Debt Payment(the "Agreement") is entered into as of 2014,by and between the City of Waterloo, Iowa("City"), and Waterloo Development Corporation("WDC"). WHEREAS, City and WDC are parties to a certain Development and Property Transfer Agreement dated December 19, 2011, as amended(the"Development Agreement"),providing for WDC's acquisition and development of the real property described therein(the"Property"); and WHEREAS, City and WDC are parties to a certain Lease Purchase Agreement dated April 16, 2012 (the"LPA"),by which, as originally drafted, WDC is leasing to City, and City is leasing from WDC, the Property on the terms set forth therein, which terms include City's right to purchase the Property; and WHEREAS,the City and WDC are contemplating an Amendment to the LPA wherein the City would eliminate the"Put Option"to purchase the Property, making transfer of the Property automatic upon the Lease Termination Date, as defined in the LPA; and WHEREAS,the parties desire to make certain amendments to their commitments to pay project debt and to exercise said purchase right in an effort to obtain a full refund("Sales Tax Refund")from the Iowa Department of Revenue of sales taxes paid on the sports complex project described in the Development Agreement and LPA("SportsPlex Project"). NOW, THEREFORE, in consideration of the mutual promises exchanged herein, and for other consideration,the receipt and sufficiency of which is hereby acknowledged, the parties agree as follows: 1. Prior to the Lease Termination Date as defined in the LPA, WDC shall discharge and pay in full all "project-related indebtedness"as defined in the LPA, including any interest accrued thereon and fees or charges assessed by the lender in relation thereto and shall obtain from the lender(s) a release or satisfaction of each mortgage or other lien filed for project-related indebtedness against the Property. 2. Concurrently with approval and execution of this Agreement,City agrees to approve and execute amendments to the Development Agreement and the LPA that delete the "Put Option" as described in Article XIII of the LPA and remove the City's opportunity to exercise any right other than to purchase the Property as provided in the LPA. 3. In the event the full Sales Tax Refund is not received within one (1)year of this Agreement,then this Agreement shall be null and void and no such changes shall be made to the Development Agreement and the LPA. WDC agrees to execute amendments to the Development Agreement and the LPA to effect this change. 4. As security for the payment by WDC of all project-related indebtedness as described in Section 1 above, WDC shall obtain sufficient guaranties to guaranty payment in full of the project-related indebtedness to the City by personal guarantors in the community, such guaranties being in form and substance as approved by the City. 5. The LPA, as amended, allows the City the right to retain all Surplus Revenues following transfer of the Property to the City. Surplus Revenues are described as any operating income remaining after subtraction of the current annual operating expenses of the completed Improvements, including amounts budgeted for equipment replacement and other operating reserves at the levels established in the annual budget for the Improvements approved by the City Council and a debt service reserve for the payment at the Lease Termination Date of any outstanding Project-related indebtedness of Developer. Notwithstanding anything to the contrary in the LPA or amendments thereto, all operating income generated in a particular year may be used to offset operating expenses from prior years during which the Project operated at a loss. 6. This Agreement is the entire agreement of the parties concerning the subject matter hereof It may not be modified or amended without the prior written consent of the parties. This Agreement may be executed in one or more counterparts, each of which, including signed counterparts transmitted by facsimile or other electronic means, shall be deemed an original and all of which together shall constitute one instrument. IN WITNESS WHEREOF,the parties hereto have executed this Agreement for Debt Payment by their duly authorized representatives as of the date first set forth above. CITY OF WATERLOO, IOWA WATERLOO DEVELOPMENT CORPORATION By: By: Ernest G. Clark,Mayor Title: ATTEST: By: Suzy Schares, City Clerk 01036660-1\11310-093 2 GUARANTY AGREEMENT This Guaranty Agreement(the"Agreement")is entered into as of , 2014,by and between the Waterloo Development Corporation ("WDC")and ("Guarantor"). WHEREAS, WDC and the City of Waterloo, Iowa("City"), are parties to a certain Development and Property Transfer Agreement dated December 19, 2011, as amended (the "Development Agreement"),providing for WDC's acquisition and development of the real property described therein (the "Property"); and WHEREAS, City and WDC are parties to a certain Lease Purchase Agreement dated April 16, 2012 (the"LPA"), by which WDC is leasing to City, and City is leasing from WDC, the Property on the terms set forth therein, which terms include City's right to purchase the Property; and WHEREAS, as an inducement for City to amend the Development Agreement and LPA to eliminate its right to purchase and to substitute therefor an obligation to purchase the Property, in an effort to obtain a full refund ("Sales Tax Refund") from the Iowa Department of Revenue of sales taxes paid on the sports complex project described in the Development Agreement and LPA ("SportsPlex Project"), WDC is making a binding,written commitment to City to pay all"project- related indebtedness"as defined in the LPA, and Guarantor is willing to execute this Agreement to provide additional support to WDC's promise to pay such debt. NOW, THEREFORE,the parties agree as follows: 1. In the event the full Sales Tax Refund is received within one(1)year of this Agreement,then Guarantor unconditionally guarantees the full payment, satisfaction and discharge by WDC of all current"project-related indebtedness"as defined in the LPA, including any interest accrued thereon and fees or charges assessed by the lender in relation thereto,that remain due and payable after WDC has exhausted all other reasonable remedies to pay such indebtedness. The parties acknowledge and agree that City is intended as a third-party beneficiary of the foregoing guaranty. This Agreement is assignable by WDC only with prior written consent of Guarantor,which consent will not be unreasonably withheld. 2. In no event shall Guarantor be responsible for any"project-related indebtedness"that accrues after the date hereof During the term of this Agreement, WDC shall make all reasonable efforts to pay all current"project-related indebtedness"as expeditiously as possible and prior to incurring any subsequent indebtedness so as to ensure Guarantor's liability under this Agreement is limited to "last dollar in." 3. This Agreement shall terminate when the current"project-related indebtedness"has been paid or the mortgage dated and recorded in the Black Hawk County Recorder's Office in Doc.No. is satisfied, whichever is sooner. 4. This Agreement is the entire agreement of the parties concerning the subject matter hereof and is binding on Guarantor, his personal representatives,heirs and assigns. This Agreement may not be modified or amended without the prior written consent of the parties. This Agreement may be executed in one or more counterparts, each of which, including signed counterparts transmitted by facsimile or other electronic means, shall be deemed an original and all of which together shall constitute one instrument. IN WITNESS WHEREOF,the parties hereto have executed this Guaranty Agreement as of the date first set forth above. WATERLOO DEVELOPMENT CORPORATION By: Signature of Guarantor Title: 01036664-1\11310-093 2 AHLERS CONEY, P.C. 100 COURT AVENUE,SUITE 600 DEs MoINEs, Iowa 50309-2231 Fax: 515-243-2149 W WW.AHLERSLAW.COM Kristin B.Cooper Direct Dia6 KCoopereehlerataw.com 515.246.0330 August 5,2014 Via E-Mail-Michelle.Weidner@,waterloo-ia.org Michelle C. Weidner;CPA Chief Financial Officer City of Waterloo 715 Mulberry Street Waterloo, IA 50703 RE: Sportsplex Guaranty Dear Michelle, We have reviewed the form of Guaranty Agreement to be used by WDC. We find the Guaranty Agreement to be in acceptable form. The language of the Guaranty Agreement names the City of Waterloo as a third-party beneficiary. ("The parties acknowledge and agree that the • City is intended as a third-party beneficiary of the foregoing guaranty.")A third-party beneficiary is not a party to the original contract, but relies on the promises made by the parties for its own benefit. This language allows either WDC or the City to legally enforce the Guaranty Agreement against the Guarantor. Although this guaranty of payment is designed to be executed by an individual, as opposed to a financial institution, we fmd no reason to question its enforceability. Assuming the individual who executes the guaranty possesses sufficient assets, a personal guaranty from an individual is no less enforceable than a guaranty from a financial institution. As you know,we have not investigated the financial stability or wherewithal of any possible Guarantor,but recommend that the City satisfy itself that any proposed Guarantor possesses sufficient assets to guaranty the obligations it is assuming under the Guaranty Agreement. Please let us know if we can assist further. • Very truly yours, Krist n Billingsley Cooper KBC:cf 01043171-1\11310-093 WISHARD&BAILY-1 S88;GUERNSEY&BAILY-1893;BABY&STIPP-1901;SRPP.PERRY.BANNISTER&STARZINGER-tali],BANNISTER.CARPENTER. AHLERS&COONEY-1950;AHLERS,GOONEY,DDRWEILER,ALLREE,HAYNIE&SMITN-1974;AHLERS.COONEY.DORWEILER.HAYNIE.SMITH&ALLBEE.P.C.-1990 CITY OF WATERLOO , IOWA $` ra CITY CLERK AND FINANCE DEPARTMENT 7it� 715 Mulberry Street • Waterloo,IA 50703 • (319)291-4323 Fax(319)291-4571 °'d`efIoo Council Communication City Council Meeting: August 11, 2014 Prepared: August 5, 2014 Dept. Head Signature: Number of Attachments: Three SUBJECT: SportsPlex Development and Property Transfer Agreement Amendment # 2 SportsPlex Lease-Purchase Agreement Amendment # 1 Letter from the Iowa Department of Revenue Submitted by: Mayor Clark Recommended City Council Action: Adopt a resolution approving Amendment# 2 to the Development and Property Transfer Agreement with the Waterloo Development Corporation for the SportsPlex facility and adopt a resolution approving Amendment # 1 to the Lease Purchase Agreement with the Waterloo Development Corporation for the SportsPlex facility. Summary Statement: Action on these amendments was tabled until the August 11, 2014 meeting at the July 28, 2014 meeting. The amendments are attached. Please refer the council communications dated July 28, 2014 for further information. Expenditure Required: None at this time. There is a potential requirement to pay off any debt balance remaining at the end of the lease term. Source of Funds: Policy Issue: Alternative: Background Information: CITY WEBSITE:www.cityofwaterlooiowa.com WE'RE WORKING FOR YOU! An Equal Opportunity/Affirmative Action Employer CITY °f �- CITY CLERK AND FINANCE DEPARTMENT �' 715 Mulberry Street - Waterloo,IA 50703 - (319)291-4323 Fax(319)291-4571 aferJoo Council Communication City Council Meeting: July 28, 2014 Prepared: July 22, 2014 Dept. Head Signature: Number of Attachments: Three SUBJECT: SportsPlex Development and Property Transfer Agreement Amendment # 2 SportsPlex Lease-Purchase Agreement Amendment# 1 Letter from the Iowa Department of Revenue Submitted by: Mayor Clark Recommended City Council Action: Adopt a resolution approving Amendment# 2 to the Development and Property Transfer Agreement with the Waterloo Development Corporation for the SportsPlex facility and adopt a resolution approving Amendment # 1 to the Lease Purchase Agreement with the Waterloo Development Corporation for the SportsPlex facility. Summary Statement: As you know, the Waterloo Development Corporation and Rick Young have requested that the City amend these documents to remove the option that currently allows the City to not take ownership of the SportsPlex property at the end of the lease term. The request is being made so that the project is eligible to receive a refund of sales tax paid on the construction materials and thereby reduce the remaining funds required to pay off the construction debt. Expenditure Required: None at this time. There is a potential requirement to pay off any debt balance remaining at the end of the lease term. Source of Funds: Undetermined at this time. Policy Issue: The City may be required to take on debt at the end of the lease term if there is a balance remaining that hasn't been pledged. Alternative: If the council chooses not to approve these amendments, sales tax paid on the SportsPlex construction costs would not be eligible to be refunded. The council would choose whether or not to take ownership of the SportsPlex at the end of the lease term. The current fundraising gap would be increased by the amount of the anticipated sales tax refund. CITY WEBSITE:www.cityofwaterlooiowa"corn WE'RE WORKING FOR YOU! An Equal Opportunity/Affirmative Action Employer Background Information: The Waterloo Development Corporation and Rick Young have spent several years privately raising the funds to construct the SportsPlex facility. The current costs total approximately $24.4 million, in addition to the $2.6 million the city invested in the property acquisitions. I believe this is the largest amount ever donated to the City for a single purpose. When the development agreement was originally signed, the question of whether or not the Waterloo Development Corporation would be eligible for a sales tax refund was raised. The decision was subsequently made to request advice from the Iowa Department of Revenue. Representatives of the Ahlers law firm researched the issue and corresponded with the Department of Revenue on the City's behalf. The Department of Revenue worked with Ahlers to clarify the conditions under which they would likely be able to retund the sales tax. A copy of their opinion is attached. To summarize, they require that the city take ownership of the facility immediately upon final acceptance of the construction. • As a result of that communication, the Waterloo Development Corporation has requested that the agreements be amended to satisfy the Department of Revenue requirements.(Please refer to page four, the third paragraph for this conclusion.) ARLERS &GOONEY, P.C, 100 COURT AVENUE,SUITE 600 DES MOINES, IOWA 50309-2231 • FAX: 515-243-2149 W IW.AHLERSLAW.COM • Kristin B.Cooper Oired Dial KCooper®ahlerslaw.com 515246.U330 July 23, 2014 Via E Mail-Michelle.Weiditer@waterioa-ia.org Michelle C. Weidner, CPA • Chief Financial Officer • City of Waterloo . 715 Mulberry Street Waterloo,IA 50703 RE: Amendments to Sportsplex documents Dear Michelle, • Enclosed are the latest Amendment drafts known to us for review by the Council. These Amendments eliminate the"Put Option"referenced intthe original documents,thereby making transfer of the Sportsplex facility automatic upon termination of the Lease. As discussed,the language was drafted pursuant to extensive conversation with tax attorneys at the Department of Revenue,who expressed that only upon removal of the Put Option would the Developer be • eligible for a refund. In addition,the Department of Revenue required a deed to be executed • upfront and held in escrow pending the IPase Termination Date to give absolute assurance of the • transfer. We recommend that no substantive changes be made to the First Amendment to Lease Purchase Agreement,since that document was reviewed by the Department of Revenue and is the basis for its policy letter on the subject. • Also enclosed is a revised version of the Agreement for Debt Payment. Please review the changcs and let us know if you would like additional revisions. We have reviewed the form of Guaranty Agreement to be used by WDC, as contemplated in the revised Agreement for Debt Payment,and think it is in acceptable form as is.• appreciate the opportunity to work for you. Please let us know if we can assist further. Very truly yours, s& Cooney,P.C. 'stin Billingsley Cooper FOR THE FIRM KBC:cf 01036023-1111310-093 WISMARO&GAILY-1889,GUERNSEY&GAILY-1893;GAILY&STIPP-1901:STIPP.PERRY.BANNISTER&STARZINGER-1914;BANNISTER.CARPENTER. ANLERS&GOONEY-1950;ANLERS.COONEY,DORWEILER,ALLREE,HAYNIE&SMTTN-1974;AHLERS,COONEY,DORW EIL.ER.HAYNIE,SMITN&ALLBEE,P.C.-1990 • SECOND AMENDMENT TO DEVELOPMENT AND PROPERTY TRANSFER AGREEMENT BY ®, BETWEEN CITY OF WATERLOO AND WATERLOO DEVELOPMENT CORPORATION This Second Amendment ("Amendment") is made on the day of 2014, to the DEVELOPMENT AND PROPS!"TY TRANSFER AGREEMENT dated December 19, 2011 (the "Agreement"), between the City of Waterloo, Iowa (the "City") and Waterloo Development Corporation (the "Developer"), as first amended by an Amendment to Development Agreement dated April 16, 2012. WHEREAS, the parties previously executed the Agreement in which the Developer agreed to finance and construct a public sportsplex facility (the "Improvements") on property that was sold by the City to the Developer and leased back to the City (the "Property"); and WHEREAS, the parties also executed a Lease Purchase Agreement Between City and Developer dated April 16, 2012 (the "Lease") which further describes the terms and conditions of the lease of the Improvements, management of the Improvements by the City, and the potential purchase of the Improvements by the City from the Developer at the end of the Lease Term; and WHEREAS, the parties desire to amend both the Lease and the Agreement in order to eliminate the City's right to choose whether it acquires the Property and the Improvements in the form of an option, so as to ensure transfer of the Improvements and the Property to the City upon termination of the Lease. NOW, THEREFORE, it is agreed by the parties: 1. All capitalized words have the same definitions as in the Agreement. In addition, the following definition is amended as follows: Termination Date means June 30, 2023, or such other date as is set forth in the Lease Purchase Agreement for the City to purchase the Property. 2. Section 7.3 is revised as follows: 7.3. Lease of Facility and Operational Management;Right-te Purchase. On the Closing Date, the Developer shall enter into a Lease Purchase Agreement with the City,under which the City, after completion of the Improvements and issuance of a certificate of occupancy, will lease the Property and assume operational management of the facility and all programs and services provided in connection with the facility. Among other terms,the Lease Purchase - 1 - s Agreement will establish or require the establishment of minimum standards of facility maintenance that are calculated to preserve the Improvements as an attractive and high-quality community recreational and wellness facility. At its own expense, City will be responsible to provide all personnel necessary for daily operation of the facility and to maintain,preserve and keep the Improvements in good repair and working order, ordinary wear and tear excepted, and from time to time will make all necessary repairs,replacements,renewals and additions. The parties contemplate that Developer will have no ongoing responsibilities or liabilities with respect to the Property or Improvements after the City takes possession of the Improvements under the Lease Purchase Agreement. At the Termination Date, City shall purchase the Property from Developer t( he "Durch.se Right"` on the terms set forth in said Lease Purchase Agreement.; or in the alternative City may, in the circumstances provided in this Agreement and in the Lease -A-g}eement, exercise an option(the "P.,t Option") to _a , _l.L_ Purchase • • management of the Property and Improvements. 3. Section 7.4 is amended as follows: 7.4 Handling of Operating Funds; Additional Uses of Funds. During the term of the Lease Purchase Agreement, City shall annually account to the Developer for all income received and expenditures made in respect of operation of the Improvements or Property, which may nonetheless be deposited to or withdrawn from the City's general fund, as the City shall determine. The parties intend that all operating income shall be used to defray current operating expenses of the completed Improvements,to maintain equipment replacement and other operating reserves at the levels established in the annual budget for the Improvements approved by the City Council, and otherwise shall be retained for other budgeted Project purposes, including but not limited to the cost of any future phase of the Improvements,and the funding,to the maximum extent possible consistent with the expense payments and funding allocations described above, of a debt service reserve for the payment at the Termination Date of any outstanding Project-related indebtedness of the Developer(regardless of whether City exercises its Purchase Right). Following the Termination Date and e e by the Cit v � J f-t"<t x-iucaasc RigK City shall retain any such net income that is not necessary to satisfy Developer's Project- related indebtedness. 4. Section 8.3 is deleted and the following section is inserted: 8.3. Transfer of Title. Upon the Termination Date, the City shall accept fee title to the Property in accordance with the terms and conditions of the Lease Purchase Agreement. Each party shall execute such deeds, bills of sale, or other documents of transfer or conveyance as the other party may reasonable request to effectuate the transfer of title from the Developer to the City. 5. All other terms and conditions of the Agreement are to remain the same. 6. This Amendment may be simultaneously executed in several parts, each of which shall be an original and all of which shall constitute but one and the same instrument. - 2 - 1 • IN WITNESS WEFREOF, the City has caused this Amendment to be duly executed in its name and behalf by its Mayor and its seal to be hereunto duly affixed and attested by its City Clerk, and Developer has caused this Amendment to be duly executed in its name and behalf by its Authorized Representatives, all on or as of the date first written above. (SEAL) CITY OF WATERLOO, IOWA By Ernest G. Clark,Mayor ATTEST: By: Suzy Schares, City Clerk STALE OF IOWA ) ) SS COUNTY OF BLACK HAWK ) On this day of , 2014, before me a Notary Public in and for said County, personally appeared Ernest G. Clark and Suzy Schares to me personally known, who being duly sworn, did say that they are the Mayor and City Clerk, respectively of the City of Waterloo, Iowa, a Municipal Corporation, created and existing under the laws of the State of Iowa, and that the seal affixed to the foregoing instrument is the seal of said Municipal Corporation, and that said instrument was signed and sealed on behalf of said Municipal Corporation by authority and resolution of its City Council and said Mayor and City Clerk acknowledged said instrument to be the free act and deed of said Municipal Corporation by it voluntarily executed. Notary Public in and for the State of Iowa - 3 - WATERLOO DEVELOPMENT CORPORATION By: Daniel B. Wafters, President STA 1'i OF IOWA ) ) SS COUNTY OF BLACK HAWK ) On this day of , 2014, before me the undersigned, a Notary Public in and for said State, personally appeared Daniel B. Watters to me personally known, who, being by me duly sworn, did say that he is the President of Waterloo Development Corporation, and that said instrument was signed on behalf of said corporation by authority of its board of directors; and that the said Daniel B. Watters acknowledged the execution of said instrument to be the voluntary act and deed of said corporation, by him voluntarily executed. Notary Public in and for the State of Iowa 01017650-1\11310-093 - 4 - FIRST AMENDMENT TO LEASE PURCHASE AGREEMENT BETWEEN CITY AND DEVELOPED. BY AND BETWEEN CITY OF WATERLOO AND WATERLOO DEVELOPMENT CORPORATION This First Amendment ("Amendment") is made on the day of 2014, to the LEASE PURCHASE AGREEMENT 1:ETWEEN CITY AND DEVELOPER dated April 16, 2012 (the "Lease"), between the City of Waterloo, Iowa (the "City") and Waterloo Development Corporation(the "Developer"). WHEREAS, the parties previously executed a Development and Property Transfer Agreement dated December 19, 2011 (the "Development Agreement") in which the Developer agreed to finance and construct a public sportsplex facility (the "Improvements") on property that was sold by the City to the Developer(the "Property"); and WHEREAS, the Development Agreement and the Lease provided that the Developer would lease back the Improvements and Property to the City,with a right on the part of the City to purchase the Improvements and the Property at the end of the Lease Term; and WHEREAS, the Lease further describes the terms and conditions of the lease of the Improvements, management of the Improvements by the City, and the potential purchase of the Improvements by the City from the Developer; and WHEREAS, the parties desire to enter into this Amendment in order to eliminate the City's right to choose whether it acquires the Property and the Improvements in the form of an option, so as to ensure transfer of the Improvements and the Property to the City upon termination of the Lease. NOW, THEREFORE, it is agreed by the parties: 1. All capitalized words have the same definitions as in the Lease. In addition, the following definitions are deleted from the Lease: "Notice of Purchase Right," "Notice of Termination of Lease Purchase Agreement," "Purchase Right," "Put Option," "Put Option Termination Date," and "Special Warranty Deed." 2. Section 3.01 is deleted and the following subsection is inserted: Section 3.01. Title. During the term of this Lease Purchase Agreement, and so long as City is not in default as provided in Article X (and which default has not been cured), equitable title to the Property and Improvements and any and all repairs, - 1 - replacements, substitutes and modifications to the Property or Improvements shall be in the City, and upon recordation of the Special Warranty Deed to the Property following the Lease Termination Date in accordance with Section 13.01, legal title to the Property shall tr2nsfer to the City. 3. Subsections 3.02(2)(b) and (c) are deleted. 4. Section 5.06 is deleted and the following section is inserted: Section 5.06. Maintenance of Property and Improvements by City. The City agrees that during the Lease Term it will keep the Property in good repair and good operating condition at its own cost. 5. Subsection 6.01(2) is amended to delete the last phrase: "(regardless of whether City exercises its Purchase Right)." 6. Article XIII is deleted in its entirety and the following Article is inserted: ARTICLE XIII TRANSFER OF PROPERTY AN) ' 3'ROVEMENTS Section 13.01. Transfer of Property and Improvements to City. In consideration of the sum of$1, and other valuable consideration, in hand paid by the Developer, receipt of which is hereby acknowledged, upon termination of this Lease under Section 3.02, the Developer shall have no further interest in the Property or the Improvements and full and unencumbered legal title to the Property and the Improvements shall pass to the City. In such event, the Developer and its officers shall take all actions necessary to authorize, execute and deliver to the City any and all documents necessary to release any and all security interests or liens created under the provisions of this Lease (except as provided below). Upon the execution of this Agreement by the City and Developer,Developer shall authorize and execute a Special Warranty Deed conveying all of Developer's right, title and interest in and to the Property and the Improvements to the City,which deed shall be held in escrow by the City's counsel, Ahlers & Cooney, P.C., until the Lease Termination Date, at which time the deed shall be delivered to the City for recordation.. Section 13.02. No Liens. During the Term of this Lease, Developer shall not directly or indirectly, create, incur, assume or suffer to exist any pledge, lien, charge, mortgage, encumbrance or claim on or with respect to the Property or the Improvements, other than the existing mortgage held by U.S. Bank, National Association dated April 1, 2013 and recorded July 3, 2013 (the"Mortgage"). Notwithstanding anything contained herein to the contrary, the City agrees to take title to the Property and the Improvements subject only to the Mortgage, on such terms and conditions and in a form of mortgage - 2 - acceptable to the City in its sole and absolute discretion. Developer shall not permit any amendments to or additional advances against the Mortgage without the prior written consent of the City. Section 13.03. Title. At least 15 days prior to termination of this Lease, Developer shall deliver an abstract of title to the Property, updated to a date within 30 days of the Lease Termination Date, to the City for review, which shall show marketable title in favor of Developer in conformity with Iowa law and the Title Standards of the Iowa State Bar Association. Section 13.04. Further Assurances. Developer agrees to take all actions necessary to authorize, execute and deliver to the City any and all documents necessary to release any and all security interests or liens affecting the property and such documents of transfer as reasonably requested by the City to effectuate transfer of the Property and Improvements. Section 13.05. Surplus Revenues. Upon termination of this Lease and transfer of the Property and the improvements to the City, any operating income remaining after the subtraction of the current animal operating expenses of the completed Improvements, including amounts budgeted for equipment replacement and other operating reserves at the levels established in the annual budget for the Improvements approved by the City Council and a debt services reserve for the payment at the Lease Termination Date of any outstanding Project-related indebtedness of the Developer, shall be called Surplus Revenue. The City shall retain all Surplus Revenues following closing of the transfer of the Property and the Improvements to the City. 7. All other terms and conditions of the Lease are to remain the same. 8. This Amendment may be simultaneously executed in several parts, each of which shall be an original and all of which shall constitute but one and the same instrument. IN WITNESS WHEREOF, the City has caused this Amendment to be duly executed in its name and behalf by its Mayor and its seal to be hereunto duly affixed and attested by its City Clerk, and Developer has caused this Amendment to be duly executed in its name and behalf by its Authorized Representatives, all on or as of the date first written above. (SEAL) CITY OF WATERLOO, IOWA By Ernest G. Clark,Mayor A fl.bST: - 3 - By: Suzy Schares, City Clerk STATE OF IOWA ) ) SS COUNTY OF BLACK HAWK ) On this day of , 2014, before me a Notary Public in and for said County, personally appeared Ernest G. Clark and Suzy Schares to me personally known, who being duly sworn, did say that they are the Mayor and City Clerk, respectively of the City of Waterloo, Iowa, a Municipal Corporation, created and existing under the laws of the State of Iowa, and that the seal affixed to the foregoing instrument is the seal of said Municipal Corporation, and that said instrument was signed and sealed on behalf of said Municipal Corporation by authority and resolution of its City Council and said Mayor and City Clerk acknowledged said instrument to be the free act and deed of said Municipal Corporation by it voluntarily executed. Notary Public in and for the State of Iowa WATERLOO DEVELOPMENT CO ,'ORATION By: Daniel B. Watters,President STATE OF IOWA ) ) SS COUNTY OF BLACK HAWK ) On this day of , 2014, before me the undersigned, a Notary Public in and for said State, personally appeared Daniel B. Watters to me personally known, who, being by me duly sworn, did say that he is the President of Waterloo Development Corporation, and that said instrument was signed on behalf of said corporation by authority of its board of directors; and that the said Daniel B. Watters acknowledged the execution of said instrument to be the voluntary act and deed of said corporation, by him voluntarily executed. Notary Public in and for the State of Iowa 01017125-1\11310-093 - 4 - J .-- o P Director: Courtney M. Kay-Decker '° ��. Hoover State Office Building Des Moines, Iowa 50319 lowe Department of Revenue www.iowa.gov/tax June 20, 2014 Sent via e-mail Kristin Billingsley Cooper Ahlers&Cooney, P.C. 100 Court Avenue, Suite 600 Des Moines, IA 50309 kcooper@ahlerslaw.com Re: Cedar Valley Sportsplex Dear Ms. Cooper: This letter is in response to your inquiry to the Department regarding whether the City of Waterloo (the "City") is eligible for a sales tax refund pursuant to Iowa Code section 423.4(1) for the building materials used in the construction of the Cedar Valley Sportsplex(the"Sp ortsplex"). Facts as Provided by the Taxpayer On December 19, 2011, the City entered into a development and property transfer agreement with WDC. WDC is a nonprofit development organization with an emphasis on improving the downtown of the city of Waterloo. Under the agreement,WDC proposed to privately finance and construct a sportsplex facility on certain City-owned property. WDC was to be the developer of the Sportsplex and would finance the construction of the Sportsplex through private contributions. On January 19, 2012, WDC, entered into a construction contract with a contractor for the construction of the Sportsplex. The City and WDC also entered into a lease purchase agreement on April 16, 2012 under which the City would lease the facility and operate it as a public sportsplex. Under the terms of the lease purchase agreement, the City is required to make annual rent payments on the Sportsplex of$100 per year for eight years. Under the current lease terms, the City has the right to purchase the Sportsplex from WDC for $1 when the lease term is up. In the alternative,the City can terminate the lease and choose not to purchase the Sportsplex, in which case it will remain property of WDC. However,the City and WDC are considering changing the lease terms so that, rather than having an option to purchase the property, the City would be obligated to purchase the property at the end of the lease term. Under this amendment, the City Page 2 would still pay $1 to purchase the property. According to the proposed amendments, equitable title during the lease term would be held by the City. Also, during the lease term,the Special Warranty Deed conveying title and interest would be held in escrow by the City's legal counsel. The City would take legal title to the property at the end of the lease term even if the mortgage was not yet paid off by WDC. In that event,the City would take the property subject to the mortgage. It is the intent of the parties—both under the original lease purchase agreement terms and the proposed amendments—that the Sportsplex will be a public facility operated by the City and that the City will take ownership of the facility upon termination of the lease. You explained that the transaction was arranged as a lease-purchase agreement so that the City would have time to evaluate the success of the project and ensure that the debt was paid down over the eight-year period. Relevant Law and Analysis Your question is whether, assuming that the proposed amendments to the lease purchase agreement are made, the City will qualify for a sales tax refund for sales tax paid on the construction materials used in the project under Iowa Code section 423.4(1). Iowa Code section 423.4(1) provides in relevant part: 423.4 Refunds. 1.A ...tax-certifying or tax-levying body or governmental subdivision of the state ... may make application to the department for the refund of the sales or use tax upon the sales. price of all sales of goods, wares, or merchandise, or from services furnished to a contractor,used in the fulfillment of a written contract with the state of Iowa, any political subdivision of the state or a division, board, commission, agency, or instrumentality of the state or a political subdivision... if the property becomes an integral part of the project under contract and at the completion of the nroi ect becomes public property.... (Emphasis added). There are three factors that must be present to qualify for the refund. First,the entity applying for the refund must be one of the types of entities listed in the statute. Second,the materials furnished to the contractor must be"used in the fulfillment of a written contract with ... any political subdivision of the state." Third, the items must become public property at the completion of the project Additional procedural requirements are described in the subsections of Iowa Code section 423.4(1). III Page 3 Whether the Type of Entity is Eligible The first factor is satisfied because the City is a political subdivision of the State. Therefore,the City is the type of entity that can qualify for the exemption. Whether the Materials are Used in Fulfillment of a Contract with the City In a 1988 Iowa Attorney General Opinion, regarding Racing Association of Central Iowa ("RACI") the Attorney General analyzed a sales tax refund under Iowa Code section 422.45(7),which is the predecessor to section 423.4(1). Iowa Op.Att'y Gen. February 29, 1988. The Attorney General opined that, in a situation where materials are used by subcontractors who contract with a corporation that has contracted with a government entity for the development of a construction project, the corporation is considered the general contractor and the materials are considered "used in fulfillment of a written contract" with the government entity. Id. (citing 1966 Op. Att'y Gen. 441; 1954 Op. Att'y Gen. 64. for the proposition that Iowa Code section 422.45(7) authorizes a refund to a governmental entity for sales tax paid, even if the tax is actually paid by subcontractors who do not directly contract with the governmental entity.). The facts of the Sportsplex project are very similar. The WDC is in essence the general contractor for the project. WDC contracted with the City for development of the project and contracts with subcontractors for construction of the project. Therefore, the second factor is satisfied; the materials are furnished to a contractor and used in fulfillment of WDC's contract with the City to construct the Sportsplex. Whether the Property Becomes Public Property at the Completion of the Project The third factor requires that the property at issue become public property at the completion of the project. To be public property within the meaning of the statute, the property must both be owned by the government entity and used for a public purpose.l Based on the information provided, it appears that the City will use the property for a public purpose. The ownership issue is more complex. To be considered owned by the government, the property must be owned by the government entity upon completion of construction. When the project seeking the refund under section 423.4(1) is part of a lease-purchase arrangement, the government entity must be able to demonstrate that it has equitable title to the I See 1966 Op.Att'y Gen.441(citing Green v. City of Mt Pleasant, 131 N.W.2d 5,20(Iowa 1964)(citing Wayland v.Snapp,334 S.W.2d 633,641-642(Ark. 1960)(repudiated by City of Hot Springs v. Creviston, Ark (Ark. 1986)on other grounds))). Page 4 property during the term of the lease. See, e.g., Iowa Op. Att'y Gen. February 29, 1988. In the RACI opinion discussed above, the Attorney General opined that certain types of"leases" or "lease-purchase" agreements are actually conditional or installment sales under which equitable title passes at the time of entry into the contract. See id. In RACI, the Attorney General noted some of the important features of the lease purchase agreement including that "the lease-purchase agreement' requires, in Section 4.06, that a deed and bill of sale to the premises be placed in escrow and upon termination of the 'lease' by discharge of payment of principal and interest on the bonds,the deed and bill of sale is to be delivered to the County." Id. The Attorney General opined that it was clear "this so-called 'lease' is actually a conditional or installment sale of the land, track, and improvements to Polk County so that the County has an equitable title in the premises at this time.An equitable title in property is synonymous with ownership." Id. (citing Johnson v. Board of Supervisors of Jefferson County, 237 Iowa 1103, 24 N.W.2d 449 (1946).). In the Sportsplex project, the proposed amendments to the lease purchase agreement state that the City will have equitable title to the property during the lease term. Of course, it is not enough that the proposed amendments simply state that the City will have equitable title;the provisions of the agreement must support that statement In this case, it appears that the City would have equitable title under the proposed amendments. The City is required to make periodic payments,and the City is required to take title to the property at the end of the lease term. Additionally, the City's counsel will hold the Special Warranty Deed in escrow during the lease term. Finally,even if the mortgage is not paid off by WDC at the end of the lease term, the City will still take legal title to the property, subject to the mortgage. Therefore, it appears that the City will have equitable title to the property under the lease purchase agreement and that it will ultimately have legal title as well. In conclusion, based on the information provided, it appears that the City would be able to satisfy the ownership requirements of the sales tax refund provided by Iowa Code section 423.4(1) if the lease-purchase agreement is amended to incorporate the proposed amendments discussed in the "Facts as Provided by the Taxpayer" section above. If the proposed amendments are not adopted, the City will not qualify for the sales tax refund. I hope this information is of assistance to you. Please be advised that this letter is an informal opinion and is only applicable to the factual situation referenced and to the statutes in existence at the time of issuance. The Department could, in the future, take a position contrary to that stated in the letter. Any written advice or opinion Page 5 rendered to members of the public by Department personnel that is not pursuant to a Petition for Declaratory Order under 701 IAC 7.24 is not binding upon the Depai(anent. If you have any additional questions regarding this matter, please do not hesitate to contact me. Sincerely, Alana Stamas Policy Section Taxpayer Services and Policy Division Iowa Department of Revenue (515) 725-2265 alana.stamas@iowa.gov Sportsplex questions from various sources. What was the original intent of the "put"clause? The "put" clause? The "put"clause was originally included in the development agreement because all funds required to build the SportsPlex had not been raised at that time. The Waterloo Development Corporation (WDC)and Rick Young offered to raise the funds to build the facility and gift it to the City when the debt required to build it was paid. The City would operate the facility. What is the benefit to the City and the taxpayers in rescinding the "put" clause? The WDC will raise all the funds needed to complete construction. The City will be able to use any "net revenues"from operations for equipment replacement and other needs at the SportsPlex. What is the deadline for this decision and why is it that deadline? The Iowa Department of Revenue recently provided an opinion that the facility can only qualify to receive a refund of the sales tax paid on construction materials if ownership is required to be transferred to the City and doesn't become the property of the WDC when construction is completed, which is expected very soon. Does the City have the option to keep any excess proceeds over the next several years and use them as an escrow for future potential losses, rather than reducing the mortgage?Not under the existing agreements. That would be one advantage of adopting the proposed amendments. If the mortgage is paid off early,where will those pledges that come in afterwards go? Escrow account? If donations are made to the WDC in excess of the amount needed, that would be their decision about how to use them. Most donors specify the purpose of donations made—if they specify that they are for SportsPlex construction, they would be required to be used for additional improvements. The same provisions would apply to any donations received directly by the City. If the donor specified that they are for construction, they would be used for improvements or renovations. Does the City have some type of documentation verifying the financial capability of the individual and/or other entity that is guaranteeing the loan payoff? Yes. Who drew up the original contract and why did they not realize the "put" clause would create this problem? How much did we pay these attorneys so far? The agreement was structured that way so that the debt wasn't required to be the City's. The parties knew that there was no precedent in the state for this particular fact set, but believed facts that were being pursued were worth the effort. The City has paid$39,117 in attorney's fees for the SportsPlex. Will the City have all documents signed and certified before the City would waive the :put" clause? Yes. If there are additions to the Sportsplex(second pool, ice rink, etc.)where would the money come from and how would that affect the agreement? That hasn't been determined at this time. What happens if the pledges are not fulfilled (Isle is for sale, gaming revenue appears to be decreasing, other major donors do not fulfill their pledges for whatever reason)? Under the existing agreements, the City would have to choose to take the facility with the outstanding debt and pay it off, or not take it. Under the proposed amendments, the WDC or the guarantor would have to raise the balance needed from other sources. The City's share of gaming revenue from the Isle is stable. The Black Hawk County Gaming Association has stated that they believe they can meet their current pledges. More than$15 million of the total$23 million has already been received. How many escrow accounts do we have, and what are they for(equipment replacement, building repair, money to assist low-income members, etc.)? The development agreement allows the city to establish an equipment replacement reserve and operating reserves. Donors established a fund with the Community Foundation of Northeast Iowa to provide funding to offset the cost of providing services to low-income members.