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home : news : news Thursday, April 28, 2016

8/21/2013 Email this articlePrint this article 
Clinton County BOS must decide how $6 million railport loan will be repaid
Gross versus net, that is the question.

At least, that is the question currently facing the Clinton County Board of Supervisors in relation to the county's 28E agreement with the city of Clinton for repayment of $6 million loaned by the county for the Lincolnway Railport project.

With the sale of 26.8 acres at the site already complete and sale of an additional 18 acres set to close by Oct. 31, officials with the city of Clinton and the Clinton Regional Development Corp. (CRDC) are asking the board of supervisors to allow repayment of the $6 million loan based on the net proceeds from each sale, rather than the gross sale amount.

City officials say the cost of credits for infrastructure development the city is giving to railroad tie manufacturer Rail.One should be included as part of the site-specific sale costs that can be deducted from the purchase price to determine the amount of the proceeds returned to the county.

City and CRDC representatives assured the supervisors the county will be repaid regardless of what the board decides but asked the supervisors to be "as generous as possible" to allow the city to allocate a larger portion of sale proceeds to infrastructure needs for roads, sewer and water service.

"It's not a matter of if you're going to get the $6 million. It's a matter of how quickly," said CRDC chairman Rich Phelan.

Language of the 28E agreement

The board of supervisors approved the funding agreement for the railport project in January 2009 and issued general obligation bonds to pay for the $6 million investment in rail infrastructure at Clinton's industrial business park.

The agreement requires the city to reimburse the funds within 10 years and states the county will be repaid from the sale of property in the industrial park.

"One-half of the sale proceeds from each property sold shall be paid to the county. The remaining one-half shall be paid to the city and/or the CRDC, as the city of Clinton may determine," the agreement sates.

If the money is not fully repaid in 10 years or if the project is abandoned prior to the end of the 10-year period, the city must reimburse the county for any unpaid balance of the $6 million.

The issue, as explained by attorney John Frey, who represents the city, and county attorney Mike Wolf, is the agreement doesn't specifically define how the sale proceeds should be determined.

A split of the gross proceeds would give the county more money upfront and require the city to absorb the cost of infrastructure expenses, while a split of the net proceeds would allow the city to first subtract its infrastructure costs, leaving more money for the city to reinvest in the industrial park, Frey said.

Infrastructure needs

It has always been the city's intention to reinvest its proceeds in the industrial park, Frey said, although the city council has not approved a resolution specifically stating so. The council could be asked to approve such a resolution if it would make the supervisors more comfortable with the city's request, Frey offered.

City administrator Jessica Kinser said access to a water system is one of the major needs to attract more buyers to the industrial park.

"This is something first and foremost we need to complete," Kinser said.

The city is exploring options and expects establishing access to water will cost as much as $5 million.

Another future infrastructure expense will be to install additional pumps at the wastewater pumping station at the intersection of 44th Avenue South and South 44th Street to serve additional businesses as the railport grows.

The city estimates it will cost around $3.4 million to construct a turn-around track in the north end of the industrial park, something that is not required to meet the needs of the first two railport occupants but will be required before the city can sell larger pieces of land, Kinser said.

A new road eventually will be required to access the north end of the park, and the city has existing contracts to purchase additional property in 2014 and 2016, with subsequent property purchases envisioned as part of the master plan for the railport.

Significant road improvements will be needed on 44th Avenue South and South 44th Street to handle truck traffic from the industrial park, and an ongoing Hwy. 30 corridor study will bring recommendations for highway access locations and other safety improvements, Kinser said.

Costs of sale

Rail.One is paying approximately $1.13 million to purchase 26.8 acres at the railport, and Nevada Rail Materials is paying $756,000 for its 18-acre purchase, a cost of $42,000 per acre.

A split based on gross proceeds would allocate $563,406.90 to the county and $310,061.99 to the city for the Rail.One purchase. It would allocate $378,000 to the county and $110,392 to the city for the Nevada Rail Materials purchase.

A split based on the net proceeds would allocate $358,584.44 each to the city and county for the Rail.One purchase and $244,197 each for the Nevada Rail Materials purchase.

The net proceed allocation is based on sale costs of $409,645.20 for the Rail.One property and $267,607 for the Nevada Rail Materials property.

The sale costs include fees for abstracting, platting and legal assistance, which the supervisors do not dispute, but it also includes costs for land purchases, building demolition and infrastructure for sewer, water and roads.

Supervisors Brian Schmidt and Jill Davisson questioned whether the infrastructure expenses should be included in the sale costs.

"Ultimately, it will be you folks' decision. We're not going to argue, but we'd like you to be as generous as you can," Frey told the board.

Asked about anticipated damages to a farm tenant, Frey said the amount is undetermined, but the city will be liable for costs associated with approximately 30 acres of corn that will be lost due to development at the railport.

Supervisor Schimdt said he is looking at the issue based on language in the 28E that makes the county a lender for the railport project.

He said he's OK with considering abstracter and legal fees and similar expenses as part of the cost of the sale which can be deducted from the total proceeds, but not the infrastructure costs.

"Those aren't expenses a lender would allow before repayment back to the lender," Schmidt said.

Davisson said she agrees with Schimdt, while supervisor John Staszewski didn't specifically state his view. He asked for county attorney Wolf's opinion on the language in the 28E agreement.

Wolf said the agreement is a "vision document" that deliberately did not address all possibilities since the railport had no specific development prospects in 2009.

"I don't think there's a right answer. I think it really will become a decision of the board as to what are the site-specific costs to facilitate the sale," Wolf said.

Clinton mayor Mark Vulich said it's important to note the city agreed to provide infrastructure to facilitate the Rail.One sale and keep the per-acre price at $42,000.

Rail.One was willing to pay just $30,000 per acre without the infrastructure concessions, he said, which would have reduced the amount of sale proceeds the county will receive and made it harder to reach the target price of $42,000 per acre for future sales, Vulich explained.

"If we hadn't treated it as a credit, the purchase price would be less," Vulich said.

Davisson said she's hesitant to make a change to the 28E agreement for the railport.

"We sold this to the taxpayer under one idea, and if we're going to change that idea, that's where we get a little uncomfortable," she said.

Frey emphasized the city is not proposing a change to the 28E agreement, only asking how it should be interpreted.

"It's important to keep in mind the county is going to get back the $6 million whether we pay it out of the sale proceeds or at the end of the 10-year period," Frey said.

Wolf advised the supervisors to "seriously consider" allowing the infrastructure credits as deductible costs of sale.

"If we were to go to court, I would have a hard time arguing on your behalf they shouldn't be taken off your list as sale proceeds," Wolf said.

Common-sense approach urged

Former county supervisor Dennis Starling, who helped negotiate the railport agreement, said he intended the language in the 28E agreement to require a split of the gross proceeds, not net.

He said Clinton received a $10 million asset at no cost to the city treasury and said the real reason for the city's request is to deal with internal financial problems.

He criticized the city for failing to develop an infrastructure plan and attempting to modify the 28E agreement to make up for poor planning.

Frey again said the city is not asking for a change in the agreement, only an interpretation of the language.

"The term is 'sale proceeds.' If the document meant 'purchase price,' it would have said so, but it says 'sale proceeds,'" Frey said.

Frey advised a "common-sense approach" that defines proceeds as "what you have left in your pocket at the end of the day."

Starling said the county's intent was to fund railroad access, not the development of the industrial park itself.

"The railport to me is a separate entity, even though it services the industrial park," he said.

Frey and Vulich reiterated the city will accept whatever the supervisors decide.

"We're here to pay you. We just don't know what to write the check for," Vulich said.

Davisson said the board of supervisors will need some time to digest the city's presentation and decide how to proceed.

The board tentatively is scheduled to discuss approval of the sale of land to Nevada Rail Materials Sept. 9.

CRDC officials say Nevada Rail Materials and Rail.One are investing more than $20 million in the railport and are expected to create around 90 new jobs in addition to the construction impact.

"What a blessing we're having this discussion," Davisson commented.




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