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CommonDevelopment Agreement
Negotiation IssuesCAAK Fall CLE | October 8, 2021
Ron Shaver – City of Olathe
David Waters – Lathrop GPM
Gina Riekhof – Gilmore Bell
Compliance with Existing Policies
• Put governing body’s criteria/objectives in a policy
• Involve stakeholders in policy development
• Clearly articulate rationale when a project deviates from approved policy
Public Benefits
ESG Criteria
Community Participation
Public Amenities/Aesthetics
Performance Criteria
✓ Deadlines/milestones
✓ Planning requirements
✓ Funding obligations
✓ Continuing operations covenants
Sale of City-Owned Property
• Sale Price
• When to transfer title; retaining reversionary interests
• Adding restrictive covenants
• Selling property acquired by eminent domain
Incentives
• Challenge: ID amount of public $ required to make the deal work
• Set maximum public investment/minimum private investment
• Project budgets: identify incentivized and ineligible costs
• Layering incentives
• Waterfall of funds
• Non-monetary incentives
City Payment Obligations
Pay-Go reimbursement vs. Issuing Bonds
Jayhawk Racing v. City of Topeka
Cash Basis and Budget considerations
Farmers Bank & Trust vs. Homestead Community Development
Subsequent Approvals
GOVERNING BODY OR CITY STAFF?
ASSIGNMENT OF DEVELOPER RIGHTS
COLLATERAL ASSIGNMENTS
Remedies on Default
Stop future reimbursements
Termination of special districts
Clawbacks
Liquidated Damages
Clawbacks
Monitoring/Reporting
• Who? What? When?
• Reports to City Staff
• Reports to Governing Body
• Construction phase vs. ongoing operations
• Compliance Cost
Other Issues
Annexation Agreements
Cooperating to litigation challenges by 3rd parties
City purchase of floundering projects
Questions?
Ron Shaver
David Waters
Gina Riekhof
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CITY ATTORNEYS ASSOCIATION OF KANSAS
CAAK FALL CLE TOPEKA CITY CENTER/MANOR CONFERENCE CENTER
OCTOBER 8, 2021
1:00-1:50 PANEL DISCUSSION ECONOMIC DEVELOPMENT
Ron Shaver, City Attorney, Olathe
David Waters, City Attorney, Prairie Village Gina Riekhof, Attorney, Gilmore & Bell
Focus on certain finer points of deal negotiation and trying to leverage issues in such a way, in our role as city attorneys, so as to put our municipal client in the best position both legally and financially.
Top 10 Common Development Agreement Negotiation Issues 1. Compliance with Existing Policies
a. Put criteria/objectives in a policy – involve stakeholders b. How often revisit and in what way? c. When/why deviate from approved policy?
2. Public Benefits a. Public components of private projects (trails, parking, transit, etc.). Special fees/use rights
for city residents? Developer maintenance responsibilities? b. Community Participation (Public Art, Chamber Membership, etc.) c. ESG provisions such as: affordable housing targets, # jobs, wage requirements, LEED and
other environmental/sustainability goals, healthcare, childcare d. Exceeding code requirements e. MBE/WBE/local preference requirements f. Other local investment outside of ED project g. Prohibited uses within development h. Relocation restrictions
3. Performance Criteria a. Deadlines/milestones, particularly for larger or phased projects (consider ultimate deadline
that is not subject to right to cure or excusable delay extensions) b. Planning requirements – make sure Developer’s “dreamy drawings” become reality (require
substantial conformity to proposed elevations, minimum development standards - i.e. hotel flag requirement)
c. Performance and Maintenance Bonds/Statutory Bonds/Waivers d. Letters of Credit or other proof of Developer funds to complete project? e. Insurance f. Continuing operations covenant so that City has access to remedies in case of
started/stopped project g. Record in real estate records to create covenant against the land
4. Sale of city-owned property a. Purchase price
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b. When to transfer title; retaining a right of repurchase c. Adding restrictive covenants to the deed or otherwise (see also prohibited uses under
Performance Criteria); ensure uses were not restricted when City acquired title and there are no other parties with the right to purchase or other reversionary interests
d. Sale of property acquired by City per eminent domain (KSA 26-501a and 26-501b) 5. Incentives
a. Remember: often $ are fungible – get client to give a $ target for total incentives, then work backwards to see what tools will achieve target $
b. Layering incentives c. Consider eligible expenditures for TIF vs. CID vs. other funding sources d. Negotiating fixed PILOTs on IRB property tax abatement projects e. Whose money goes in first? Confirm that all required $ (including Developer equity) will be
there when needed. f. Waterfall of funds; debt service ahead of pay-go; apportionment between City
reimbursement and developer, if any g. Cap on public % of total costs? h. Require project budget identifying eligible sources; cost cap on individual line items within %
to encourage good estimates on the front end i. Expedited City approval process or waiver of permit fees j. Personal guarantee from developer and principals if City issues debt expected to be repaid
from incremental or new taxes (with financial vetting to ensure capacity) k. Covenant not to protest property valuation for TIF projects l. Is City granting rights in property that has tax-exempt bonds outstanding?
6. City Payment Obligations a. Pay-Go Reimbursement vs. Issuing Special Obligation Bonds
i. Amount of imputed interest on developer carrying costs for pay-go ii. Future bond issue: governmental/legislative function (vs. proprietary/administrative
function) that cannot be contracted away – one governing body cannot bind future governing body to policy commitment. Jayhawk Racing v. City of Topeka 313 Kan. 149 (2021)
b. Cash basis and budget considerations: Farmers Bank & Trust v. Homestead Community Development No. 120,671 KS Court App. (2020)
i. Cash-Basis Law: must have actual funds on hand at time of contracting. Contracts that violate Cash-Basis Law are void.
ii. Budget Law: cannot create an indebtedness in excess of adopted budget. Cannot make a payment that has not been appropriated. Payments in excess of budget are void.
c. Debt service guarantees (see also Incentives – personal guarantee from developer and principals if City issues debt expected to be repaid from incremental or new taxes)
7. Subsequent Approvals by Governing Body vs. City Staff a. Assignment of Developer’s rights
i. Limit assignment to related entities, not to developers/parties who you aren’t sure about or aren’t negotiating with without governing body approval
ii. Allow for security interests and collateral assignments to lenders with as little headache as possible
iii. Different assignment/transfer restrictions pre-construction vs post-construction of project?
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b. If possible, get your governing body to delegate decision making authority to your City Manager/Administrator once they approve the contract; can retain certain items at governing body if necessary; can allow for City Manager/Administrator to consult with governing body on any item should the City Manager/Administrator not be comfortable with the decision
8. Remedies on Default a. Stop all future reimbursements b. Withholding certain approvals (e.g., building permits) c. Clawbacks d. Contract termination e. Liquidated Damages f. Termination of special districts g. Repurchase of property (see also repurchase right under sale of City-owned property) h. Cross-default with any other agreements the developer or its principals may have with the
City 9. Monitoring/Reporting
a. Status reports from Developer to City - staff vs. governing body b. Status reports from City staff to governing body – construction phase vs. ongoing operations c. Who internally is responsible for monitoring/reporting? Will the deadlines in the agreement
work? d. How will City pay for costs of any third party experts to review draw requests, construction
monitoring, etc. e. Consider costs of ongoing City work – negotiate fees to City to cover f. How will rates for work self-performed by developer be deemed reasonable?
10. Other Issues a. Annexation Agreements
i. Address public infrastructure requirements ii. Other future obligations?
b. Cooperating to litigation challenges by 3rd parties c. City purchase of floundering projects
