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Council enters into MOU for event center project

WORTHINGTON -- The Worthington City Council authorized Monday an agreement to enter into a memorandum of understanding with the Lexington Hotel Development Group for its event center/hotel plan.

Alderman Ron Wood noted the MOU does not serve as an execution of a management agreement, but only as a means to further exclusive discussion with the group for an additional nine months.

Upon the expiration of a previous MOU with Cornerstone Construction, the city conducted discussions with five hospitality companies for a possible public-private partnership for the long-discussed event center/hotel project. Companies were given a copy of a feasibility study and a management agreement template drafted by city staff. Three of the five companies presented their proposals to the city -- two of which met the city's expectations.

Based on the remaining companies, council members determined that Lexington, based in Greendale, Wis., had the stronger proposal. As highlighted by city staff, Lexington and its investors are proposing a 75-unit Comfort Suites and an event center to be managed by Lighthouse Hospitality Group. The financial assistance Lexington is seeking from the city is:

* An agreement to sell the property to construct the hotel for $1 as financial consideration.

* To complete environmental testing for the entire project.

* To assist Lexington in a front-end TIF funding of approximately $400,000.

"Financing is nearly impossible, especially in the hospitality business," said Lexington representative Don Klain. "One way that we found within our current two projects, the only way we could get it done is when the help we got from the city was a front-end TIF."

Brad Chapulis, the city's manager of community and economic development, explained that "pay-as-you-go" TIF financing method is the most common TIF method and has been historically used by the city. The developer pays the cost and is reimbursed as increments are available. The front-end method involves a cash contribution at the beginning stage of the project.

"It's less money the bank has to put up front," Klain explained about how the front-end method will reduce the risk banks have to undertake.

Alderman Mike Woll was concerned about the financial strength Lexington possesses.

"Believe me, in this day, the bank would not give us a loan, even for 50 percent of it, if we weren't financially capable of handling it," Klain said.

"Really, this is a proposal that we put forward and they're accepting," said Mayor Alan Oberloh about the feasibility of Lexington's plan in trying to accommodate the city's expectations on management and financial scopes.

In an unrelated matter, council approved a participation request from the Southwestern Mental Health Center (SWMHC) for a $400,000 loan at a 2 percent interest rate over a span of 30 years to finance construction of a new facility.

The initial request was for a 1 percent interest rate, which SWMHC Executive Director Scott Johnson said was negotiable.

SWMHC provides services to Cottonwood, Jackson, Pipestone, Rock and Nobles counties. Only Nobles County and the city of Worthington were requested loans at a 1-percent interest rate.

Alderman Mike Kuhle asked why the agency opted for a new facility instead of the Avera clinic building downtown that will be vacated when Avera Medical Group Worthington relocates to its new building.

Nobles County Commissioner David Benson addressed the possibility of an inpatient facility, a chemical dependency treatment or the possibility of housing the Southwest Crisis Center at the current Avera building

"There are some significant health-related options for that building," he said. "I think the proximity to the emergency room and the hospital is a benefit. There are a number of reasons the old facility could serve for other programs, but the five counties that Southwest Mental Health (serves) are committed to go ahead (with the new facility)."

In other business, council:

* Approved a request for site preparation assistance from Avera Medical Group Worthington for its proposed new facility on Ryans Road. The property will be located in the city's 100-year flood plain.

* Awarded contracts to two firms for the first part of redevelopment of the former Worthington Area YMCA building.

When council members rejected the higher-than-expected construction bids at its Sept. 12 meeting, they agreed to split the project into two construction projects -- demolition/environmental remediation and construction. From the nine bids received, Twell Environmental of Brooklyn Park was awarded the contract of removing hazardous material, and Dulas Excavating of Wells will do the demolition of the building.

Cumulatively, the bids were 8 percent lower than the engineer's estimate.

* Authorized a contract with Geo-Tek Engineering and Testing Services Inc., Sioux Falls, S.D., as an environmental consultant for the former "Y" redevelopment project. Geo-Tek will ensure that the soil excavated will be handled in compliance to the Minnesota Pollution Control Agency (MPCA). The contract value, as estimated by the company, will range from $2,643 to $3,732.

* Approved a second reading of text amendment to the city's zoning ordinance. The amendment would allow land use of child care facilities as special permit in the "M-1" - Light Industrial zoning district.

* Approved parking restrictions from 1 to 6 a.m. from today through March 31 and to install proper signs on the west side of Humiston Avenue from Oxford Street to 14th Street, and on Fifth Avenue from 14th to 12th Street. Leading up to the restriction was a concern that the designated west-side portions of the street received snow buildups with a ridge that caused parked vehicles to infringe on the south-bound driving lane.

* Approved changes in parking control on the north side of Parklane Alley from Second to Fifth avenues from 15-minute parking to no parking from 1 to 6 a.m. The change will serve to maintain consistency with parking restrictions on the south end of Parklane Alley.

* Approved the first reading to amend storm sewer utility rates. The storm sewer fund budget for 2012 requires $23,136 more than the budget for 2011 due to changes including equipment replacement. An increase of 4.1 percent is needed to make up for additional $23,136.

"In light of changes in LGA and market value credit and property valuations, people will see an increase," Oberloh said. "I'm just looking at ways if we can soften it."

City engineer Dwayne Haffield explained that to avoid an increase, other budget cuts would be have to be made.