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March 29, 2000
Amberfield, counties reach settlementBy GUY PRIEL Journal Staff Writer NEW ULM -- With less than a week to go before a scheduled court date in the Amberfield project lawsuit, the five counties involved reached a settlement. The lawsuit was filed in May 1996 by Franklin Funds, the bond-holder in the case, seeking the counties of Martin, Nicollet, Sibley, Waseca and Watonwan to approve full special benefit tax levies to support the Amberfield Project. The case was assigned to the United States District Court claiming breach of contract and securities fraud on the part of the counties. County officials were unwilling to accept any settlement proposal that did not protect the taxpayers from a majority of the project's financial risk, Attorney Tom Fabel of St. Paul said. The counties submitted their final settlement agreement March 13 in an attempt to settle out of court. County officials have remained convinced that there was no wrongdoing on the part of any of the counties in connection with the project, Fabel said. "The counties had, however, entered into Operating Deficit Agreements which a jury would be required to interpret at trial." Officials with the United States District Court ruled that there was some possibility a jury would vote in favor of Franklin Funds. Under the terms of the settlement: * The five counties will approve a special benefit tax levy of up to 50 percent of the levy limit in 2001, as requested by the Central Minnesota Housing and Redevelopment Authority, the developers of the Amberfield Project. * The counties will also approve future tax levies of up to 50 percent of the levy limit, which shall be subject to a 2 percent cap on the annual increase for each county. * The levies will discontinue in 2024, which is the last scheduled year for bond payments. * The levies will be lower if the financial performance of the project improves significantly over the next several years. * The counties will make a cash payment to Franklin Funds for $525,000, which means each county will pay $105,000. The Amberfield project, which began in 1993, sought to address the need for senior and moderate-income multi-family housing in the five counties. Three-hundred units were constructed in 13 communities within the five counties. The project was financed through the sale of $20,315,000 worth of bonds issued by the Housing and Redevelopment Authority. Rental fees were expected to be the main source of revenue for payment of the bonds. If revenues proved insufficient, a special benefit tax was to be levied, which requires the permission of the counties each year a levy is requested. In February 1993, the counties entered into operating deficit agreements, advising them that their approval was needed. The agreement stated that the counties would use their best efforts to approve levies to help support the project. County officials felt there was a remote chance the project would fail, but documents uncovered following the lawsuit indicated that officials were warned the project would experience operating losses during the first seven years. Franklin Funds purchased $10 million in 30-year Amberfield bonds in 1993. The project failed because the housing study overestimated the immediate demand for housing, causing the project to fall millions of dollars behind in revenues. The problems continued until July 1995, when the HRA asked the counties to levy $500,000 in special benefits taxes. "The counties learned that their initial approval of the operating deficit agreement had been based on misleading information," Fabel said. "After much deliberation, the counties decided that they could not approve the levy request in good conscience." The counties maintained that the bonds had been purchased by Franklin Funds, knowing the financial risks involved at the time.
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