With market conditions in mind, the Albert Lea City Council voted unanimously Monday to amend the first phase of the Tiger Hills Development agreement. The change allows its developers to pay back any assessments to the city as the lots sell, instead of at a required amount per year.

Prior to the meeting, the developers of Tiger Hills Development Corp. were obligated to pay the city for a minimum of four lots per year in the first phase of the project to pay back for assessments owed. So far this year, however, they have only paid for two lots, and the development’s annual payment is due Nov. 30.

Greg Moen, one of the Tiger Hills developers, said nationwide housing starts are down, and there are a lot of housing developments in trouble right now.

“We’re not asking the city to waive any of our fees,” he said. “We are going to pay our debt in full with the interest that is owed.”

It will probably just take longer to pay it, he said.

He asked for the minimum lot obligation to be lifted.

Originally, Tiger Hills developers borrowed about $1.4 million from the city to be paid through assessments, Moen said. They have repaid about 20 percent of that debt — all with a very poor economy and poor housing starts, he said.

Because of the downturn in the economy, Farmers State Bank, who the developers also borrowed money from, has not gotten paid anything yet and neither have the developers.

“Our No. 1 goal is to pay the city first,” he said.

That means if the developers were to sell six or seven lots next year, then the city would receive payment for all six or seven lots sold, he said.

With the amendment, the council will not be drawing on the development’s letter of credit with Farmers State Bank. Representatives from the bank had written a letter to the council asking them to restructure the debt with the developers, instead of drawing on the letter of credit.

“Due to these extraordinary times, the bank is asking that the city work with the bank and the developers, to amend the phase one development agreement,” the letter states. “The developers along with Farmers State Bank, as well as many community members, continue to believe this development is ‘right’ for Albert Lea. Because of the reasonable lot prices and their location, this project will eventually be successful.”

Councilor Vern Rasmussen said it doesn’t make sense to him to draw on the letter of credit because more likely than not that would end up meaning the city would have to “babysit another problem.”

Rasmussen said the agreement should instead be rewritten so that payment on all lots in the future come back to the city until the city is paid back in full. And it is important to set up guidelines to make sure this is happening, he said.

Councilor George Marin said he’s heard some comments in the community that what the council was deciding to do was a bailout, but that is not the case. The developers are not asking for any more money than they started with, he noted.

Marin said the developers are in-town guys who continue to do the best they can.

A few of the councilors addressed the city’s ability to make its bond payment, and City Manager Victoria Simonsen said she was not concerned with making the city’s bond payment for at least the next five years.

Wedgewood Cove developer Paul Field also encouraged the council to support the Tiger Hills project. He said it was good for the city.

Councilors indicated the agreement can be revisited at any time.

Moen pointed out the differences in lot sales and building permits in 2008 compared to 2004.

In 2004, he said, there were 25 lot sales in the city, but in 2008 there were only seven. In 2004, there were 29 building permits issued, but in 2008, there have only been four. Two of those have been in Tiger Hills.

The development has also added $1.78 million in property value to the tax base.