City Buying Agilent Campus
Using Water Fund Reserve Monies

Loveland - May 15, 2011

On May 10, the Loveland City Council voted unanimously to appropriate $5.8 million to purchase the former Agilent/HP
Campus in Loveland.  The appropriation was made in anticipation of a deadline in the city’s purchase agreement with Agilent to
complete property inspections and appropriation of funds by May 31, 2011.  Once this deadline passes the city’s $100,000 in
earnest money deposit will be lost if the city fails to close the transaction as planned on June 23, 2011.

78% of the funds appropriated for the purchase of the former Agilent campus located on the inside corner of highway 402 and
Taft Ave. will come from an “inter-fund” loan of $4,519,000 from the city’s Raw Water Fund.  The balance of the funds
appropriated for the purchase include $889,000 of open space funds, $30,000 in street CEF’s (Capital Expansion Fees) and an
additional $5,000 from the city’s Raw Water Fund for the easement of a new sewer line to run across the property.

Councilman Daryle Klassen, while speaking to a Republican Breakfast Club in Loveland earlier this year, promised the city
would own the Agilent property for only “10 minutes” before it would be sold to a private developer thus limiting any financial
risk to taxpayers in the deal.   While the intent is to turn the property over to a private developer as soon as possible, the city’s
money will be at risk for a decade as the buyer slowly pays back the city for their purchase price of the property.

Like Councilman Klassen, the Loveland Reporter-Herald newspaper's reporting regarding the city’s financial exposure and
details of the proposed transaction are equally flawed.  According to a recent story written by Tom Hacker,

“Most of the funds, $4.5 million, will be in the form of a loan from the city’s raw water fund, to be repaid when the
property is sold to developers of the ACE project.”

The city has already offered favorable loan terms as part of the bidding process thus making a cash sale of the property highly
unlikely.  According to documents provided to the bidders by the city, the City of Loveland plans to carry the loan with the
following terms;

"The Development Entity (developer) shall pay to the City a Price for the ACE Campus of not less than $4.0
million.  Payment may be scheduled on terms to be negotiated, but at a minimum shall consist of $500,000 initial
payment due at Closing, with the remaining balance (Principal and Interest) to be paid by the city over a ten-year
period, with the repayment schedule to be negotiated."

This means $3.5 million of the city’s initial money used to purchase the campus will be at risk for an additional 10 years; not 10
minutes.  The loan will be amortized over 25 years according to numerous proposals with a balloon payment for the balance in 10
years.  These terms promise easy payments for the buyer but significantly delay the city recovering its principle from the loan for
at least a decade.  Given the favorable financing terms offered by the city, all the bidders for the ACE Project offered to proceed
even if CAMT decided not to locate the project in Loveland.

In addition, City Manager Bill Cahill asked for $147,000 during the May 10, council meeting as part of the $5.8 million
appropriated to cover “holding costs” for the city’s estimated 2 months holding period.  The city also proposes providing the
developer a $150,000 annual cash subsidy so long as some office space remains vacant up to $1.5 million over 10 years.  This
subsidy is being described as a “lease” agreement where the city will not occupy any space but simply pays the developer under a
“lease agreement."

The city proposes using 127 acres of open property from the main campus it will retain as open space while only the
commercially viable areas will be resold to a developer chosen largely by CAMT.  The developer will be allowed to take out
additional loans against the title of the property without concern for Loveland’s loan taking 1st position.  Loveland’s council
already discussed in open session last year plans to subordinate the city’s interest in repayment of the loan.   This means in the
event of a foreclosure, Loveland’s $3.5 million investment using Raw Water Fund monies would likely be the most at risk given
its junior position to other larger subsequent loans.

Loveland City Manager Bill Cahill reminded the council several times during the May 10, council meeting when they voted to
appropriate the funds that subsidizing the ACE Project indeed involves risk to the city.  He reminded the council that there is no
way to pull-off this project without the city taking some risk.  His public comments followed a three hour closed door meeting
where the deal was discussed before the council emerged for the public vote.

Raw Water Fund Money

Mayor Cecil Gutierrez, while running for Mayor nearly 2 years ago, also spoke to the Republican Breakfast Club that meets in
Loveland along with his more conservative running mates in that election.  Ironically, it was Gutierrez's attacks on his then
colleagues Councilman Walt Skowron and Mayor Pro Tem Dave Clark for appropriating money from dedicated reserve funds to
purchase 98 acres along highway 402 and I-25 that gained him favor with the group.

On may 10, Mayor Gutierrez voted with his colleagues to fund the Agilent property acquisition mostly from the city's Raw Water
Fund intended as a dedicated reserve for future water projects.  Last October the Loveland City Council
passed increases to
water rates by way of a special "surcharge" using the argument the Raw Water Reserve Fund was underfunded.  The surcharge is
a fee in addition to the regular water rate on all users when they exceed an "annual allotment" of water usage determined by the
city.  The proceeds from this surcharge will now go towards funding the city's investment in the ACE Project instead of new
projects to increase the city's water storage.

Ironically, the council passed the additional fees in anticipation of various ballot measures on the November 2010 ballot that
would have placed further restrictions on local officials raising fees without a vote.  Colorado's State Constitution prohibits tax
increases for general purpose revenue by municipalities like Loveland without first obtaining an approval by the voters who will be
paying the new taxes.  In this case, Loveland's City Council has diverted a fee which was raised without a vote (because it was
for a specific utility) and is instead using the money to purchase the Agilent Campus which is a general purpose expenditure.

The reason the city refers to the funding as an "inter-fund" loan is to avoid the legal consequences of using fees raised without a
vote of the public for general fund purposes.  By calling it a "loan" the municipality can claim the city intends to repay the whole
amount borrowed from the Raw Water Fund over time.  If the "loan" is held for an indefinite period of time a State Court could
make a finding the city abused its discretion and order the money returned to the Raw Water Fund from general fund monies.

For this reason, city officials have been quick to spin local media regarding the temporary nature of the loan.  While local media
has been very accommodating in perpetuating that story line, any cursory review of the proposed project demonstrates the city is
using the Raw Water Fund for general tax purposes and complete repayment of that money is a decade away.

Local Media Continue To Get It Wrong

Both the Loveland Connection and Loveland Daily Reporter Herald have mislead readers regarding an investment in the project
by NASA or CAMT.  Contrary to what is being reported, neither organization has made any commitment to assist in funding the
ACE Project despite regular references to the contrary by various local news media outlets.  As proposed, only the City of
Loveland will pay for the project despite the fact CAMT intends to receive significant revenue when it is completed.

The Coloradoan’s Weekly Loveland Connection reporter Maria Servold
wrote on May 11,

“At this point, the Colorado Association for Manufacturing and Technology has indicated that it would like to
develop the ACE park at the Agilent site. As part of that deal, the city plans to sell the campus to CAMT. Selection
of a development company to help build the ACE park from the empty buildings is still being negotiated.”

While CAMT has indicated they want to own the property, CAMT doesn’t have any funds to buy or develop the property and is
instead seeking revenue from the deal without investing any money.  CAMT is relying on the City of Loveland buying the Agilent
Campus than financing a resale of a portion of the property to a developer who will in-turn borrow against the property’s value to
develop the project.  The city’s Request for Proposal (RFP) released to developers earlier this year made clear the fact CAMT
is not developing the property or investing any funds into “their” ACE Project but does expect to receive $500,000 per year
revenue from the project.

According to the city prepared document titled, Minimum Requirements for Bidders;

"The property is proposed to be transferred to CAMT (or its designated affiliated entity), for the ACE
Project without any direct expense to CAMT."

The lack of any financial contribution by CAMT to the project has created an undercurrent of questions by bidders to the city of
whether CAMT should be receiving direct profits from the project at all.  In addition, CAMT head Elaine Thorndike has
proposed setting-up a private organization apart from the 501(c)3 non-profit CAMT organization she heads to receive revenue
from the project.  The lack of local investigative journalism means no serious inquiry has been made into the appropriateness of
Thorndike or others funnelling Loveland taxpayer money away from the ACE Project into a private entity where there would be
no public accountability.

The Loveland Daily Reporter Herald

In a May 13, 2011 article regarding the council vote to purchase the Agilent property, reporter Tom Hacker wrote,

“The ACE center is the product of an agreement between NASA and the Colorado Association for Manufacturing
and Technology to use patents held by NASA as bait to lure as many as 100 manufacturing companies to a single
site to commercialize technology products.”

NASA is not promising any technologies will be held exclusively for companies locating in CAMT’s ACE Project business
cluster.  In fact, companies located anywhere in the United States can apply to commercialize those same technologies today
through the same SBIR or STTR government contracts CAMT is saying will fund the project.  Hacker’s use of the word “bait”
implies somehow companies that cluster in the ACE Project would have exclusive access or rights to certain NASA technologies
which is inaccurate.

Continuing Environmental Concerns

By separating the potentially contaminated holding ponds and other less commercially viable areas of the property the city will
make the remaining campus much more marketable.  However, a number of local firms including one bidder have expressed
concern over potential environmental hazards in the existing structures.

In a February 28, 2011 cover letter for its bid to the city on participating in the ACE Project, Old Vine Property Group and
Zing! Development Strategies cautioned,

“We have intimate knowledge of the environmental condition, covenant and indemnity associated with the project.  
To this end, we do not recommend that the city close on the property until: i) certain modifications are made to the
covenant and the MMP that are acceptable to CDPHE [Colorado Department of Public Health and Environment]  
and the Buyer, ii) the City feels comfortable with the possibility that one or more of the structures currently located
on the site may need to be demolished and iii) the HP indemnity and the potential cost of environmental insurance is
fully understood.”

It appears the City of Loveland is following this advice by continuing to negotiate the scope of the indemnification clause offered
with the property by Agilent while also taking out an insurance policy for any unknown environmental hazards for a cost of
$125,000.  Two local commercial developers who did not bid informed LovelandPolitics off-the-record they believe the cost of
renovating the Agilent buildings, built mostly in the 1960’s when asbestos building products were prevalent, would exceed the
cost of new construction.  The city doesn’t believe this to be the case and has estimated the total clean-up costs if the city were to
renovate the structures to be approximately $16 million.

Like Old Vine and Zing these developers believe demolition of the existing structures may be the most economic option.  
Loveland has not ceded that point yet and will continue to inspect the structures until the May 31, inspection deadline in their
purchase contract.  Destructive testing would be required to determine how much asbestos is in the current structures and so far
the city doesn’t appear anxious to open that can of worms.  City planning staff estimated the cost to renovate the existing
buildings around $30 to $40 million earlier this year.

Now that inspections have been performed the city is quoting half that number.  In  worst case scenario, according to Cahill, the
city would need to spend an additional $16 million to refurbish the property should a developer fail to purchase the property as
planned today.
Area Residents Water Surcharge For 2011
Some within city hall have told LovelandPolitics it is
being unofficially called the
ACE Project tax.

Description    Inside City Limits   Outside Limits
Charge per 1,000 Gallons Used                 

Single-Family Residential      $1.72        $2.55

Multi-Family Residential       $1.58        $2.38

Commercial                         $1.67        $2.47

Irrigation                              $2.04        $3.07

Industrial                              $1.70        $2.52
0.4 -0.5 acre feet of water per year
(approximately 150,000 gal) to satisfy the
demands of a home and landscape.

Usage               150           150

Surcharge         1.72     /     2.55
Outside city limits
Annual              $258        $382.5

Five months later, the same City Council
appropriated $4.5 million from the Raw
Water Fund to finance the Agilent campus