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02-13-2006 EDA MINMEETING OF THE ELK RIVER ECONOMIC DEVELOPMENT AUTHORITY HELD AT THE ELK RIVER CITY HALL MONDAY, FEBRUARY 13, 2006 Members Present: President Gongoll, Commissioners, Dwyer, Farber, Gutnphrey, Klinzing, Motin and Tveite Members Absent: None Staff Present: Director of Economic Development Catherine Mehelich, Assistant Director of Economic Development Heidi Steinmetz, Community Development Director Scott Clark and Recording Secretary Debbie Huebner Others Present: HRA Chair Stewart Wilson, HRA Commissioner Larry Toth, HRA Commissioner Louise Kuester and City Council member John Dietz Call Meeting To Order Pursuant to due call and notice thereof, the meeting of the Economic Development Authority was called to order at 5:30 p.m. by President Gongoll. 2. Consider Agenda MOVED BY COMMISSIONER FARBER AND SECONDED BY COMMISSIONER DWYER TO APPROVE THE FEBRUARY 13, 2006 EDA AGENDA. MOTION CARRIED 7-0. 3. Consider Consent Agenda MOVED BY COMMISSIONER MOTIN AND SECONDED BY COMMISSIONER KLINZING TO APPROVE THE CONSENT AGENDA AS FOLLOWS: 3.1. CONSIDER JANUARY 9, 2006 ANNUAL MEETING MINUTES 3.2. CHECK REGISTERS 3.3. BALANCE SHEET 3.4. REVENUE/EXPENDITURE REPORT MOTION CARRIED 7-0. 4. Open Mike No one appeared for open mike. 5. Discuss EDA Business Incubator Program Assistant Director of Economic Development Heidi Steinmetz reviewed the history of the EDA's Business Incubator Program since its inception in 1997. She discussed the three Economic Development?,uthority Minutes Febmary 13, 2006 Page 2 components of the program -the lease space, access to capital and technical assistance. She also reviewed past and present Incubator tenants and the program budget. Ms. Steinmetz stated that Incubator building owner Larry Hickman has sold the building. She reviewed Incubator consultant Harlan Jacob's recommendations, as well as staff's recommendations regarding the future of the Incubator Program. President Gongoll stated that he felt the program has been a good venture, and that now is a good time to reflect and then look to the future. He felt that the program is a good economic development tool, but requires funding resources. He stated he would like to see it continue, and would support fine-tuning the program. MOTION BY COMMISSIONER MOTIN, SECONDED BY COMMISSIONER FARBER TO ACCEPT STAFF'S RECOMMENDATIONS REGARDING THE FUTURE OF THE BUSINESS INCUBATOR PROGRAM AS FOLLOWS: • PUT THE INCUBATOR PROGRAM ON HOLD (AFTER THE LEASE EXPIRES IN APRIL) AND DIRECT STAFF TO COMPLETE AN ANALYSIS OF THE PROGRAM AND EXPLORE OPTIONS FOR A NEW INCUBATOR PROGRAM MODEL, WHICH MAY INCLUDING THE FOLLOWING: - NEW RENT STRUCTURE DISCONTINUING THE STOCK OFFERING - NEW LOCATION LOCATED ON CITY SERVICES - NEW BUILDING OWNER/PARTNER - DISCOVER NEW VENTURE CAPITAL FUNDS • IMMEDIATELY DISCONTINUE MARKETING THE PROGRAM AND THE RETAINER WITH INCUBATOR CONSULTANT UNTIL A NEW PROGRAM MODEL IS SECURED. • IF AN INCUBATOR IS NOT FEASIBLE, EXPLORE THE OPTIONS OF INVESTING THE TESCOM LOAN FUND BALANCE INTO A NEW OR DIFFERENT ECONOMIC DEVELOPMENT PROGRAM. Commissioner Tveite stated that he would like to see some focus placed on Energy City in the review of the Business Incubator program. President Gongoll suggested the EDA have a workshop on this issue Ms. Steinmetz noted that it will take some time to gather information, but that a future workshop would help in the analysis process. President Gongoll expressed his thanks to Harlan Jacobs for his efforts in getting the Business Incubator up and conning. MOTION CARRIED 7-0. 6. Consider Business Incubator Lease Extension - K-Netica Joe Roushar, Chief Technology Officer for K-Netica provided an update on the company's condition regarding number of employees, wage and salary information, future plans, and projected sales. Mr. Roushar expressed his appreciation for Harlan Jacobs' assistance. He stated that they are looking to Ms. Steinmetz and the EDA to help them stay in Elk River. Economic Development Authority Minutes Februarc 13,2006 Page 3 He stated that their research indicates Maple Grove or Elk River as the best options for re- locating and expressed satisfaction with the assistance provided by the Initiative Foundation. Commissioner Klinzing stated that she was thrilled with K-Netica's success and asked if there was anything the City could do to help them with their decision. Ms. Steinmetz noted that staff visited a new site with Steve Pederson, CEO of K-Netica, and that staff would remain involved in K-Netica's new site search to assist the company in fording the best lease rate. Ms. Steinmetz reviewed staffs recommendations to extend the sublease to K-Netica through April 15, 2006. MOTION BY COMMISSIONER KLINZING, SECONDED BY COMMISSIONER TVEITE TO APPROVE THE BUSINESS INCUBATOR SUBLEASE EXTENSION TO K-NETICA EFFECTIVE FEBRUARY 21, 2006 THROUGH APRIL 15, 2006 AT THE FOLLOWING CASH/STOCK RENT RATE: $ 4 PER SF CASH RENT ($755.66 PER MONTH) PER SF STOCK VALUE (DIVIDED AMONG BUILDING OWNER, INCUBATOR CONSULTANT &EDA) $ it PER SF TOTAL RENT VALUE MOTION CARRIED 7-0. Discuss Draft Amendments to the Micro Loan Fund Polia~ Director of Economic Development Catherine Mehelich reviewed suggested amendments to the EDA's Micro Loan Fund Policy as listed in the memo to the EDA dated February 13, 2006. She noted that staff is also reviewing the Business Subsidy Policy, Tax Increment Financing Policy and Tax Rebate Financing Policy for amendments to be presented to the EDA in the next couple months. Ms. Mehelich explained the distinction between the Central Business District and the Downtown District. She asked that the EDA procnde feedback on any additional revisions and a fmal version of the policy will be presented for adoption at next month's regulaz meeting. Commissioner Dwyer suggested that Page 3 of 1 ~ reflect the inclusion of technical service companies, in addition to industrial, so that a company such as K-Netica could partidpate. Commissioner Tveite stated that he felt the Business Eligibility Section IV, allowed other types of businesses to participate. Ms. Mehelich re~7ewed the history of language changes to this section. Ms. Mehelich stated that Commissioner Dwyer's suggestion could be included. Commission Gumphrey asked why the amortization period for real estate uses was proposed to increase from 15 to 20 years. Ms. Steinmetz stated that this was a recommendation of the Finance Committee. Commissioner Moon recalled that the intent was bring the amortization more in line with what was available from other funding sources. Also, since the loan was fully secured by the building and was not a risk, that a longer time period would allow smaller payments. Commissioner Klinzing referenced Page 8 of 15, Goal Attainment, stated that paragraph two should be changed to reflect the new Downtown District zoning. Economic Development Authority Minutes February 13, 2006 Page 4 President Gongoll asked fox clarification on former eligible properties in the Central Business District, and what might be considered for rehabilitation. Ms. Mehelich explained that since the HRA is currently developing a plan for the downtown azea north of Highway 10 which will not be completed for six months, staff did not want to include this azea at this time. Commissioner Fazber stated he did not see why the EDA would not want to include this area as eligible for the Redevelopment Financing. Cotmmissioner Morin stated that he felt it would be premature at this time. He felt that they do not want to encourage rehabilitation or redevelopment until a plan for the area is in place. Commissioner Dwyer asked if any areas have been designated for preservation, since those owners may wish to participate in the process. Commissioner Morin stated that no designations have been made. He noted that the HRA is in agreement that the residential area east of Irving will not be touched, other than to rehabilitate the housing. Also, he noted that the azea between Irving and the west side of Jackson is, at this point, open for redevelopment. Stewart Wilson, HRA Chair, stated that it is then intent to work on this area together with the EDA and Heritage Preservation Commission, so that the end product will be something they all can have a part in and be proud of. Commissioner Klinzing concurred with Mr. Wilson's comments. She felt that the EDA should allow the process to continue, and that if in the future the HRA sees a need for the EDA's assistance, they certainly should make them awaze. President Gongoll asked for clarification on Commissioner Motin's comment in the Finance Committee minutes regarding making the process more "transparent". Commissioner Moon explained stated that they would like to know up front if an applicant is requesting more than one type of public financing, so that one `But For" analysis can be completed. Ms. Mehelich stated that she would like the HRA and HPC to review the program amendments in regazd to the downtown and then present the final revised document to the EDA at their next meeting in March. 8. Consider Lease with Nextel for EDA Prop Community Development Director Scott Clark explained that the City has been negotiating an agreement with Nextel to locate a cell tower next to the Public Safety building. Since the EDA was the issuer of the lease purchase bond, the EDA will need to sign the Nextel lease since they aze technically the owners of the property. The City will also be a signer since some of the property is not under the EDA title. Commission Klinzing questioned how the rent price was established. Mr. Clazk stated that City Administrator and City Attorney are negotiating the lease and that it will be at market rate. Commissioner Tveite referenced Section 15. -Assignment and Subletting, stating that he would suggest the EDA/City have the right to review a proposed subletting, so that they at least know who the prospective tenant is. Under Section 4, last sentence in the paragraph, he suggested that the words "be increased" be included to allow the option to increase the Economic Development Authority Minutes Page 5 Febmarc 13, 2006 ----------------------------------------- ren[ at four percent a year. Commissioner Tveite noted that this is not a short term lease, since Nextel has the option to continue it for 25 yeazs. MOTION BY COMMISSIONER FARBER, SECONDED BY COMMISSIONER GUMPHREY TO AUTHORIZE THE EDA PRESIDENT AND VICE PRESIDENT TO SIGN THE NEXTEL LEASE BASED ON THE FUTURE LEASE APPROVAL BY THE CITY COUNCIL. MOTION CARRIED 7-0. 9~ Update on Developer's Forum Mr. Clazk stated that Developer's Forum has been scheduled for March 29~h, in hopes that the Planning Manager will be hired by that date. He explained that the purpose of the forum is to establish some type of formal communication between the Community Development Department and our end users, whether that be developers, property owners, bankers, lenders..'llso, as recommended by Commissioner Tveite, they will also be discussing opportunities for the Gateway Business Center with the participants. President Gongoll asked if a forum will be scheduled annually. Mr. Clark stated that if the event is deemed successful, he felt it would be good to repeat on an annual basis. President Gongoll asked how the information will be distributed. Mx. Clazk stated that staff will be using various lists and their general knowledge of who is doing work in the community. Mayor Klinzing called the Special Meeting of the City Council to order for the purpose of meeting with the Economic Development Authority. Chair Wllson called the Special Meeting of the Housing and Redevelopment Authority to order for the purpose of hearing the presentation of proposed Eminent Domain legislation. 10. Presentation on Proposed Eminent Domain Legislation Ms. Steinmetz clazified page two of her February 13h staff report regarding the City's past use of eminent domain. The staff report stated that the City had used eminent domain once to acquire property for the east Elk River redevelopment project but that the City has actually used eminent domain several tunes at the request of property owners or for public road easements. She indicated that more detail would be provided in the PowerPoint presentation. Mayor Klinzing noted that the City received a request from a downtown property owner to request that the City "go on record" to state their intent to use eminent domain. She asked if that request was included in the presentation. Ms. Steinmetz stated yes. Ms. Steinmetz explained that the Kelo vs. New London U.S. Supreme Court decision prompted the recent discussion in preparation for the upcoming MN State legislative session. She stated that the decision was a 5-4 split decision in which the U.S. Supreme Court the U.S. Supreme Court held that economic development is a valid "public use" under the Takings Clause of the Fifth Amendment Critics feel that this decision expanded the use of eminent domain throughout the nation, particularly in Minnesota but that the decision did not change eminent domain law. The decision re-affirmed tides' authority to use eminent domain to acquire property for economic development and the acquisition of property had to be a part of a city's well conceived development plan. It also stated that local offidals Economic Development authority 1\~tinutes February 13, 2006 Page 6 were the best people to decide on the use of eminent domain in their communities, rather than at the state or national level. Ms. Steinmetz provided a summary of what cities, HRA's and EDA's can use eminent domain for in the State of Minnesota. She noted that the courts do give local authority to decide whether to use eminent domain. Ms. Steinmetz reviewed the eminent domain process and explained the protections for property owners. Mr. Clark noted that property owners can challenge the public purpose. Ms. Steinmetz stated that is typically one of the first steps in the process. Ms. Steinmetz noted that cities have historically used eminent domain as a last resort and cited statistics to support the limited use of eminent domain in Minnesota. She provided details on Elk River's use of eminent domain. In addition, she provided examples of other cities' (Coon Rapids and Brooklyn Pazk) use of eminent domain. Mr. Clark added that 85% of the 250,000 squaze foot Brooklyn Pazk property was vacant and the City of Brooklyn Park invested $17 million to buy the property (approximately 120 acre site). Seven pazcels outside of this area were acquired which could not have been acquired outside of this project He stated that this was a very arduous process including a formal redevelopment plan and tax increment plans. Ms. Steinmetz reviewed the two bills being introduced in the legislative session; the Minnesota Auto Dealers Association (MADA) and the Institute for Justice bill and the Local Government Bill, also known as the League of Minnesota Cities bill. The League bill stresses the use of responsible eminent domain. She provided more details on each of the bills. She stated that the upcoming MN State legislative session begins March 1~~ and that this is a hot topic. Ms. Steinmetz restated that eminent domain is used by cities as a last resort in most cases. It is a critical tool for a healthy, financially strong community. She reviewed three options recommended by staff: 1. Do nothing. 2. Support legislation upholding the use of eminent domain for redevelopment projects and limited economic development projects (such as the League of Minnesota Cities bill). 3. Draft a resolution indicating the City's policy on eminent domain. Mx. Clark stated that there axe basically three types of uses for eminent domain: - Original traditional powers (roads, schools, parks) - True redevelopment (such as the downtown) - Economic development (not a true blight test, but prove value) He stated that the City's concern would be the collateral damage that would result from the loss of eminent domain powers, which would severely limit redevelopment and affect traditional eminent domain uses such as public road easements. President Gongoll stated that he was not sure which direction to take. Economic Development Authority Minutes Februan~13,2006 Page 7 Mayor Klinzing felt that it may be a good step for the City to draft a resolution. She felt the issue of eminent domain rests with appropriate compensation for property owners. She suggested that the compensation element be included for such instances as having an unwilling seller, moving expenses and/or appraisal costs. She felt if the compensation aspect could be addressed, the whole issue would not be so volatile in peoples' minds. Cin~ Attorney Peter Beck agreed that the issue is money and leverage. His concern was if the Institute of)usdce bill is enacted, the City would not need a policy on eminent domain because it would no longer be available as a tool to cities. Also, xegazding roads, proof would need to be provided to put a road in at a certain location, which would cost taxpayers extra to acquire the land. He felt that if cities do not get behind the League of Minnesota Cities bill, the tool is going to be lost, and that cities need to communicate to their legislators regazding the important of eminent domain. He also suggested that cities should bring developers into the debate at the Capital because eminent domain is an important part of cities' ability to generate jobs and new tax base. He stated that he would line to see the City support the League, since the Institute for Justice bill could be enacted very early in the session. Mr. Beck stated that he hoped the legislature would get into the compensation issue, and noted that other jurisdictions have a higher level of compensation for economic development projects than for road projects. He stated that a homeowner in the case of an economic development project should be compensated for their relocation costs. He felt there definitely would be some improvements from a property owners' perspective in the League bill. He again stated that he felt the City really needs to support the League and bring in developers such as MetroPlains to support the bill as well. Mayor I{linzing stated that she supported additional compensation for economic development projects. She stated that bringing private developers into the debate would raise the issue of whose right is in question - the right of developers to develop or the property owners right to retain their property. She felt that the City's issue needs to stay in the realm of public purpose. She felt economic development can be an azgument for public purpose and could potentially be used for the downtown azea north of Highway 10. She stated that she would like the City to look at establisMng a policy and to consider the compensation issue. Commissioner Farber stated that he concurred with the City Attorney to back the League of Minnesota Cities. He did not see what the hurry was for the legislature to do anything, but because of this case, he felt eminent domain was too important to lose as a tool. He felt that this was another case of cities losing their power to the State and Federal government, and that cities need to retain local control. Commissioner Fazber stated that he was afraid to see the other bill pass. Mr. Beck concurred, and stated that this is another example that over the last decade, the State government has not trusted local government to make the best decision for their community as a whole. He stated that his office has seen it on taxes and funding. He felt the legislature is attempting to take away the decision from the people that are closest to it. Mr. Beck stated that no one will deny there have been abuses of the tool, but that it would be a mistake to eliminate the tool. Commissioner Tveite concurred with Commissioner Fazber and Mr. Beck. He stated that he was in favor of tightening up the definition of blight. He stated that taking a viable housing ox business area and replacing it with another business or project to create more revenue needs to be looked at He felt that more enforcement of consistency in how it is used from city to city would be a good thing. Economic Development _',uthoritj- Minutes February 13, 2006 Page 8 Commissioner Dwyer stated that he lost a friend due to the eminent domain process and that it puts cities in an adversarial position. He felt that the real human issues need to be considered. Mayor Klinzing stated local officials will continue to live in the community after eminent domain is exercised and they need to be accountable for their actions. She stated that she did not see who would benefit from taking this process away from local government. Commissioner Motin disagreed that it is a compensation issue. He feels that people fear that the government is going to take away their home and turn azound and give it to someone else for economic gain. He felt there needs to be more restriction on the use of eminent domain but that it should still be a tool that cities can use. He asked if a super majority is required for use of eminent domain. Mr. Beck stated that a simple majority is required. Commissioner Moon stated that he felt a super majority should be required, as is the case for rezonings. He supported the League bill but did not feel it goes faz enough. Commissioner Farber concurred with Commissioner Motin, but stated that he would not like to see either bill pass. If he had to chose, he would support the League bill even though it does not go far enough. Ms. Steinmetz noted that other tides such as Brooklyn Pazk and Coon Rapids have passed resolutions supporting the preservation of eminent domain and that there aze other does in the process of passing resolutions. She stated that staff could provide these resolutions and also draft a resolution that takes into account all the comments for the City Councll, EDA and HRA. The Council members, EDA and HRA members present concurred. Chair Stewart felt the Institute of Justice bill would "handcuff 'cities and that it would be in the Citj•'s best interest to endorse the League bill. Mayor Klinzing asked if townships aze doing anything about this issue. Mr. Beck stated that townships have a narrow range of issues, but that counties aze aware of the bill. Ms. Steinmetz stated that she is not aware of any bills being introduced by townships, but that a list of supporters of the League bill will be provided by staff. HRA Commissioner Toth stated that he supports a resolution by the City. Mayor Klinzing noted that she supports a requirement of a super majority fox approval of the use of eminent domain. There being no other comments on this issue, PRESIDENT GONGOLL ADJOURNED THE MEETING. The meeting of the Elk River Economic Development Authority adjourned at 7:10 p.m. The special meeting of the City Council and Housing and Redevelopment Authority also adjourned at this time. Su~~b11mlit~te~d ~b`y:~ .Q/iolie[ Debbie Huebner Recording Secretary