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03-06-2006 EDA MIN SPECSPECIAL MEETING OF THE ELK RIVER ECONOMIC DEVELOPMENT AUTHORITY HELD AT THE ELK RIVER CITY HALL MONDAY, MARCH 6, 2006 Members Present: President Gongoll, Commissioners Dwyer, Farber, Gumphrey, Klinzing, Motin and Tveite Members Absent: None Staff Present: Community Development Director Scott Clazk, Director of Economic Development Catherine Mehelich, Assistant Director of Economic Development Heidi Steinmetz, City Admutistrator Lori Johnson, and Recording Secretary Jessica Miller Call Meeting To Order Pursuant to due call and nonce thereof, the meeting of the Economic Development Authority was called to order at 5:45 p.m. by President Gongoll. 2. Consider Agenda It was the consensus of the Economic Development Authority to approve the March 6, 2006 agenda. 3. Discuss Potential Financial Incentive for a Business eeking Location with the City Director of Economic Development Catherine Mehelich explained that a business that is seeking location within the City of Elk River has recently requested financial assistance from the city. Ms. Mehelich stated that Elk River is among the top two or three commututies in which the company is considering a location. Ms. Mehelich indicated that the company wishes to remain anonymous until a community is selected. Ms. Mehelich described the company and indicated that the company has identified an approximately 20-acre pazcel of land in the city to acquire for the construction of an 180,000 square foot data technology center. She stated that the company's estimated cost of the project is $125 million including land, design and construction, equipment, and extensive mechanical systems and that the company's end real estate value may have a range of $10- $20 million. She stated that the company anticipates a minimum of 15 full-time employment positions within the project with an average annual salary of $70,000 each. She noted that the company is Minnesota based and among the top 50 Fortune 500 ranking and one of the largest employers in the state. Ms. Mehelich described the issues that the EDA needs to consider with this request: • This request does not fit the city's tax abatement application model for the financial "but-for" test although it appears that "but-for" the offering of assistance this company would not select Elk River as a location but rather a community that is offering a location incentive. Economic Development Authority Minutes March 6, 2006 -Special Meeting Page 2 • Job creation is not a significant component to this project, but would result in significant tax base generation. This request should be considered as a "location incentive" for the purpose of tax base generation and not based on a proven fmancia] need nor on a large number of jobs. • The market value hasn't been established for this project. Staff estimates a market value range of $10.8 million to $13.5 million for the proposed 180,000 square foot project. • Based on past industrial projects, an average of 20% total assistance was provided to market value, although market value previously has not been a measurement for the amount of assistance to be provided. Ms. Mehelich indicated that staff is requesting EDA direction on this request and is not looking to set a formal policy. She stated that if the EDA desires to provide a location incentive for the proposed project in the form of a pay-as-you-go tax abatement, then staff would like direction from the EDA on the percentage of financial assistance to the end market value and a cap dollaz amount since the market value of the project is undetermined at this time. Ms. Mehelich reviewed a range of financial assistance amounts based on a range of 3% to 6% of financial assistance to market value. Community Development Director Scott Clark explained that staff's struggle with this request is that the company has indicated the real estate value will be $20 million but it is difficult to compare with other data centers of its kind. Mr. Clark indicated that if the EDA provides dtrecdon on a percentage of assistance, staff can go back to the company with a range of assistance the city will provide. Commissioner Tveite stated that he believes there are risks and opportunities with this project. He stated that a lazge risk is if the Utilities provides electricity to that area and the company leaves before the electric bonds are paid off. He stated that one of the opportunities will be the increased marketability of Elk River if we are home to such a large, well known company. Commissioner Tveite indicated that he is in support of providing a location incentive and believes 5% of the market value is fair. Councilmember Dietz spoke on behalf of the Utilities Commission. He stated that Elk River Municipal Utilities is spending $3.5 million to provide a direct feeder line to the Target Technology Centex and they have agreed to spend an additional $3.5 million to provide the same for this company. Mr. Dietz explained that there aze risks for the Utilities if they provide a direct feeder line for this company. He stated that the Utilities will have to use electric revenue bonds and if the company should leave prior to those being paid off, the Utilities would have to request assistance to pay the bonds from the city. He noted that there will be no other use for the direct feeder line in this area should this company leave Elk River. Mr. Dietz explained that if the Target Technology Center were to relocate there would be other uses for the direct feeder line that was installed on that side of town. Councilmember Dietz indicated that the Utilities agreeing to spend $3.5 million to install a direct feeder line should be enough incentive and that he is not in favor of providing any additional incentive to this company. He noted that Target did not receive any incentives to come to Elk River. Commissioner Dwyer indicated that he agrees with Commissioner Tveite that the company should receive some sort of location incentive. He stated that he believes that Elk River will Economic Development Authority Minutes March 6, 2006 -Special Meeting Page 3 gain in its appeal with each additional large company that locates here. Commissioner Dwyer explained that this is an opportunity to increase the city's tax base which the County and the School District will benefit from. Mr. Dwyer noted that he appreciates that the Utilities Commission has offered to install the direct feeder lines for both Tazget and this company. Mr. Clark stated that if it is the consensus of the EDA that they would like to provide a financial incentive to the company, staff can begin negotiations with the company. Mr. Clark stated that if staff recognizes that there is a larger risk than originally anticipated, they will return to the EDA and may request that no financial incentive be offered. Commissioner Moon indicated that he is not opposed to providing financial assistance to the company but is concerned that we are filling the industrial azea with companies that do not offer many jobs. He stated that he believes offering the company 4%7% is fair and if they request additional incentives, they can request assistance from the County. President Gongoll stated that he concurs that the city should offer some fmanual incentive fox the company and believes that up to 6% would be fair but would like the amount capped. He stated that eventhough this company will not create many jobs, it will have other benefits to the city. Commissioner Klinzing explained that she also concurs that the city should offer the company an incentive of up to 5% and if the company requests additional assistance they should request assistance from the County since the County is not currently offering any incentive to this company. She noted that she doesn't feel that companies should need incentives to locate in Elk River and that she feels that the city continues to get caught in bidding wars with other communities. MOVED BY COMMISSIONER TVEITE AND SECONDED BY COMMISSIONER KI.INZING TO DIRECT STAFF TO OFFER THE COMPANY PAY-AS-YOU-GO TAX ABATEMENT FROM THE CITY OF UP TO 5% OF THE ASSESSED MARKET VALUE WITH A $1 MILLION CAP. MOTION CARRIED 7-0. 4. Adjournment There being no other business, President Gongoll adjourned the special meeting of the Elk River Economic Development Authority adjourned at 6:17 p.m. ~~ essica Miller Recording Secretary