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5.2. SR 09-13-1999 rei ----'\) ( ); tli< ITEM #5.2. MEMORANDUM TO: Mayor & City cou~J1. Pat Klaers, City ~s~ator f' t/~ September 13, 199!} FROM: DATE: SUBJECT: Allina Request The representative for the Allina medical clinic requested that the city sell its future liquor store site to them so that they can proceed with the construction of a multi-specialty medical clinic. Council reviewed the request on August 9, 1999, and authorized continued negotiations for Allina's purchase of the city property. (See attached council minutes.) . The city has received the attached letter from Thomas McKee (who is representing Allina medical clinic in this request) regarding an offer for the city property. In this letter dated August 11, 1999, Allina is offering the city $6.50 per square foot for our property. This is the same amount that was in the July 29, 1999, offer letter. In an August 26, 1999, phone conversation with Mr. McKee, it was reaffirmed that this is the proposal Allina wants presented to the City Council. On August 27, Planning Director Michele McPherson and I met with Guardian Angels representatives to discuss options for the Allina proposal and the city's dilemma regarding an appropriate site for a possible second liquor store. At a follow-up meeting on September 3 with Guardian Angels representatives, Mr. and Mrs. Hartman, and Mr. McKee and Mr. Davis (representatives of Allina), all known concerns and possibilities were discussed. The dollar amount offered by Allina to the city for its property was again reaffirmed at this meeting. Guardian Angels representatives also indicated that they had no interest in selling part of their complex property to the city for a possible second liquor store. Guardian Angels expressed a desire to work with Allina for locating the medical clinic on their property, but this option did not appear to be a workable situation for Allina. The meeting resulted in no changes in Allina's position or additional options being explored. . I believe, like most everyone else, that the Allina medical clinic would be a great addition to the community. However, I also believe that a second municipal liquor store is in our future. A second store would be a great benefit to our citizens as well as a solid financial resource for the City Council, and we should retain or secure the best site available for this potential second store. We often hear that the city should run its operation like a business, and it does not seem to be a good business decision 13065 Orono Parkway · P.O. Box 490 · Elk River, MN 55330 · TDD & Phone: (612) 441-7420. Fax: (612) 441-7425 . . . to sell this site. It is not fair for anyone to say that this is the only site that works for Allina, as there are other sites available in the community for this business. The city (City Councilor staff) should not be viewed as the "bad guy" simply because we want to retain property which the council had the foresight to purchase a number of years ago. If the city is going to dispose of any property, state law (462.366, sub. 2) requires Planning Commission review in order to determine compliance with the Comprehensive Plan. By 4/5 vote, the City Council can dispense of this Planning Commission review requirement if the council determines that the selling of its property has no relationship to the Comprehensive Plan. At the August 9, 1999, meeting the City Council indicated that $6.50 per square foot offer was not adequate. The "negotiations" between Mr. McKee and myself were limited. Allina believes that $6.50 per square foot is market value and should be accepted by the City Council ifit is interested in accommodating this business at this location. I have indicated to Mr. McKee a number of times that I did not believe that this amount would be acceptable to the City Council, regardless if this offer reflects market value or not, and that I wouldn't be recommending accepting this offer. The final attachment is a letter from Councilmember Motin which expresses some of his thoughts and concerns regarding this issue. Recommendation Based on a number of reasons including the $6.50 per square foot offer, my belief that a second liquor store is in our future and that this is the best site possible for this operation, and that there are other sites available in the community for Allina, it is recommended that the City Council reject the Allina offer to purchase the city property as outlined in their August 11, 1999, letter. City Council Minutes August 9, 1999 Page 2 . 5.1. Presentation bv David MacGillivrarv, Sorinasted David MacGillivray of Springsted Financial Advisors informed the council that Moody's Investors Service has increased the city's bond rating from Baal to A3. He indicated that the upgrade reflects the city's diversifying and growing tax base and an expectation that the growth will continue. In addition, the city's financial position has strengthened which is evidenced by the growing reserves in the general fund, and the city's debt burden is expected to moderate as the city has in place the necessary infrastructure to accommodate the planned future growth. David MacGillivray presented Mayor Klinzing with a plaque commemorating the bond rating upgrade. 5.3. Consider Proposal From Allina Mayor Klinzing explained that AIlina has offered the city two options regarding a piece of property that the city owns. The options consist of the following: ODtion 1- Purchase the City's parcel of land for $6.50 per square foot. . ODtion II - Purchase the two end parcels of land and offer a land exchange with the city trading the westerly parcel for the center parcel owned by the City. Lori Johnson, Finance Director, indicated that the City Administrator has listed his concerns and recommendation regarding this issue in his memo to the Mayor and City Council. Michele McPherson, Director of Planning, reviewed the potential zoning issues regarding AIlina's request. Mr. McKee of Timco Construction stated that AIlina has re-evaluated the situation and feels that after taking the zoning issues into consideration, the only way that AIlina's proposal will work is to use all three lots. He indicated that the request made by AIlina at this time is to purchase the city's property. Discussion was held regarding the purchase price of $6.50 per square foot that AIlina is offering to pay for the city's property. It was noted that the City purchased the property at $5.50 per square foot in 1997. Councilmember Dietz indicated that he would have been agreeable to a land swap, however, he is not interested in selling the lot. He indicated that the City took the initiative to plan ahead for the purchase of property for a future liquor store and stated that the City should keep the property for that purpose. . Council member Motin indicated that he concurred with Councilmember Dietz. He noted that selling the lot for $6.50 per square foot will only realize an 18% increase in over three years. He further noted that there have been several improvements in the area since the city purchased the land including the completion of Joplin Street and the construction of Guardian Angels. Councilmember Motin stated that the City was wise for planning ahead when purchasing the site for a liquor store. He indicated that the city's population rate will continue to grow and there will be a need for another liquor store to service the western area. He stated that he is not interested in selling the site. City Council Minutes August 9, 1999 Page 3 . Councilmember Thompson indicated that AIlina would be a good addition to the community who would be bringing high quality jobs to the community. He stated he is in favor of working out an agreement with AIlina to sell the city's lot. Council member Thompson stated that he is not sure if he is interested in the city pursuing another liquor store. Councilmember Farber indicated that he was involved in the planning process of purchasing the lot for the future liquor store. He further stated that he remembers that the previous liquor store manager, Fritz Dolejs, recommended that a second liquor store was not necessary. He stated that because of that he is in favor of selling the lot to AIlina. Mayor Klinzing stated that she is not interested in seeing a second liquor store in the city and therefore she would be interested in negotiating with AIlina for the city's lot. She further indicated that she would like to negotiate a higher purchase price than the $6.50 per square foot. COUNCILMEMBER FARBER MOVED TO AUTHORIZE STAFF TO CONTINUE NEGOTIATIONS WITH ALLlNA FOR THE PURCHASE OF THE CITY'S PARCEL OF PROPERTY. COUNCILMEMBER THOMPSON SECONDED THE MOTION. THE MOTION CARRIED 3-2. MAYOR KLINZING, AND COUNCILMEMBERS THOMPSON AND FARBER VOTED AYE. COUNCILMEMBERS DIETZ AND MOTIN VOTED NAY. . 6.1. Consider Administrative Subdivision Request bv Seton Foster, Public Hearina Case Nos. AS 99-3/AS99-4 Michele McPherson, Director of Planning, indicated that Mr. Foster has made application for two Administrative Subdivisions to allow the creation of three lots. The property is located at the southwest corner of 225th Avenue and County Road 32. Michele reviewed the staff report on this request. She noted that Mr. Foster will have a total of 30 total acres that he wants to split into 3 - 10 acre lots. She noted that four acres of the 30 are located in Big Lake Township. Mayor Klinzing opened the public hearing. Mr. Foster approached the council and noted that he would impose a restrictive covenant on the property in Big Lake Township that would not allow any future splits of the property. This would then ensure that the city's ten-acre minimum requirement would be met. There being no further comments, Mayor Klinzing closed the public hearing. COUNCILMEMBER FARBER MOVED TO APPROVE THE ADMINISTRATIVE SUBDIVISION REQUESTED BY MR. FOSTER, AS 99-3, TO SPLIT 4.5 ACRES WITH THE FOLLOWING CONDITION: 1. THAT THE PROPERTY BE COMBINED WITH THE APPLICANT'S PARCEL TO FORM ONE PARCEL; . AND TO APPROVE THE ADMINISTRATIVE SUBDIVISION REQUEST BY MR. FOSTER, AS 99-4, TO CREATE THREE PARCELS WITH THE FOLLOWING CONDITIONS: 1. THAT THE APPLICANT GRANT DRAINAGE EASEMENTS OVER THE DELINEATED WETLAND AREAS; .. .... IQN!~~DEYELOPMENT.CONSULnNG nCommitted to Excellence Since 1957" Alia J 3 199! August 11, 1999 Mr. Pat Klaers City Administrator City of Elk River 13065 Orono Parkway Elk River, MN 55330 Honorable Mayor and City Council City of Elk River 13065 Orono Parkway Elk River, MN 55330 Re: Purchase of City Property-Hwy. 10 & Joplin St.-Allina Medical Clinic Dear Pat, Honorable Mayor and City Council, Thank you for your support allowing us the opportunity to purchase the above referenced site for the Allina Medical Clinic. . We would like you to consider our offer of $6.50 per square foot for this parcel of land. We have arrived at this price based on the fair market value of similar parcels of land within the City of Elk River. The parcels ofland on either side are offered for sale at $6.50 per square foot and we have submitted a purchase agreement for that price. We arrived early and observed the EDA meeting. The focus ofthe part of the meeting that we observed was to explore all avenues of incentives to open the door to new development within the City. These include TIP, grants, low interest loans and no interest loans. We feel strongly that our development in conjunction with the superb Guardian Angels development will provide on attractive solid anchor for your West Business Area. The future economic impact to the city will be significant. We therefore feel paying a premium to the fair market value for this land would be a disincentive for this development. Thank you, for your consideration. Sincerely, . -- \ 0--~ Thomas E. McKee 9421 WEST RIVER ROAD . MINNEAPOLIS, MINNESOTA 55444 . OFFICE 612-424-8444 . FAX 612-424-3311 . . . MEMORANDUM TO: Mayor Klinzing Council Members Dietz, Farber and Thompson FROM: Council Member Motin ~ September 7, 1999 DATE: RE: Liquor Store Lot It is my understanding that the possible sale of the "second liquor store" lot will be on the agenda for the September 13, 1999 meeting. I wanted to set forth my views in writing and have them in the packet so that you could consider them before the meeting. I must again stress my strong opposition to any sale of the property for any reason. I also believe that, if the property must be sold, the proposed purchase price is well below its value to the City. I fully believe there is a need for a second liquor store in Elk River, if not now, then in the very near future. With my background as a member of the Board of Directors of the Elk River Area Chamber of Commerce, I can understand the philosophical argument that, perhaps, the City shouldn't be in the liquor store business. If establishing a liquor store would put other Elk River establishments out of business or if the liquor store was run in a manner that, because of the "monopoly," the customers or public were harmed, there would be a more persuasive argument; however, this is not the case. As a council member, I believe my duty is to do what is best for the City, not just for business. State law specifically permits us to have liquor stores as part of our government function. In part, this is for the promotion and protection of public health, safety, morals and welfare. Another reason, obviously, is for the potential revenue. If we are going to be in the liquor store business, then we should run it as a business. A private liquor store owner would definitely take advantage of expanding the scope of the business with the profits that are anticipated. Some of the pros to having another liquor store along Highway 10 include (and I'm sure there are more): 1. Better serve the residents on the West side of Elk River. While many of those residents may go to Northbound Liquors (which increases the traffic congestion going Page 1 of 5 . . . through the downtown and School Street areas), many others feel neglected or feel forced to go to Big Lake or Otsego; 2. Capture the business of the customers going up North but not going up Highway 169 (i.e., those going towards St. Cloud). According to the current liquor store manager, the Anoka liquor store business increased dramatically when our Northbound Liquor store was moved only 1-1/2 miles further from Highway 10. Apparently, having easy access to the store is VERY important to those people going "Up North." This doesn't even account for those individuals coming North on 101 and turning West on 10. As the old real estate adage goes: LOCATION, LOCATION, LOCATION. 3. Efficiencies of Scale. With two locations, overall cost savings can occur, both internally (we would only need one Manager and could probably share some employees between the two stores) and externally (better wholesale costs if we buy in larger quantities). More "exotic" liquors could be stockpiled less, as there would be the ability to transfer inventory between stores. 4. Increased revenue. My understanding is that Northbound Liquors has averaged profits of about $300,000 per year, which currently helps keep taxes lower by transferring moneys to the General Fund and by paying for some of the City's capital improvements. I fully expect we could probably expect similar profits from another store (maybe not immediately, but soon, especially with the projected growth of the City). These are revenues that would also be used to help the City - perhaps by being earmarked for capital projects, like a community center, a pool, equipment, roads, etc. 5. Reduce or avoid taxes. As discussed at 4., there will be additional revenues. These could keep our real estate taxes low. In addition, there has been some discussion about imposing a Y:z % sales tax for a community center. It would seem that the increased liquor store revenue might make the sales tax increase unnecessary if properly earmarked. I have heard it commented that the liquor store revenue is merely just another tax. I disagree. The liquor store provides good service and product for a fair price and for which there is a demand. If we don't supply the demand, someone else will, to the City's financial detriment. The cons to having the second liquor store on West side: 1. Up front capital cost. Obviously, this is an issue; however, there are up front capital costs to all improvements to the City (and to all businesses). When it is determined with reasonable certainty that the second liquor store will make a profit after debt service (and I fully expect that may already be the case), we should start planning to move forward. Page 2 of 5 . . . 2. We would be further into the liquor business. I don't see that as a problem. Again, if we're going to be in the business at all (and I believe it would be fiscally irresponsible to get out of it), we should run the business as a business. To turn our backs on the future growth of the business is detrimental to the business as a whole and to the services we can provide our residents. 3. Loss of revenue to existing store. The existing store would probably experience some reduction in revenues; however, the combination of the revenues between the two stores would greatly exceed those of just the existing store and, as discussed above, there are efficiencies of scale which could help reduce expenses. As growth continues, the revenues at each store would increase. 4. Mixing drinking and driving. Someone brought up the issue of whether we would be encouraging drunk driving by making a liquor store easily accessible. Having a liquor store be inaccessible wouldn't make financial sense as sales would suffer and it would frustrate the customers. I can't say having a liquor store won't result in some people drinking and driving; however, it is still a very responsible way to provide the liquor distribution. All drivers know it is against the law to drink and drive. The vast majority doesn't drink and drive. Education and enforcement of the laws is what is necessary, not prohibition. I guess I feel better offering off-sale liquor sales where most people take the liquor to the intended destination (home, cabin, etc), versus on-sale liquor licenses where it is known that a large portion the people who drink then must drive home. Other issues relating to the specific site (and re: Allina). 1. I don't think anyone is arguing that Allina wouldn't be a good addition to the City. They would be. However, this could be said for many, many businesses. I don't believe we need to sell out just because Allina threatened they wouldn't come to Elk River if we didn't sell them our lot. There are quite a few other locations for Allina in Elk River and location, while important, should not be a huge factor to them (many, if not most, of their patients will be coming from health plans and would have to come to them anyway). They just don't want to pay fair market value elsewhere in the city. Allina apparently has been looking for a spot in Elk River for about five years. The mere fact they couldn't commit, or couldn't reach a satisfactory agreement with Earl Hohlen or others, is no reason to turn our backs on the good planning of an earlier Council (which was by unanimous vote). 2. I have a hard time believing that if we say "no" to Allina, they won't still build in Elk River. It might just take a while longer. If they decide not to come to Elk River, maybe it's their way of showing that they really aren't committed to the City and/or that they really don't believe that a fourth medical clinic in the City is really necessary. Page 3 of 5 . . . 3. While there may be other very good locations for Allina, the same cannot be said for the second liquor store. In order to maximize sales, the store must be on the West side of town and on the North side of the street in order to get the most traffic heading "Up North." Having a signalized intersection is a great feature. The site we have is probably the only one left with those attributes. Again, prior planning put us in a excellent position for a second liquor store. 4. It has been mentioned that Allina would bring about 50 professionals to the town. While it's possible that 50 may eventually work here, I doubt even half would ever move into Elk River. The majority of professionals who work in Elk River currently do not live here - even those who work out of only one location. In Allina's case, many of the professionals will probably be sharing time with other Allina locations, giving them less incentive to move here. Even if most of the professionals did move here, while the housing developers might enjoy the added business, there would not be a significant positive impact on the economics of the city. People, including professionals who work elsewhere, are moving here anyway. If we want to attract higher income residents, it is important to provide better service and amenities to our residents. 5. By way of zoning, I have had some discussion with health care professionals (not Allina competitors) who questioned whether we should even permit a clinic at that location on Highway 10 due to traffic concerns with the types of individuals who would be utilizing the clinic. Whether it be sick or injured individuals, the elderly, or whomever, the question was raised whether it made sense to require those individuals to drive on a major highway to get to the doctor. It was discussed that the potential traffic danger could be why most clinics are not located on major highways. Regarding the offer itself: 1. While I obviously believe any offer should be rejected, if a sale is to be considered, I believe that the offer of$6.50 per sq. ft. (about $425,000 total) is exceedingly low. The City apparently paid about $5.50 per square foot in 1996 with the future liquor store purpose in mind. 2. Since the purchase date, many improvements have occurred to the area. The road (Jarvis) was put in where there was none and the signalized intersection was put in where there was none. While these had already been paid for by the Seller through assessments, having them already in place is more valuable. In addition, Guardian Angels [which arguably could be a [mancial windfall for Allina and which could be why Allina is so interested in the site] was built instead of being only a dream, a frontage road was put in on the South side of Highway 10, and the whole area is much better prepared for development than it was three years ago. Allina is asking that we accept about a 6% Page 4 of 5 . . . annualized return on the investment. With the changes that have occurred since 1996, this offer is ridiculously low. Even Allina, in its most recent letter which said they were firm in their $6.50 price, indicated that they wanted us to provide them with, in effect, a financial incentive. While there may be times to provide incentives to businesses to attract them, I do not see this as the case in this situation - especially at this location. 3. While the owner of the adjacent properties might be willing to accept only $6.50 per sq. ft., he may have other reasons for selling at this time. In addition, the price reflects the fact that he can't complete the deal without the City's portion. The foresight shown in 1996 by purchasing the middle parcel must result in a premium price. 4. The value to the City of having an asset which could produce, perhaps conservatively, a quarter of a million dollars or more of profit per year is probably at least a couple million dollars. 5. Even if Allina was willing to pay whatever the open market fair market price, the price will not even come close to the value the land has to the City (both financially and otherwise) for its liquor store purpose. In conclusion, I respectfully request that the offer by Allina be rejected and that no further offers for the purchase of the parcel be considered. (An exchange for the comer lot being a possible exception. ) I realize this memo is quite lengthy. Thank you for taking the time to consider my thoughts. Sincerely, Page 5 of 5