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9.1. EDSR 11-20-2023 Request for Action To Item Number Economic Development Authority 9.1 Agenda Section Meeting Date Prepared by Work Session November 20, 2023 Brent O’Neil, Economic Development Director Item Description Reviewed by Shoot Steel TIF Modification Cal Portner, City Administrator Reviewed by Action Requested Item presented for information and discussion purposes. Background/Discussion Moyer Properties received Tax Increment Financing (TIF) from the city in 2020 to facilitate the purchase of EDA property and construction of a facility for the relocation of Shoot Steel from Ramsey to Elk River. Shoot Steel was required to increase their employee headcount from 7.5 to 13.5 as part of the TIF and business subsidy agreements with the city by June 3, 2023. Shoot Steel was not able to meet the job creation goal in that timeframe, and was granted a one-time, one-year extension through June 3, 2024, to meet the requirement. Due to unanticipated business conditions, Shoot Steel has indicated it will not be able to meet the job creation goal, and has seen a reduction in payroll to five employees. Per the agreements, not satisfying the job requirements of TIF results in a proportionate reduction in TIF, or full rescinding of TIF if no additional jobs are created. Approximately one-half of the building is being used for Shoot Steel. Moyer Properties has been working with a company to rent the remaining space. This company has similar jobs and payroll as Shoot Steel. Evan Moyer, principal owner of both Moyer Properties and Shoot Steel, has been discussing with staff whether an additional business within the facility could help satisfy the jobs requirement. Mr. Moyer has provided a summary regarding this issue and will be present to discuss it further with the EDA. This discussion is a continuation of this topic from September. As an amendment to the TIF would be necessary for such a change, and as any amendment to the TIF agreement would be subject to review by the EDA and approval by the City Council, staff are seeking direction regarding the EDA’s position on modifying the TIF. Financial Impact N/A Mission/Policy/Goal Support existing businesses. Attract new businesses. Attachments  Memo from Evan Moyer The Elk River Vision A welcoming community with revolutionary and spirited resourcefulness, exceptional service, and community engagement that encourages and inspires prosperity. Updated: January 2023 Shoot Steel, INC 17565 Tyler St NW Suite A Elk River, MN 55330 763-205-2109 ShootSteel.com TIF amendment for Moyer Properties LLC Background Shoot Steel, INC committed to moving its operations to Elk River and growing its number of employees in exchange for TIF. About 1 year after the TIF application was submitted Shoot Steel, INC was faced with crippling supply chain issues. The price of hot rolled steel rose by roughly 4x and the price of abrasion resistant plate rose by roughly 2.5x. Additionally lead times and minimum orders increased. We tried increasing advertising to increase revenue, but it was not enough to cover the increase in material cost. When we raised our prices, sales dropped by roughly 50%. The company was losing money faster than we could react. In the spring of 2022, I was forced to take out a personal loan to make payroll. This was after exhausting my personal bank account and all business assets. To save the company layoffs were the only option. After reducing the company from 10 employees to 5 we were still losing money every month. It took a complete restructuring of the company to turn things around. This took roughly 6 months of hard work and creativity. Overall, the company is profitable again, but steel prices remain high. The best option is for the company to run lean, pay off debt and focus on small incremental growth. There is no indication that the abrasion resistant plate market will go down this year. If anything, I anticipate it going up due to the conflicts in Ukraine and Israel. The steel used to make targets is the same steel used for military armor in many cases. Any increase in demand would raise prices, as the mills are currently working at capacity. In an effort to cut costs Shoot Steel, INC began subleasing out half of the warehouse. The new tenant does not currently have a physical location in Minnesota. They plan to hire 5 employees this winter and grow as time goes on. This tenant also works closely with another business in Elk River and are a critical supplier of components. The jobs created by the tenant will benefit the Elk River community and Minnesota as a whole. Shoot Steel, INC would like to amend the original TIF agreement to include the employees from the tenant side of the building. Amending the TIF agreement would help Shoot Steel, INC navigate these difficult times and stay in Elk River. Financial Burden to Shoot Steel Shoot Steel, INC was forced to take on a considerable amount of debt to keep the company in operation. This debt is now reducing the company’s cash flow and increasing its risk. The company is working hard to increase revenue in any way possible and has finally been able to cash flow two months in a row. With interest rates and material prices as high as they are the best option for growth is to run lean. At this time adding additional staff would not be a good option for the company. Steps Moving Forward Shoot Steel is working closely with US Bank and Village bank investigating creative ways to move forward. Village Bank has been very helpful in pointing the company in the right direction. The company is now working with a Business Consultant with the SBDC. The consultant is helping with a marketing plan and to review the company’s financials. Shoot Steel also began working with a new accountant and bookkeeper as a result of the recent financial loss. The new accountant and bookkeeper have been very helpful in pointing out areas for improvement. Bookkeeping prior to 2023 was not accurate on a monthly basis. The previous bookkeeper and accountant did not have solutions to the problems the company was facing. Unfortunately, these problems led to a large accounting error that ultimately burned through all of the company’s cash reserves. The new bookkeeping system has proven to be much more accurate in predicting monthly profit and loss. This will help prevent this from happening again. In November of 2022 Shoot Steel hired a new General Manager to help run the company. The general manager has a proven track record in both online and retail sales. The first 6 months of employment were focused on learning the systems and looking for areas of improvement. The first large scale project was the COGS project. For this the general manager created a system to create an accurate way of measuring the COGS each month. This system has been in use all of 2023. Additionally in the spring of 2023 the General Manager took over the marketing and advertising. The months prior were handled by a marketing agency and a previous employee. Unfortunately, both the agency and employee were unable to attain satisfactory results. Within weeks the General Manager had the ads running much more efficiently. This has helped to both lower expenses and increase revenue. Critical Need Shoot Steel was asked to demonstrate a need for TIF on the warehouse project. This need was based on the warehouse as a long-term investment. Over the last 2 years that need has shifted to keeping the company in business. TIF is now critical to the company’s survival with today’s high steel prices and slowing economy. If Shoot Steel does not receive TIF it will likely be forced to move and possibly let the warehouse go. If the TIF agreement can be amended to include Trimark it would be a significant factor in the survival of Shoot Steel.