07/24/2013 - City Council Finance CommitteeFINANCE COMMITTEE MEETING
WEDNESDAY, JULY 24, 2013
1:30 PM
CONFERENCE ROOMS 2A &B
AGENDA
I. AGENDA ADOPTION
V , a II. HOLDEN PROPERTY PURCHASE FUNDING
III. CEDAR GROVE ITEMS
A. DEVELOPERS' MARKETING UPDATE — Discussion of Hotel Prospect
and September 10 Update to EDA Board
B. CEDAR GROVE FINANCING UPDATE — Discussion and Direction
regarding Special Legislation
IV. CENTRAL AREA UPDATE — Discussion of Potential Financing for an
Enhanced Development Plan
� r V. BUSINESS FINANCING POLICY — Overview of Current Policy and Approach
VI. OTHER BUSINESS
VII. ADJOURNMENT
Agenda Memo
July 24, 2013 Finance Committee Meeting
II. HOLDEN PROPERTY PURCHASE FUNDING
ACTION TO BE CONSIDERED:
• Provide direction on funding source for the $625,000 Holden property purchase and related
$25,800 architectural consulting services contract.
BACKGROUND:
At the June 4 City Council meeting, purchase of the property and a related architectural
services agreement with CNH Architects were approved. The property was identified as a
potential fire station site as part of a consolidation plan.
Also on June 4, the Council directed the Finance Committee to identify funding sources for
these costs.
• Possible funding sources include:
Community Investment Fund (CIF)
• Per ordinance this fund "shall be used solely to pay the capital costs and Council-
designated start-up operational costs of projects of general benefit to the City."
• The current fund balance is $1.7 million.
Fire Apparatus Fund
• The purpose of this fund is for purchases of fire vehicles. If fire station
consolidation occurs, and the Holden property is used for that purpose, one fire
engine scheduled for replacement in 2015 (tentatively budgeted at $600,000) would
no longer be necessary. A future rescue vehicle replacement of approximately
$150,000 would no longer be necessary as well.
• The current fund balance is $685,000.
General Fund balance
• Currently, the fund balance is at 50 %, or $1.5 million over the high end of the 40-
45% target range.
• In addition to the property in question here, staff has identified other significant
funding needs—primarily facility renewal /replacement costs at Cascade Bay and the
Civic Arena —for which the General Fund balance may be an appropriate funding
source. Staff is in the process of identifying cost estimates for these other needs and
will ask the Council/Finance Committee for direction on these items at a later date.
ATTACHMENTS: None
r
Agenda Information Memo
Finance Committee Meeting
July 24, 2013
III A. DEVELOPERS' MARKETING UPDATE — Hotel Prospect Review
and Approach to September 10 Marketing Update to EDA
DIRECTION TO BE CONSIDERED:
To receive an update on Master Developer marketing activities, to make a
recommendation in response to a purchase offer by a hotel developer and to outline
expectations for the Marketing Update to the EDA on September 10.
FACTS:
• In consideration of the confidential nature of certain marketing and prospect
discussions, the Finance Committee has been assigned the responsibility of
monitoring the redevelopment area marketing activities of the master
developer /broker team on behalf of the EDA and City Council.
Morrissey Hotel LOI - Staff and the Developer have been in discussions with
Morrissey Hospitality Companies in recent months about their interest in developing
a hotel on one of the outlots in the Cedar Grove Redevelopment. The focus of the
discussion has been on a hotel development in the lot embedded in the parking garage
along Cedar Grove Parkway.
While some progress has been made in negotiations, the unique elements of the
embedded lot leave some unresolved issues that the development team wishes to
discuss with the Committee. In addition, MHC has also expressed interest in a more
traditional approach to a hotel development on Outlot B, east of the garage. Staff will
provide additional information regarding the status and options for addressing them at
Wednesday's meeting. The Committee will be asked for direction as to next steps in
this regard.
Marketing Update — As marketing of the properties moves forward, we have come to
realize the availability of the outlots in the immediate Paragon area for development
will be affected by shopping center and parking garage construction — staging, borrow
material, etc.. At this point, it is likely that Outlots A and B and the embedded lot
will not be available for third party development until the early summer of 2014.
Paragon and the City's Engineering Division have indicated that if a fast track project
were to come forward, we would work to find alternatives to make one of the lots
available, but the options for locations in the area are limited.
This timing expectation will permit potential prospects to go through the concept
plan, negotiation and formal development review process in the time between, but it
will also mean that future construction in the area will occur with the shopping center
in operation.
In the meantime, two other things are expected to inform the market. The Cedar
Corridor Market Study will be completed and a presentation of the draft study
findings will be presented at the September 10 City Council Workshop. It is expected
to generally support the market focuses that have been pursued to date as well as
point up the value of street level activity /walkability of the area from the transit
station east past the center and to the east end developments.
The other item that is affecting the willingness of other retail development to step
forward is the open issue of the CSM proposal for the central area. While the outlet
center is not a direct competitor for the traditional project expected on the Lockheed
Martin site, some food and beverage and ancillary retail users will delay decisions
about sites in Cedar Grove until they find out whether they can locate at the CSM
project or determine more clearly what will locate there.
Additional information regarding marketing contacts and activities will be reviewed
by Mr. McCaffrey and Mr. Pratt at the Committee meeting.
Direction regarding Presentation of Marketing Activities to the EDA at the Se tep mber
10 City Council Workshop — When the preliminary development agreement with
Pratt and Cassidy Turley was extended in March, one of the expectations was that
there would be a check in regarding marketing activities at a Council workshop
meeting in six months. An item in that regard is planned for the September 10th
Council Workshop. Given that the detailed marketing materials are still best shared
with the Committee to maintain a level of confidentiality for prospects, staff will ask
the Committee for direction as to how to frame that item for the workshop packet and
discussion.
ATTACHMENTS: None — Information to be provided at meeting.
Ll-
Agenda Information Memo
Finance Committee Meeting
July 24, 2013
III B. CEDAR GROVE FINANCING UPDATE — Special Legislation
Regarding TIF District
DIRECTION TO BE CONSIDERED:
To receive an update on projections for the sources and uses of funds for the Cedar Grove
Redevelopment District and discuss alternatives related to pursuing special legislation
regarding the term or other aspects of the district in the upcoming legislative session.
FACTS:
• Due to the delays in new development in the Cedar Grove Redevelopment District
caused by the recession, ten years of the 26 year term of the district have passed with
a base amount of TIF being generated from peripheral development like Keystone
Communities, Nicols Ridge and properties north of Hwy 13.
• At the same time, the EDA has made the major investments in the district including
road and utility improvements, property acquisitions, business relocations, property
demolition, clearance and environmental abatement and, most recently, approval of
the construction of a $20 million parking garage to meet area parking needs.
The Finance Committee has previously reviewed the sources and uses of funds and
financial projections for the district and has provided recommendations to the EDA
for financing steps in that regard. As part of those discussions, the Committee has
considered the potential for pursuing special legislation for a term extension for the
district. Other options to generate additional revenue include the establishment of an
EDA levy or the creation of an Abatement District of the City "TIF" stream after
decertification. While those will remain options into the future, it appears timely to
for the Committee to discuss the potential for pursuing special legislation in the 2014
Legislative Session to address the long term finances for the District
During the 2013 Session, a number of cities requested and received term extensions
and other considerations for TIF districts where development has also been delayed
by the recession or other factors. With the City's legislative delegation continuing
into the coming session and the opportunity to work with them, the County, School
District and others in the interim, it would be timely for the Committee to consider
making a recommendation to the EDA as to whether to proceed in that direction.
S
• Additional information will be distributed for discussion at the Committee meeting
regarding:
• The current status of the TIF projections for the district in consideration of new
known development in the area.
• Examples of alternatives secured by other cities for districts in the last session,
including term extensions and modifications of the base TIF tax capacity rate, and
their projected revenue impact for the Cedar Grove District.
• Information regarding the use of lobbyists to help with legislation strategy and
management.
ATTACHMENTS: None — Information to be provided at meeting.
9
Agenda Information Memo
Finance Committee Meeting
July 24, 2013
IV. CENTRAL AREA UPDATE — Potential Financing for CSM
Enhanced Plan
DIRECTION TO BE CONSIDERED:
To receive an update on expectations regarding GSM's plan to submit an application for
the former Lockheed Martin property and the potential for public financing assistance if
it were justified by an enhanced plan.
FACTS:
• At the February Workshop, CC indicated willingness to consider public financing
assistance to CSM for a redevelopment of the former LM property, depending upon
what enhancements of features of the development could be achieved if it were
available.
GSM's initial response was that it would be interested in considering enhancements
of a development plan for the property and made a formal request to the City Council
to authorize staff to explore the possibilities in that regard. Staff researched whether
the property would meet the criteria for a redevelopment TIF district and found that
the building would not meet the substandard test to qualify. With the Council's
authorization, a request was made of the City's Legislative Delegation to pursue
expanded economic development TIF authority through general legislation, but was
not part of the final tax bill that was passed. CSM has indicated that it has good
momentum from retail and office prospects to proceed with a market based project
and that it will not be asking the City to pursue special legislation in the 2014 session.
• In addition to the market based plan, the Company is prepared to offer a second
"enhanced plan" for consideration by the City to see whether it would meet the
Council's expectation of features that might justify assistance. The City Attorney has
advised that it would be an option for the City's EDA to consider a comparison of the
base plan and an enhanced plan to make a determination in that regard, much as the
EDA now reviews concept plans in its redevelopment districts to determine whether
there is a basis for the project to proceed with a formal request for financing
assistance. If the Committee concurs that this is an appropriate approach, staff would
work with CSM to coordinate that type of presentation at an upcoming EDA meeting.
• Given that there are no TIF options available for the project, there are a limited
number of options to provide financial assistance. There may be DEED or Met
Council grants available that could assist with certain environmental abatement costs
associated with the demolition of the property, but those are competitive, application
based programs dependent on funding agency approval. The City could choose to
pursue a CDA Redevelopment Incentive Grant for the site. The likelihood of a
funding award from that source is higher, but in recent years the focus of the City's
applications to the RIG program have been for expenditures at Cedar Grove and it
would be necessary to weigh the merits of one over the other.
Tax abatement is the one tool that remains within the City /EDA's authority to use
without relying on a third party. The City's current Business Assistance Policy does
not permit the use of abatement. This position was established shortly after the tool
was created, in part because of the perception that there might be requests by
businesses to abate a portion of their base taxes, which the legislation would permit.
In practice, abatement has been described as TIF Lite, because it permits a taxing
jurisdiction to capture and use only its own property tax revenue stream to support a
project. While the abatement legislation would permit a community to abate any
portion of a property's taxes, cities that have used the tool have typically relied on
only the incremental tax value arising from a project and, if the City of Eagan were to
consider its use going forward, staff would recommend that the City's business
assistance policy be amended to limit its use to increment only.
Staff is requesting direction from the Committee for consideration by the EDA as to
whether CSM should be invited to make a concept plan presentation to the EDA to
identify the differences between a market based plan and an "enhanced" plan that
could be developed with public financing assistance and a recommendation as to
whether tax abatement (of incremental tax revenue) may be considered as an
available tool for that purpose.
• A related question would be whether the EDA should revisit its policy pertaining to
tax abatement to identify the circumstances under which it may be willing to use the
tool in the future.
ATTACHMENTS: None — Information to be provided at meeting.
No
Agenda Information Memo
Finance Committee Meeting
July 24, 2013
V. BUSINESS FINANCING POLICY — Overview of Current Policy and
Approach
DIRECTION TO BE CONSIDERED:
To overview the current Business Financing Assistance Policy and approach in relation to
the City's economic development philosophy.
FACTS:
In the past, the City has relied on its competitive advantages including its location,
proximity to the airport, 494 commercial area and the two downtowns, access to 494
and 35E, quality infrastructure, low taxes, rich broadband environment and other
features to attract business vitality, expansion and location.
To date, the City has been patient in allowing the private market to drive most
development and occupancy deals on individual properties. While the City, through
its EDA has been active on a selective basis to assist with multi - property assembly
and redevelopment projects, it has relied on commercial owners and brokers to
market properties and has focused City efforts on working with those private entities
and responding to applications for business financing assistance on a case by case
basis.
The minimal use of business subsidies has allowed the City to maintain its low
property tax rates for businesses that chose to locate and expand in the City without
financing assistance.
The City's current Business Financing Policy and application are based on an
applicant or owner approaching the City to request assistance and the City has not
proactively sought opportunities to offer assistance to prospects in response to
standard site selection processes.
There has been a recent increase in attention to business financing assistance due to
national competition for certain business locations and changing expectations of some
businesses, as communities competed for a small set of new prospects to fill vacant
spaces or develop green field sites during the recession and the initial stages of
recovery. Greater MSP has included the availability of incentives as a tipping factor
for certain of the business prospects they attract to the region. There has also been
media attention for the apparent success of cities like Shakopee in attracting major
locations through incentives (office warehouse and distribution may have gone there
anyway due to improved 169) and knowledge that DEED has expanded funding from
the 2013 Legislative Session..
• Even as the recovery takes hold and the number of prospects increases, there are an
increasing number of prospects, brokers or location consultants who include
questions about local financing assistance, fee waivers, and other forms of assistance
in their discussions of location options. Despite these inquiries, the City of Eagan has
been able to attract MISO, Cloverleaf Cold Storage, Murphy Companies and others to
make substantial investments in the City for the standard business reasons of price,
infrastructure, business amenities and location.
• Through the City's Visioning process, a number of comments arose in both the
Council and staff response groups suggesting that the City become more aggressive
about offering business incentives, either generally or on a targeted basis for certain
priorities. As the City Administrator and staff work to put the Visioning results into a
goals format, it will be useful to have some initial discussion with the Committee as
to its perceptions of the City's historic approach to business subsidies versus patience
with the private market and how that may or may not evolve in the future.
ATTACHMENTS:
StarTribune Article regarding Shakopee incentives on pages jt— through
10
StarTribune - Print Page
i
What price jobs? Shakopee's handing
out millions
Article by: Susan Feyder and David Peterson
Star Tribune staff writers
July 14, 2013 - 10:48 AM
For a midsize suburb at the far edge of the metro, it's an eye -
popping haul.
In just 15 months, Shakopee stands to reel in well over 1,000 jobs
from five new employers, representing hundreds of millions In
Investment and covering well over 100 football fields worth of land.
But at what price?
A photo of the existing ADO Wilding in Shakopee that will be
MonMon over b Emerson Electric. Cos subsidiary that goes by
name of Rosemount Inc.
Provided photos, Unit • Dint -
The millions in tax subsidies that Shakopee Is dishing out to land
those jobs, counting deals in hand and deals in progress, has eyes rolling among some civic leaders in Scott County. Nor are
the deals ones that every other suburban competitor is willing to consider. But the city insists that the long -term gains will
justify the short-term sacrifice.
The latest to surface is a possible deal to bring the headquarters of Datacard Group to Shakopee from Minnetonka, where
the maker of secure ID and card personalization products had outgrown its space.
With Shakopee's once - commanding lead In Twin Cities housing development slowly melting away, the cascade of subsidies
is starting to suggest a community anxious about its future prospects.
"We have a lot of people traveling out of town now to have those kinds of jobs," said the city's newly hired economic
development chief, Samantha DlMaggio, who commuted from her home in Shakopee to St. Paul before starting her job in
April. A lot of her neighbors work in Minneapolis and nearby suburbs like Eden Prairie, she added, and "we want to bring
them back here."
The pile of deals has some business owners, already unhappy with their own tax bills, grumbling, said Joe Wagner, a county
commissioner who runs small businesses along the highway south of Shakopee.
"What I hear from people Is 'the big guys get the breaks and the little guy is on his own, "' he said. "And there's an element of
truth to that."
There's also the problem, added Chanhassen City Manager Todd Gerhardt, of where you stop.
"You kind of wind up going down slippery slope. You start abating taxes for one and having to explain why you're not for
others, he said.
Chanhassen lost out to Shakopee in a competition for a major new Installation for a division of Emerson Electric partly
because the company wanted to spread out its operations, Gerhardt said. Emerson already has about 1,500 employees in
Chanhassen.
But the company did ask about the possibility of financial assistance for one Chanhassen property it had looked at, Gerhardt
said. The city offered Emerson some breaks on permitting fees, Gerhardt said, "but nothing that could come close to the deal
that Shakopee put together."
Shakopee Mayor Brad Tabke concedes that the city will take a financial hit for quite some time — but he says It will be
worthwhile.
"We were a sleepy rural town that went through a heavy growth stage and then hit a very decisive lull," he said.
"Something that does us immediate good in six months might not be the right path to take, versus something that's beneficial
five or 10 or 20 years down the road. All these deals are extremely beneficial In the long term."
And the deals the public knows about are just the start, he added; the city expects to announce more in the coming weeks
and months.
Major slowdown
So far, however, there's little sign of a recovery for Shakopee In annual building permit totals and population estimates. For
the first half of this year, the city has recorded 39 single- family housing construction permits, 10 fewer than the same period
In 2012.
The Metropolitan Council is warning that development is shifting heavily away from cornfield - subdivision suburbs and toward
the inner metro as demographics change.
And that's notably true for Shakopee, one of very few major suburbs not to experience a major acceleration in its population
growth rate last year. Even Inner -ring Richfield added more population — quite a change from the past decade, when
Shakopee's growth numbers were 18 times as big.
In its quest for jobs, Shakopee has lowered the bar for what businesses receiving financial assistance must pay their
employees. Last year, companies seeking economic incentives had their minimum wage requirements cut from $19.94 to
$14.50 an hour. The reduction was described as a reaction to the recession, but was put into effect at least two years Into the
economic recovery.
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StarTribune - Print Page
Page 2 of 2
Wage levels don't appear to be an issue with Datacard. DiMaggio told a city committee last week that the jobs pay an
average of $85,000 a year. The renovations Datacard would make would mostly turn manufacturing space Into professional
office space.
A major plus for Shakopee, in the eyes of Commissioner Wagner and his colleagues: Despite the drop in wage requirements,
It Insists on well - paying jobs more than other places.
"On the surface it doesn't look good, I know that," he said, "but that industrial park In Shakopee is an ATM for all of Scott
County, if spins off so much money, and as long as we're getting good - paying jobs, jobs that fuel restaurants and
homebullding and not just starter homes but big ones, I can't help but feel it offsets it. Ten, eleven bucks an hour? No way."
Still, DiMaggio agrees that part of the challenge for Shakopee will be to measure the benefits. The city worked with Greater
MSP, a regional development partnership, to get an Impact study on the upcoming move of Emerson. She also said the city
hopes to develop more - specific criteria for which types of businesses it's willing to subsidize.
"We're not just going to give [financial assistance] to everyone," she said.
dapeterson @startribune.com • 952 -746 -3285
susan.feyder @startribune.com • 952 - 746 -3282
® 2013 Star Tribune
M
http: / /www.startribune .com/printarticle / ?id= 215394981 7/15/2013