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11/09/2010 - City Council Finance CommitteeAGENDA FINANCE COMMITTEE MEETING NOVEMBER 9, 2010 12:00 -2:00 P.M. POLICE CONFERENCE ROOM I. AGENDA ADOPTION II. PROCESS FOR CONSIDERING I &I APPEALS III. FINANCING OPTIONS FOR DUCKWOOD OVERPASS IV. TECH WORKING GROUP RECOMMENDATIONS / CONSULTANT'S FINDINGS V. OTHER BUSINESS VI. ADJOURNMENT 4 City of Eapn Memo TO: CITY COUNCIL FINANCE COMMITTEE FROM: CITY ADMINISTRATOR HEDGES DATE: NOVEMBER 5, 201 SUBJECT: FINANCE COMMITTEE MEETING / NOVEMBER 9, 12 -2 P.M. A Finance Committee meeting is scheduled for Tuesday, November 9 from 12 -2 p.m. in the Police Conference Room. Please come to the City Administrator's office and you will be "escorted" to the Police Department (secured entrance). Also, as a reminder, in keeping with past practice, no plans are being made to provide lunch on the 9 so, if you could, please plan to eat before the meeting or bring a "brown bag" lunch. Thank you /s /Thomas L. Hedges City Administrator ) Finance Committee Agenda Memo November 9, 2010 II. I & I SURCHARGE APPEAL PROCESS RECOMMENDATION FOR CONSIDERATION: Review the I & I surcharge policy and prospective appeals and define a process for Council consideration of future appeals. FACTS • The Inflow & Infiltration Mitigation's Sump Pump and Sanitary Sewer Lateral Inspection Program has been actively progressing for the past 9+ months. There has been a small percentage of properties that have either not responded to the City's notifications for scheduling the mandatory inspections or have not brought their property into compliance with an issued Corrective Work Order. • After mailing several reminder notices within a defined grace period, a $150 /month surcharge is placed on a non - responsive property's Utility Bill until the property becomes compliant, per the Council's Policy adopted on December 15, 2009. Staff is starting to receive calls from these impacted property owners who are objecting to the surcharges after they have appeared on their Utility Bills. These property owners are requesting to have those surcharges removed or reduced. Because the fees were levied in accordance with a Council approved policy, staff needs Council direction on how to process any appeal requesting further consideration. • When this issue was mentioned at the Council Listening Session on October 12, 2010, the Council directed the issue to the Finance Committee to recommend a process for formal review and resolution of future appeals. • When receiving complaints regarding surcharges on Utility Bills, staff has directed the property owner to submit a formal written appeal that staff can present to the Council for formal consideration. Surprisingly, only one property owner has done so to date. Staff will review the circumstances of the one formal request, along with the background of several others that are expected to be submitted sometime in the future. ATTACHMENTS: • I &I Policy (with surcharge section highlighted), ages 3 and • Summary of requests received to date, pages thiuu • Status of I &I inspection program, pages cr] . a CITY OF EAGAN Inflow and Infiltration (I &I) Mitigation Program /Policy Adopted December 15, 2009 Background The Metropolitan Council of Environmental Services (MCES) implemented an Infiltration & Inflow (I &I) Mitigation and Surcharge Program on February 8, 2006. I &I relates to extraneous clean water entering the sanitary sewer system through either ground water (Infiltration) or direct flow (Inflow) such as sump pumps. This excess volume of clean water adds considerable cost to the overall Metropolitan Disposal System (MDS) for both conveyance and treatment. As a result of a significant 5" rainfall event that occurred on Oct. 5, 2005, the City of Eagan was determined to have had an excessive rate of flow to the Seneca Waste Water Treatment Plant exceeding its peak flow allocation. As a result of this exceedance, the MCES determined that the City of Eagan was required to spend $1,718,500 over 5 years ($$343,700/yr) to either mitigate its excessive I &I, or pay that amount to the MCES for its equivalent expansion of the MDS. MCES enforced this financial obligation through an annual surcharge program beginning in 2007 and scheduled to end in 2012. If excessive flows continue to occur after that date, the annual surcharge will likely become a permanent Demand Charge (in an amount yet to be determined). The City continuously evaluates the public sanitary sewer system (275 miles of pipe, 7,800 manholes and 18 pumping stations) and performs corrective measures as needed. However, to adequately address the excessive I &I, there is also a need to inspect and mandate corrective work in the private sanitary sewer system within the community (over 18,800 connections). Program The private property inspection program has been commonly referred to as a "Sump Pump and Service Lateral Inspection Program" (SP &SLIP). Many communities have already implemented this type of inspection with a related corrective enforcement program which can take up to multiple years and millions of dollars to complete on a citywide basis. It requires the personal inspection of a private property's internal sewer plumbing system and service lateral connection to the City's sewer main (typically in the street or a backyard easement). On September 1, 2009, the Eagan City Council adopted an amendment to City Code Section 3.40 to add Subdivision 10, "Clear Water Discharge Prevention and Prohibition" (attached). This amendment prohibits any type of clear water connections or faulty services that allow ground water to enter the system. It also requires all notified property owners to schedule an inspection with the city, or its designated agent(s). This inspection typically takes up to 2 hours to perform and requires that an adult resident be present at all times. A copy of the inspection report identifying any non - compliant issues will be left with the resident upon completion of the inspection. Corrective Work Orders will be sent to the property owner /occupant informing them of the required corrective work that must be completed within 60 days. Upon satisfactory completion of the Corrective Work, a Certificate of Compliance will be issued by the City. If either an inspection is not scheduled, or required corrective work is not completed, within the required time frames, a monthly surcharge will be added to the property owner's utility bill until such time as an inspection is performed and/or all corrective work is completed. (See attached Work Flow Process diagrammatic) Non - compliant Enforcement Surcharges City Code 3.40 (Rules and regulations relating to sewer service), Subdivision 10 (Clear Water Discharge Prevention and Prohibition), Paragraph E (Surcharges) provides for monthly surcharges to be added to the property's utility bill resulting from any cause that results in a lack of a Compliance Certification being issued. The amount of the I &I Surcharge for non- compliance will be established by formal Council action and incorporated into the Annual Fee Schedule. Per the Code, the I &I Surcharge becomes effective for the entire month when the final notice of Non - Compliance was sent to the property owner /resident and every month thereafter until such time that a Compliance Certificate has been issued. Nonpayment of delinquent fees and/or surcharges will be certified to the property's taxes for collection. City Cost Participation Other communities' experiences have indicated that the majority of corrective work requirements relate to a simple disconnection and rerouting of a sump pump discharge. However, there have been situations where foundation drain disconnections and/or service lateral repairs become more costly. In respect to the cost savings expected to the City's future sewer billings from the Metropolitan Council, the City Council deemed it justifiable to offer financial participation for corrective repairs to low and medium density residential properties (R -1,2 & 3). The City will assume responsibility for 50% of costs incurred by the homeowner for required corrective work (Permit Fees not included). If the corrective work is not performed under a City issued contract, the property owner may perform the work personally. While all material costs will be eligible for reimbursement, only work performed by a licensed plumber and/or pipe -layer contractor pre - approved by the City will be eligible for City participation. If the property owner elects to perform the work through a private contractor, the City will issue payment upon receipt of proper documentation for the City's share, made payable to both the private contractor and property owner. City Financing of Property Owner costs The Property Owner may elect to have all, or any part, of their actual costs incurred levied as a special assessment against the benefitted property spread over 5 years and financed at 4% simple interest. This will require the execution of the appropriate Waiver of Hearing and Special Assessment agreement. APPROVED BY COUNCIL ACTION: December 15, 2009 REVISED: January 19, 2010 I & I SURCHARGE — APPEALS As of Nov. 5, 2010 Formal Request/Appeal 1. Xuan Tran (renter) (on Utility Billing account since 2005) Nho Tran (owner), 4610 Stonecliffe Dr. • $150 Surcharge first applied on May 25 • Total of 4 surcharges ($600) placed on account (June, July, Aug, Sept) • 2 notices sent to schedule an inspection (Feb. 8 & March 9) — no response • 4 Notices of Surcharges (April 30, June 23, July 29 & Sept. 7) — no response • Called Sept 22 (after receipt of Utility Bill to scheduled inspection for week of Sept. 27 • Email request to remove or reduce surcharges received Sept. 27 • Rationale — doesn't read or write English Potential Request/Appeal 1. Brian Deslaurier 4639 Penkwe Way • $150 Surcharge first applied on May 25 • Total of 2 surcharges ($300) placed on account (June & July) • 2 notices sent to schedule an inspection (March 5 & April 9) — no response • 2 Notices of Surcharges (April 30, June 23) — no response • Inspection scheduled and performed July 26 after they noticed the surcharge on Utility Bill • Email regarding potential appeal received Oct. 8 • Rationale — doesn't open mail. Has utility bill paid automatically from checking account. 2. Unknown (Rebecca) ? ? ? ?? address • Email to City Council, Sept. 20 • No response to request for identity S Summary Report - All Districts Sanitary Sewer Service Inspections Inspections Entered into Cityworks as of 10/13/2010 Residential Sanitary Sewer Compliance Inspections - 3 Districts in Pilot Program (2454 Residential Properties) Proiect Overview: Compliant Inspections: 1,521 Non - Compliant Inspections: 69 Incomplete Inspections: 321 Number of Inspections: 1,911 - 1 compliant & 1 Incomplete Inspection were performed outside the 3 districts. Non - Compliant Inspections: Sump Pumps Service Laterals: - Includes Beaver Board Sytems Residents Surcharged for Non- Response: 40 ?000 Compliance Status for Residential Property Inspections 0 Number of Number of Incomplete Number of Compliant Noncom • Inspections Inspections Inspections Inflow & Infiltration Program 46 37 80% 4% 17% I: /Utilities /I & I /I &I Informational Meeting/I &I Inspection Information.pdf Inspections Identifying: Root Intrutions: 658 Poor Joints: 100 Mineral Deposits: 177 Damaged Pipes: 67 Sag /Pipe Deflections: 387 Total Identified: 1,389 Issues identified by service lateral inspections do not necessarily determine compliance status. Service Lateral Issues Identified Poor Pipe Joints 7.20% 27.86% Sag / Deflection Damaged Pipe 4.82% Mineral Deposits 12.74% *' City of Eagan Roots 47.37% • Roots • Mineral Deposits a Sag / Deflection • Poor Pipe Joints • Damaged Pipe Summary Report - By District Sanitary Sewer Service Inspections Inspections Entered into Cityworks as of 10/13/2010 District 1 Overview: Compliant Inspections: Non - Compliant Inspections: Incomplete Inspections: Number of Inspections: Non - Compliant Inspections: Sump Pumps Service Laterals: - Includes Beaver Board Sytems Residents Surcharged for Non- Inflow & Infiltration Program 749 33 155 936 17 20 District 8 Overview: Compliant Inspections: 359 Non - Compliant Inspections: 24 Incomplete Inspections: 68 Number of Inspections: 451 District 21 Overview: Compliant Inspections: 182 Non - Compliant Inspections: 11 Incomplete Inspections: 35 Response: 22 Non - Compliant Inspections: Sump Pumps Service Laterals: - Includes Beaver Board Sytems Residents Surcharged for Non- Response: 8 23 11 Number of Inspections: 227 Non - Compliant Inspections: Sump Pumps Service Laterals: - Includes Beaver Board Sytems Residents Surcharged for Non- Response: 10 5 6 District 1 (919 Residential Properties) Inspections Identifying: 80% 4% 17% District 8 (1074 Residential Properties) Inspections Identifying: Root Intrutions: Poor Joints: Mineral Deposits: Damaged Pipes: Sag /Pipe Deflections: Total Identified: 80% 5% 15% District 21 (461 Residential Properties) Inspections Identifying: Root Intrutions: Poor Joints: Mineral Deposits: Damaged Pipes: Sag /Pipe Deflections: Total Identified: 80% 5% 15% I: /Utilities /I & I /I &I Informational Meeting /I &I Inspection Information by District.pdf Root Intrutions: 588 Poor Joints: 41 Mineral Deposits: 146 Damaged Pipes: 32 Sag /Pipe Deflections: 202 Total Identified: 1,009 Issues identified by service lateral inspections do not necessarily determine compliance status. 42 32 14 17 89 194 Issues identified by service lateral inspections do not necessarily determine compliance status. 4 , 6 ' City of Eagan 12 8 4 3 46 73 Issues identified by service lateral inspections do not necessarily determine compliance status. Agenda Information Memo Finance Committee Meeting November 9, 2010 III. FINANCING OPTIONS FOR DUCKWOOD OVERPASS ACTION TO BE CONSIDERED: To provide direction to staff regarding the construction and financing of the Duckwood Overpass. FACTS: • On October 6, 2009 the City Council took action to receive the Duckwood Drive Overpass Traffic Study including recommended geometric layout, to authorize solicitation of proposals to prepare detailed plans and specifications for Contract 09 -18 (Duckwood Drive / Federal Drive — Bridge/Street Improvement), to approve Federal Funding Agreement for final design services, and to authorize the Mayor and City Clerk to execute all related documents. • At a Special City Council meeting on March 9, 2010 the City Council received an update from staff, discussed the proposed improvements and provided direction to add the Duckwood Drive Overpass to the 2011 -2015 CIP to help facilitate the pursuit of MnDOT plan approval and federal stimulus funding. While MnDOT plan approval has since been obtained, the project did not qualify for any further limited stimulus funding. • On March 16, 2010 the City Council took action to approve a resolution amending the Part III 5 -Year Capital Improvement Program (2010 -2014) to incorporate the placement of Contract 09 -18 (Duckwood Drive / Federal Drive — Bridge /Street Improvements) in 2011. The City has been actively pursuing right of way and easement acquisitions. To date, 2 of the 9 parcels have been fully acquired. • On Sept. 29, 2010, an informational Open House held in the Eagan Room was attended by approximately 2 dozen citizens with 11 completing formal comment cards. c. • The preliminary financial summary as prepared by the Engineering Department is as follows: Expenses Estimated Construction Cost $ 4,700,000 Engineering Design 453,410 Estimated Construction & Contract Mgmt 423,000 Estimated Soil Boring & Material Testing 65,000 Estimated Right of Way Acquisition 1,003,500 Subtotal $ 6,644,910 Less Revenues /Receivables Federal Funding Reimbursement ($453,410) Estimated County Reimbursement (366,080) Estimated Sale Price for City- acquired parcel (300,000) Subtotal ($1,119,490) Total Estimated Improvement Cost (Net) $ 5,525,420 • The following funding options are available to finance the construction of the Overpass: 1 Direct payments from the Overpasses & Interchanges component of the annual Major Street Tax Levy. (Essentially paying cash from current balances and future tax levies.) 2. Selling Municipal State Aid Bonds (MSA) and using future Overpasses & Interchanges levies to pay the debt service. 3. A combination of cash and bonding. • The City's new Overpasses & Interchanges levy was first collected with taxes payable in 2008. The dollars are currently being used to replenish the MSA dollars that are used for debt service on the MSA bonds sold to construct the Northwood Overpass. That debt service requirement ($5,991,388 in total) will end in 2029 when the 20 year bonds are paid in full. The December 31, 2010 balance in the Overpasses & Interchanges account is projected to be approximately $2,265,000. • Staff projections show that paying cash for the Duckwood Overpass will result in a short-term deficit in this account that will be eliminated in 2015 assuming approximately the same level of annual Overpasses & Interchanges levies. 9 • Any combination of using cash and MSA bonding could be an option resulting in the spreading of the construction costs into the future, paying interest, and maintaining a relatively higher balance in the Interchanges & Overpasses account. • There are no additional projects either programmed in the current five year CIP or in the future category of the CIP that meet the current Overpasses & Interchanges definition. • Construction of an MSA qualifying bridge has the following impacts on future MSA allotments per calculation by the Engineering staff: (Note) Northwood Duckwood Overpass Overpass MSA Allotment Resulting From Bridge Construction: Costs Used 2,197,306 3,655,500 Year 1 Increase 29,356 46,279 Year 15 12,699 20,019 Total Estimated Increase 299,394 471,983 MSA Allotment Resulting From Using MSA Bonds to Finance the Bridge Construction: Bond Amount 3,961,220 5,000,000 Year 1 55,101 59,622 Year 20 2,595 2,808 Total Estimated Increase 548,142 593,123 Note: The MSA allotment financial impacts of the Northwood Overpass are in place and presented here only for perspective. • The net dollar value of the increase in the MSA allotment resulting from using bonds is somewhat difficult to definitively quantify. Any calculation is significantly impacted by the interest rate assumptions used in the analysis. The interest rate components include: 1) The rate on the bonds that are sold and; 2) the interest rates on the City's investments (the opportunity cost of paying cash and not having the money to invest). The greater the assumed spread between investment interest rates (relatively higher) and the borrowing rate (relatively lower), the more advantageous it is to borrow rather than to pay cash. The borrowing rate would be fixed through the bond sale and the investment rates will depend on economic circumstances over time. /0 • A tentative schedule for the Overpass construction is as follows: o Approve plans and authorize bids — December 2010 o Project bidding — January/February 2011 o Award contract — March 2011 o Project completion — December 2011 PUBLIC POLICY QUESTIONS: 1. Is the timing of the construction of the overpass contingent on receiving outside funding in addition to the federal dollars previously received for engineering design ($453,410 being applied to this overpass)? a. What is the likelihood of receiving any additional outside funding and does a commitment by the City Council to build the overpass with or without that outside funding change the potential of receiving any outside money? (What is the potential impact of dual tracking the effort to gain funding with actual bridge construction ?) i. There are various opportunities with different application dates for outside funding. ii. The fact that the project is for a local road will likely work against obtaining outside funding assistance from a practical standpoint. b. What is the potential impact on overpass costs if construction is delayed to sort out or wait for potential outside funding? 2. If construction of the Overpass is to proceed at this time, what is the preferred funding method? ATTACHMENTS: • Enclosed on page Ic is a copy of the right of way acquisition status graphic. • Enclosed on page /3 is a copy of the Open House comment card summary. 11 WNW w.1 NOV r• Royal Oaks Multi Owner Parcel PIN Unassigned New Horizon Academy Trusek, Inc. 3510 Federal Dr. PIN 108745001001 M.G. Astleford Trusek, Inc. PIN 108745001000 Fairview Clinic IRET Properties 1440 Duckwood Dr. PIN 105835001001 -- Li — L.—M-9 1 1 Duckwood Dri pr: Firestone Eagan Auto Map 1379 Town Centre Dr. PIN 107703001001 Tires P us Realty ncome Corp. 3595 Krestwood Ln. PIN 102650001001 1 City of hp Springhill Suites CSM Lodging 3635 Crestridge Dr. PIN 107715001001 Project 971 - Contract 09 -18 Duckwood Drive Overpass Easement Tracking L:wser :\Public Works\Michelte% Engineering1971 Easlment Tracking wi10 0 W = Perpetual Easement = Temporary Easement Condemnation Proceeding --- I = Negotiations Proceeding Acquisition Comments Fabulous! Must do! Can't wait! I am opposed to the new overpass. I believe it will lead to increased traffic and increased speeds in the residential neighborhood to the west. TOTALLY against this project. The road goes into a family neighborhood & will provide an excellent route for Blue Cross /Delta Dental employees that no longer will need Blackhawk Rd or Yankee Doodle. You need to protect the neighborhood. No left turn 7 -9 a.m. into residential neighborhood. I see the merit in this project & appreciate the fine planning by the city. However, I am very concerned about the Blue Cross /Delta Dental commuters who will definitely turn left onto Federal Dr to get to Blue Cross /DD. Our traffic will increase resulting in a different feel in our neighborhood. We have been there since 1991 & do not want to move or see our houses lose valve. Please do not allow traffic to turn left or south off of Duckwood overpass. Thank You. At the intersection of Violet & Lemieux, the first 3 Violet Lane twin homes cannot see approaching traffic & approaching traffic cannot see the twin homes due to tall evergreens & a curving road that was once a cul -de -sac. A stop sign should be installed. Definitely opposed to this City of Eagan Project 971. If it passes, I sure hope there will be a stop sign at Federal Drive & Violet Lane! Traffic has increased tremendously since Pearlmont Heights opened. It is going to be built. How many people don't stop at Widgeon & Duckwood? How many drivers don't come to a complete stop? This is a school bus stop. ISD 196 doesn't go into the neighborhood for afternoon kindergarten. I do not support the overpass at Duckwood. I do not support selling the property south of the overpass on the west side of 35E for commercial use. The residents near 35E have freeway & airplane noise. The green space provides a buffer from the noise & provides a residential quality to our neighborhood. Please retain the green space so that our quality of life isn't diminished & we can retain our property values. This proposal looks good as no stops required for traffic on Ring Road. Need round -a -bout at Duckwood & Denmark. Will save time, gasoline, emissions, no electrical needed as is required for lights, fewer accidents. Phone /E -Mail mycholitas @yahoo.com 651 - 454 -1935 651 - 456 -9833 marimclaughlinPaol.com 651 - 687 -0068 651 - 452 -2939 651 - 454 -6440 Patty.o'neil150 @gmail.com 561 - 454 -3168 ssaippd 3812 Blackhawk Ridge Place 1595 Blackhawk Hills Rd 3637 Ashbury Road 3637 Ashbury Road 1500 Violet Lane 1498 Violet Lane 3537 Widgeon Way 1480 Violet Lane 1237 Mourning Dove Court aweN 1 Lesley Tscherne 1 Andrew Hastings Tom McLaughlin Mari McLaughlin Bill & Donna Curry Sharon Wiley Carolyn Mestnik Patty O'Neil & Dave Redmond sJapl!y3 uof DUCKWOOD DRIVE/FEDERAL DRIVE OVERPASS Sept. 29, 2010 Open House — Comment Cards Project 971, Contract 09-18 G:Projects & Contracts/09-18/Open House/Comments Agenda Information Memo November 9, 2010 Special Eagan City Council Meeting IV. TECH WORKING GROUP RECOMMENDATIONS /CONSULTANT FINDINGS ACTION TO BE CONSIDERED: Review the findings of Eagan's Broadband Consultant in his draft report and the subsequent Eagan Technology Working Group recommendations and provide a recommendation to the full City Council for action. FACTS: > On April 6, 2010, the Eagan City Council again retained Design Nine as Eagan's broadband consultant and directed that it follow -up on next steps to achieve recommendations contained in an earlier report accepted by the Council on February 1, 2010. > Included in that report was a key recommendation to work with the local business community to determine how a modest colocation facility could be built in Eagan to attract additional providers, serve as a redundant data center for Eagan businesses and others needing off -site data storage. > In furtherance of the City Council's 2009/2010 goal to address the "evolving 'infostructure' bandwidth, capacity and speed needs" in Eagan, the City Council authorized retention of Dr. Andrew Cohill, of Design Nine. > After numerous discussions with local business interests, and a review of possible sites for such a facility, Mr. Cohill will briefly preview his draft report and present his recommendations to the Finance Committee and answer any questions. > In addition, the findings were reviewed and endorsed by the Eagan Technology Working Group and one additional recommendation was made. Director Garrison, the City's liaison to the Working Group, will highlight the window of opportunity and the specific recommendations for moving forward, and if the Finance Committee agrees with the recommendations, review a timeline for decision by the full City Council. ATTACHMENTS: • Recommendations for the City of Eagan, draft report, on pages )5 to • Tech -Savvy Missouri article on data centers on page3,(double-sided)V- • Description of Minnesota data center market and demand on pages • Summarized recommendations of Eagan Technology Working Group and Broad and Consultant on page. • DESIGN NINE we build networks that perform 1111... 11117 'S CONFIDENTIAL RESTRICTED DISTRIBUTION 'R CRAF Colo Recommendations for the City of Eagan DRAFT —DO NOT DISTRIBUTE Contents Overview I Benefits 4 Goals for Eagan 5 Recommendations 7 Goals, Strategies, and Benefits 9 Colo Design Characteristics I I General Characteristics 1 1 Site Considerations 13 Ownership and Governance Options 14 Public Ownership 14 Public /Private Partnership 14 Private Ownership 14 Cost Considerations I4 Cost Estimates 16 Electrical service 17 Potential Partners and Customers 18 Overview If Eagan makes targeted investments in broadband infrastructure, including incentives to attract a data center, the City can expect increased economic growth through increased business attraction, increased local business expansion, and an increase in good - paying job opportunities. It is important that the City evaluate the risk of doing nothing. Other communities in America are making significant investments in broadband infrastructure and are aggressively marketing their communities to leverage those investments. This is best illustrated by the recent announcement by the City of Chattanooga, Tennessee; the City recently rolled out citywide availability of Gigabit service for businesses and residents. The Web site that the economic developers rolled out to promote the City -owned network (http: // chattanoogagig.com/) quickly gained nationwide attention, even though Chattanooga is the first city -owned network to provide Gigabit service. Eagan is competing for jobs and businesses with more than 100 other communities in the U.S. that have already begun to make significant investments in broadband infrastructure (as listed in Broadband Properties magazine, spring 2010). Data centers, over the past decade, have become building blocks of the Knowledge Economy. The steady and geometric growth of demand for bandwidth has been doubling every two years for wired connections, and AT &T recently indicated smartphone users on their network have been doubling their bandwidth use annually. Behind the bandwidth growth is content and services of all kinds, and that content (data) and services have to be stored somewhere -- ideally as close to users as possible to reduce the cost of hauling that data long distances. Companies like Akamai have built extensive networks of servers located throughout the country, and Akamai servers really only do one thing: provide copies of other company's content and services close to users. Many large news and entertainment Web sites have enhanced the performance of their Web sites by using the Akamai server network to reduce the amount of time it takes to get a Web page or some kind of service to a user. The rapid growth in hosted services has also spurred the growth of data centers. Companies like Microsoft, Apple, and Google have been building massive data centers throughout the Colo Options Draft Only — Do Not Distribute 9/21/10 Page 1 of 20 17 United States to support their online services (e.g. search services, music downloads via iTunes, movies and TV on demand). These data centers are generally located near sources of affordable electric power and where there is abundant non - incumbent fiber available. As one example, the city of Danville, Virginia recently attracted a major data center that will bring 400 jobs to the community, and the two key factors were affordable and resilient electric power and a City - owned fiber network. Google's data centers also tend to be located in communities with those characteristics. It is also worth noting that while some of these data centers have been located in rural areas (where power costs are often lower), attracting and retaining skilled technical staff has been a challenge in some cases. Eagan can offer a large and varied skilled workforce for a firm interested in locating a data center in the city. The Akamai server network is just one example of a multitude of data, network, and server needs that are fueling a rapid increase in the number of colocation facilities (which are also referred to variously as data centers, colos, and carrier hotels). There is another trend that has contributed to the growth of data centers throughout the country. In the aftermath of 9/11 and Hurricane Katrina, companies throughout the U.S. have been decentralizing their data center operations to be able to better cope with disruptions caused by terrorism and/or natural disasters (e.g. floods, hurricanes, earthquakes, etc.). This decentralization includes: 00. Duplication of data centers, with many firms building not just a second data center but three or more in different parts of the country to provide diversity. This is also driving demand for more fiber and competitive pricing for fiber. p► Companies that are not building private data centers are using either commercial data storage services or are leasing space in data centers for remote backup of company data. And this data is usually being backed up in more than one location. As one example of the size and scope of this effort, New York, New Jersey, and Pennsylvania embarked on a massive data center project in eastern Pennsylvania called Wall Street West. The intent is to maintain, in real time, a complete backup of every single financial transaction that takes place on Wall Street and the nearby financial districts and companies. This location was driven in part by the requirement for affordable fiber links between the New York area and eastern Pennsylvania; without those fiber links, the data storage facilities have little value. Economic developers in eastern Pennsylvania expect a significant opportunity to attract satellite offices, high tech workers, and finance - related jobs to an area that has been part of the Rust Belt for decades. The Gartner Group notes that 49% of data centers are more than 16 years old. 'These older data centers have aging electric cabling and cooling systems that are often not able to meet the power and cooling needs of modern high density servers and network equipment. It is often regarded as less expensive to build a new data center than to rehab an older one. Colo Options Draft Only — Do Not Distribute 9/21/10 Page 2 of 20 18 In Eagan, members of the Technology Working Group and members of the Chamber of Commerce, among others, have been vocal in their desire to have improved and affordable access to a colocation facility in Eagan. Such a facility would not only provide better and more secure space for servers and data storage, but would also help drive down the cost of Internet access and other broadband services for Eagan businesses. Data centers, by their nature, concentrate customers and thereby attract long haul data and Internet carriers -- companies like XO, Level 3, Zayo, Cogent, and others, as well as incumbent long haul carriers, including AT &T, Century Link (formerly Embarq /Sprint), Qwest, and Verizon. In effect, a data center creates a marketplace where buyers of Internet and long haul data services (i.e. Eagan businesses) can conveniently shop among sellers of such services (e.g. the companies listed above, among many others). A multitude of buyers and a choice of sellers creates competition that can and does quickly drive down the cost of services, often by 50% or even more. It is not unusual to see the cost of Internet access decline by 80% when competition among several Internet access firms is introduced in a community. These kinds of savings are substantial and apply directly to the bottom line of Eagan businesses, freeing up capital to invest in business expansion and jobs and to reduce overall costs. The availability of such a facility and the reduced cost of both data/server storage and Internet access enhances Eagan's ability to both attract new businesses and to retain existing businesses. The importance of business retention is often under - estimated. We regularly meet business people who are contemplating, planning for, or have executed business relocation plans based solely on the local cost of Internet access and bandwidth. A data center that provides secure space for servers and network equipment, coupled with a competitive market for Internet access and services can be a powerful economic development tool. Most data centers are privately owned and managed, but some communities have already made public investments in such facilities to enhance economic development. And over the next two years, many more communities will be adding data centers and colocation facilities via funding provided via the ARRA broadband stimulus program. Coupled with local open access fiber infrastructure, data centers are rapidly becoming essential infrastructure for economic development, just as water and sewer capacity were regarded as essential economic development infrastructure decades ago. Eagan has some significant local and regional advantages for such a facility, with proximity to the Twin Cities as well as being on east -west fiber routes (i.e. Chicago - Seattle) and much needed fiber routes south to St. Louis, Memphis, and Denver. We met with and talked to several different firms that specialize in the ownership and management of colocation facilities, and all of them indicated that the Minneapolis -St. Paul area is underserved in this regard. Comments we received indicated that too many companies and businesses rely too heavily on Colo Options Draft Only — Do Not Distribute 9/21/10 Page 3 of 20 fiber routes and colocation facilities in Chicago, and that there is virtually no other competition for these services farther west (until Seattle). The data center firms we talked to indicated that they regarded Eagan as an excellent business opportunity, with a substantial mix of large, medium, and small companies that would be potential customers. A very limited survey of Eagan businesses conducted in the summer showed a substantial pent up demand for data center space, with one firm immediately interested in several thousand square feet of space, and some other firms interested in hundreds of square feet of space. BENEFITS A data center (or data centers) in Eagan can offer a variety of economic development benefits. Angelou Economics, an economic development strategy firm, has identified the following benefits ( http: / /www.angeloueconomics .com /datacenters.html): . Short term growth benefits from the substantial construction costs. If Eagan were to attract a 100, 000+ square foot data center, it would be a major project with numerous construction jobs and spin -off benefits for local businesses during the construction period. p Increased opportunities for local businesses after the facility is built, including numer- ous maintenance and small business opportunities, including landscaping, cleaning, and security services. 0, New well -paid jobs at the data center will bring additional residents to Eagan, adding to the tax base. Angelou notes that a 100,000 square foot facility could employ 100 or more people, but the number of jobs created can vary widely. Some data centers have few on site employees.. Specialized services like disaster recovery, public safety sup- port, call center support, and data storage services can create additional jobs. 0. Data centers tend to attract clusters of other related high tech businesses that benefit from being physically near a data center, bringing more jobs to the community. There are more generalized benefits for improved availability and affordability of broadband services. An analysis (http://www.e-nc.org/EconDev_10Studies.asp) of the economic benefits of broadband infrastructure (which would include not only fiber infrastructure but data centers) by e -NC, a North Carolina initiative, listed the results of several studies: ® A analysis by the Canadian firm SNG found that for every dollar spent on broadband infrastructure there is a tenfold return to the community in increased economic activ- ity. 1► A study ( http: / /www.aestudies .com /library/econdev.pdf) of Lake County, Florida, where the local government opened its fiber for business use found a 100% increase in economic activity over time. Colo Options Draft Only — Do Not Distribute 9/21/10 Page 4 of 20 p. A study of broadband use in Japan found that wide availability of symmetric fiber services of 100 megabits or better created a "dramatic" surge in new applications and that high speed broadband attracts an entirely new class of "heavy hitter" users. r Several other comprehensive studies have found a minimum of 1% higher annual eco- nomic growth in communities with affordable high speed broadband infrastructure. Over a period of years, this translates into a permanent and significant increase in economic activity compared to communities that lack such infrastructure. In summary, if Eagan makes targeted investments in broadband infrastructure, including incentives to attract a data center, the City can expect increased economic growth through increased business attraction, increased local business expansion, and an increase in good - paying job opportunities. Finally, the City must evaluate the risk of doing nothing. Other communities in America are making significant investments in broadband infrastructure and are aggressively marketing their communities to leverage those investments. This is best illustrated by the recent announcement by the City of Chattanooga, Tennessee's new Gigabit service and the Web site that the economic developers rolled out to promote the City -owned network (http: // chattanoogagig.com/). Eagan is competing for jobs and businesses with more than 100 other communities in the U.S. that have already begun to make significant investments in broadband infrastructure (as listed in Broadband Properties magazine, spring 2010). GOALS FOR EAGAN A data center in Eagan can meet several (but perhaps not all) of the following goals. Meet the needs of Eagan businesses — Any data center, even one of modest size, will provide Eagan businesses with more choice in service providers and lower costs for various kinds of telecom services. Based on the feedback we have received, a low end size for an Eagan data center should be on the order of 15,000 to 20,000 square feet, but the market potential is there for something much larger. Provide an alternative to the Minneapolis 511 building — The heavy reliance in the region on the 511 building in Minneapolis is seen as a weakness by both private businesses and public agencies. We do not believe that it will be possible to simply "bless" a new facility as the "replacement 511 building," but an Eagan facility with excellent fiber connectivity, especially a fiber route to the south, would be very attractive to a wide variety of data center customers who want to reduce their reliance on the 511 building by duplicating network and data storage services. Local ownership — To achieve local control and ownership, we believe the City would have to take a lead role in project development and would also have to provide substantial financial Colo Options Draft Only — Do Not Distribute 9/21/10 Page 5 of 20 support for such a venture. Given the amount of private sector interest in Eagan as a location for a data center, we believe that while this may be desirable, it is not necessary. Enhanced economic development opportunities — A data center in Eagan, coupled with good fiber routes in the City, would give the City a powerful economic development tool for both retaining existing businesses and attracting new ones. Local and regional disaster recovery options — As planning for an Eagan data center moves forward, a parallel effort by nearby local and regional governments and agencies could help improve the ability of the region to survive various disasters by duplicating government data and services at the facility. Wider choice of providers and services — An Eagan data center will attract local, regional, and national service providers of all kinds. This will help lower the cost of telecommunications for businesses and local government because of increased competition. Southern fiber route — In nearly every discussion of data centers, the lack of affordable southern routes (toward St. Louis, Memphis, and Denver) was raised. The entire region sees this as a serious weakness. Eagan cannot solve this problem alone, but an Eagan data center with City fiber that connects to other fiber projects in the area could make an Eagan data center much more valuable and more competitive than data centers located in other parts of the Twin Cities region. Colo Options Draft Only — Do Not Distribute 9/21/10 Page b of 20 Recommendations There are three key findings from our study: 0. There seems to be widespread agreement that the Minneapolis /St. Paul area is un- derserved with respect to commercial data centers and colocation facilities. It. The region is seen as a high priority gateway to fiber routes to the northwest (toward Seattle) and to the south (St. Louis, Memphis, and Denver). 0. The issue of redundancy in fiber routes occurs in every conversation; businesses, data center firms, and fiber long haul providers all agree that more fiber routes and more diverse fiber routes are needed. Based on these themes, we believe there is a significant short term opportunity for Eagan to attract and win a data center (and perhaps more than one) to the city However, given the pent up demand in the region, Eagan will have to move quickly to take advantage of the opportunity. Other cities in the region are also looking at this opportunity We believe the following strategies are most likely to get a private sector commitment to build a data center in Eagan. r,. Traditional economic development assistance — This includes assistance with identi- fication of prospective sites in the City, assistance with utility improvements like water and sewer if required, and a commitment to full attention and timely processing by City staff of zoning and planning applications, building permit approvals, site inspec- tions, and other City approvals that might be required. While providing land via a long term lease or other mechanism may not be required, convenient and speedy land acquisition could play an important role in attracting a data center to Eagan. At a minimum, the City economic developers should identify several prospective sites of various sizes within Eagan and develop a standard parcel profile (i.e. water, sewer, elec- tric power, zoning, etc.). The firms that we spoke to indicated that a well - prepared lo- cal government that will not tie up land acquisition and zoning in months or years of hearings is an important consideration. The package of incentives could include: Colo Options Draft Only — Do Not Distribute ® Property tax relief for a period of years. i► Expedited permitting and building inspections. M. Waiving of the cost of water and sewer improvements if those are needed. ® Adjustments to the number of parking spaces required for a data center, which typically has many fewer workers (and cars) than an office building of the same floor space. M. Assistance with the identification of candidate parcel locations in the City. 9/21/10 Page 7 of 20 '. Donation or below market sale of City -owned land if used for a data center. Market Assessment and Customer Prospect Identification — The firms we have talked to have indicated that assistance with identification of customers would be very significant in their location decision - making process. The City has already begun this effort, but some additional effort, with a special focus on larger businesses, could prove to be important. The Technology Working Group and the Chamber may be able to assist with identifying smaller businesses that have data center needs. This assistance could include: p. A pre- screened list of companies in Eagan that could be potential customers for data center services, using tax records and other City databases. 0. A GIS map -based cluster analysis of small, medium, and large businesses in Eagan to help identify where a data center might be located (physically close to customers to reduce the cost of connecting to the data center). Commercial Access to City Fiber and Duct — One firm put it this way; "A data cen- ter without affordable access to local customers is worthless." The potential to use City -owned fiber to reduce the cost of connecting the data center to local Fortune 500 customers was regarded as extremely attractive. A clear commitment from the City to open existing fiber to commercial access and to make regular investments to run fiber past more key business and commercial locations in the next two to three years may help accelerate a deal. Eagan may also have a role to play in facilitating new fiber routes in the region (by building new fiber in the City that attracts private investment to connect). If the City feels strongly about attracting a data center to Eagan, we be- lieve the quickest way to achieve this is to make City -owned duct and fiber available on an open access basis and to allocate funds over three to five years to extend duct and fiber to most commercial areas of the City. Note that we are not recommending a fiber to the home initiative (FTTH) at this time. A program to make City fiber avail- able for commercial and business use should include: Colo Options Draft Only — Do Not Distribute F. A clear policy statement by the City to make City -owned fiber available for private sector use. r. A policy commitment to allocated $250,000 to $500,000 per year for three to five years to extend City duct and fiber to most commercial and business areas of the City, with a focus on early investment in areas where the right of way is already crowded and where a City fiber ring would be of most value to exist- ing businesses. 0. A policy commitment to work with area service providers and long haul fiber companies to help create fiber through- routes within Eagan (e.g. to help build a new southern fiber route). 9/21/10 Page 8 of 20 It should be noted that there was limited interest in the City providing land as an incentive; given the financial size of these commercial projects ($20 million to $100 million), it is easy to see that the value of the land is a relatively small part of the overall project. However, we believe the City has an important role to play in identifying potential parcels. Even more important, the City should be prepared to provide vigorous assistance with any rezoning that might be required (given that the rezoning request is reasonable) and with permitting. There was no enthusiasm for the City taking a small financial stake in the facility. As noted above with land acquisition, the overall cost of a facility is large enough that a modest financial ownership contribution by the City was generally regarded more as an obstacle than as an incentive. The fiber access was regarded as important because the City controls right of way. The firms that would build the data center can manage land acquisition and building financing, but getting access to right of way for fiber cable was regarded as much more difficult. The City, by making open access fiber available, gives the data center firms less expensive access to customers more quickly. Every firm we talked to regarded access to City fiber as very significant. We do not believe the current public safety and emergency use of City fiber would be compromised by making City fiber available for private sector use. Other communities have solved this issue by dedicating an appropriate amount of fiber in a cable for City use (e.g. fibers 1 -72 reserved for City use, fibers 73 -144 for business use). This keeps all City data traffic, including all public safety traffic, physically separate from business data. The 511 building in Minneapolis was a topic in nearly every discussion we have had during the study, but the ability of another data center located somewhere in the region to become seen as a 511 alternate depends largely on the fiber routes into and out of that alternate building, not the building itself. GOALS, STRATEGIES, AND BENEFITS Goals should include: M►. Enhance Eagan's ability to attract and retain high tech businesses. 0. The City of Eagan should actively manage scarce public right of way for the benefit of the entire community to avoid the possibility of running out of right of way before Eagan's business telecom needs are completely met. `► Reduce the cost of telecommunications for Eagan businesses, institutions, and local government. 0. Encourage the growth of small and entrepreneurial businesses in Eagan. Strategies to meet these goals include: Colo Options Draft Only — Do Not Distribute 9/21/10 Page 9 of 20 w. Obtain a commitment to build a data center in Eagan by end of 1Q2011 by develop- ing a package of economic development incentives targeted at data center developers. o Commit to making City duct and fiber available for commercial and business use. o Allocate funds to support a three to five year expansion of City -owned duct and fiber to pass 80% of Eagan businesses. y. Consider joining a data center trade association and/or attending a data center trade show to identify firms that may be interested in placing a data center in Eagan. p. Continue to meet with those firms that have already expressed an interest in placing a data center in Eagan. Benefits from these strategies will include: • Sharply reduced costs of telecom and data storage for Eagan businesses and institu- tions. r. Reduced cost of operating and maintaining a business in Eagan. o Higher availability of competitively priced fiber services throughout Eagan's business and commercial areas. p An improved ability to attract and retain a skilled workforce in Eagan because of in- creased job and business opportunities. 0. Powerful new economic development tools that will make Eagan more competitive with other communities that have already made fiber and data center investments. Colo Options Draft Only — Do Not Distribute 9/21/10 Page 10 of 20 ace Colo Design Characteristics GENERAL CHARACTERISTICS A well - designed colocation facility has numerous requirements that typically dictate a purpose - built design. While existing buildings or areas of existing buildings can be re- habbed to provide colocation space, the specialized needs of a colocation facility usually make such modifications cost - prohibitive. Among the specialized needs, the following are critical: 00. A "Tier III" facility is probably the minimum design that would achieve Eagan's broader economic and business development goals. A Tier III design has numerous redundant components, and a Tier III design (or a fully fault tolerant Tier IV design) will be necessary to have a Eagan facility be taken seriously as an alternative 511 building. p. Single or dual electrical utility feed to the data center facility. Large facilities that cannot handle power outages entirely with on -site generators will typically require electrical feeds from two different sub - stations and/or two separate power grids. One or more stand -by diesel emergency generators to provide power to the facility during adverse power conditions. As noted above, generator size and capacity will de- pend on the overall size and power requirements of the building, and should be sized to provide power to the cooling equipment. 0. Dedicated diesel fuel tank(s) to support continuous generator operations for a mini- mum of 5 to 7 days at full load, as well an agreement with a local fuel oil supplier to refill the tank as needed. r. Raised floors in at least some areas of the facility are desirable, and and overhead cable racks are a basic requirement throughout. High ceilings will be needed to accommo- date overhead cooling ducts and distribution systems. M• The facility should have environmental and security sensors throughout (water leak detection, security cameras, etc.). Mr. Dual automatic transfer switches and dual main electrical distribution panels to trans- fer between utility and emergency power, so that there are no power interruptions dur- ing a change -over to emergency UPS or generator power. ► A single centralized uninterruptible power supply to provide fail -over reliability to existing rack mounted power supplies and critical network equipment. Colo Options Draft Only — Do Not Distribute 9/21/10 Page 11 of 20 ► Dual power distribution units to provide dual paths of power to the data center floor, cages, and shared rack space, including dual power circuits to each hardware rack to take advantage of dual power supplies within the processing hardware. p. Dual water or air cooling units to provide redundancy in event of a single unit failure or because of preventive maintenance. Dual pumping systems are also needed to pro- vide redundancy in event of a single unit failure or routine maintenance. Dual water supplies (e.g. City water and an on -site well) are also desirable. 0. Precision temperature and humidity control within the data center area. pr. Primary FM -200 gaseous fire suppression system within the data center, and a secon- dary fire suppression system within the data center and support areas (hallways, meet- ing rooms, offices, etc.). Structured data and voice cabling system that is planned for future growth and expan- sion. p Facility monitoring system that continuously monitors the data center infrastructure and alerts appropriate personnel in event of an alarm condition (water, cooling failure, power fluctuations, intrusions, etc.). This includes access control systems for monitor- ing and controlling all access to the facility by tenants, contractors, equipment mainte- nance staff, and other visitors. Other general design and feature characteristics that should be considered: Improved power and cooling management — Changes in the way servers are managed (i.e. server virtualization, high density blade servers) is changing data center design. The increased density and smaller size of servers and network equipment has forced changes in power distribution and cooling within the data center. These new power and cooling requirements have made the construction of new data centers more competitive due the high cost of upgrading older facilities. Any data center placed in Eagan should be designed to meet these new power and cooling requirements. r. Green design — Several companies have developed improved cooling systems that can reduce the overall power costs for data centers. Lower power costs translate into lower cost of locating and operating equipment within such a facility, and so a well- designed " green " facility would be attractive from a business attraction perspective. As an ex- ample of improved energy use, one company in Eagan is already using excess heat from its in -house data center to heat hot water in the building and to melt snow on the building walkways. Some customers of the facility may find a LEED (Leadership in Energy and Environmental Design) certification desirable. 0 Support for pods — Spec -built shipping containers can provide additional capacity at much less cost than traditional expansion construction. It may be desirable to design a facility that can accommodate some pod containers. Colo Options Draft Only — Do Not Distribute 9/21/10 Page 12 of 20 0. Diverse path routing — A data center with diverse path fiber routes in and out of the facility is more valuable than one that relies primarily on incumbent fiber circuits and/ or limited competitive fiber. the City has a key role to play here by using City right of way prudently along with City -owned duct and fiber to create diverse path fiber routes to a planned facility. Provider neutral — Most carrier hotels and data centers are, by business plan, provider neutral, but as the City interacts with prospective data center firms, it is worth review- ing their business model to make sure the facility will be managed on an open access basis. SITE CONSIDERATIONS Site requirements will vary somewhat based on the overall building size. Site footprint — For a modest 5,000 to 20,000 square foot facility, a parcel as small as five acres could be adequate, but future building expansion could be an issue. As a general rule, these buildings are preferred as one story designs to keep costs down and to simplify floor layout. A 100,000 square foot facility would require ten or more acres, depending on long term expansion needs. Environmental issues — Any site under consideration should be above the 100 year flood plain for that location. Virtually all of Eagan is in the flight path for the Minneapolis airport, and different firms had different opinions of the importance of this issue. Some saw it as a minor consideration at best, but it is worth noting that at least one firm has indicated it as a major factor. While it is possible that this may be an issue for some firms, we do not believe it creates a major obstacle, given that many existing Eagan businesses are already operating in the flight path without incident. It gets rather cold in Eagan in the winter, but this can actually be an advantage, as data centers have very high cooling costs compared to a normal office building. Low ambient temperatures during much of the year will lower operating costs for any facility built in Eagan. Utilities — Reliable and resilient electric power is a critical decision factor. Eagan has two electric utility providers in the city: Dakota Electric and Excel. Dual redundant electric feeds are less of a factor in smaller facilities, as it may be less expensive to handle emergency power needs with on -site diesel generators. A larger facility (e.g. 100,000 square feet) is much more likely to have a need for electric feeds from two different substations and/or from two different power grids. While being able to supply power from both the Dakota Electric and Excel grids would be an advantage, that sharply reduces the number of parcels that might be available in Eagan for a data center. Commercial/light industrial water and sewer service will be required for any facility. Parking — Data centers tend to have many fewer occupants during normal work hours than a typical office building. As part of an incentive package, the City could offer to modify (i.e. Colo Options Draft Only — Do Not Distribute 9/21/10 Page 13 of 20 reduce) the number of parking spaces required to help lower construction and maintenance costs. 511 Alternative — A facility in Eagan would certainly have the potential to be seen as a possible alternative to the "511 building, " which is located at 511 11th Avenue South in Minneapolis. One factor that would increase the likelihood that an Eagan location would be successful in this regard would include a minimum initial building size of 5,000 to 10,000 square feet, with a modular building size that would allow for easy incremental expansion. A second and also important factor would the availability of a southern fiber route out of the region, or at least a commitment from the City to assist with the development of such a route from the colo facility to a point on the City limits. It may be useful for the City to pre- approve expansion from an initial size of 10,000 square feet to 20,000 square feet or more. Potential developers of such a facility would likely find this incentive useful. OWNERSHIP AND GOVERNANCE OPTIONS PUBLIC OWNERSHIP The City of Eagan could build, own, and operate a modest colocation facility, but we recommend against this option. There is sufficient private sector interest in placing a data center in Eagan that we see no advantage to this approach, and many disadvantages. PUBLIC /PRIVATE PARTNERSHIP We found little enthusiasm for a business arrangement in which the City had an ownership stake in a data center facility. There were two chief objections. The first was that the overall financial investment was substantially larger than what the City might be able to contribute, and the effort of working out a business arrangement with the City would not justify the relatively small amount of cash the City could provide. Second, it was noted that there was great concern that if the City had an ownership stake, making business decisions could become bogged down; that is, the private sector partner was concerned that Council approval might be difficult to obtain in a timely manner if the City was a financial partner. PRIVATE OWNERSHIP As noted in other portions of this report, the entire Twin Cities area is regarded as underserved with respect to data centers, and that Eagan is regarded as an excellent location because of the wide variety of businesses in the city. Therefore, we believe that with an appropriate package of incentives and a clear articulation of those incentives by the City, it will be possible to attract one or more firms to build a facility or facilities within the City limits. COST CONSIDERATIONS An Eagan co- location facility can have multiple functions, including these primary uses: Colo Options Draft Only — Do Not Distribute 9/21/10 Page 14 of 20 CONSTRUCTION ACTIVITY DESCRIPTION Design and Engineering Fees Overall facility design, preparation of construction documents, coordination of architecture and engineering activities, struc- tural engineering, civil engineering and site design activities, and related costs (e.g. printing and reimbursables). Construction Administration On site project management, including supervision of contrac- tors, construction firms, and specialized sub - contractors (e.g. HVAC, fire suppression, electrical, etc.). General Construction Construction of the physical building, including site prepara- tion. Mechanical Equipment i HVAC systems, including chilled water cooling systems for the data center areas, dual/redundant pump systems, leak detection systems, and related controls. i Electrical Equipment Primary and back -up electrical systems, including main switch gear, internal building cabling, UPS (Uninterruptible Power Supply), diesel generator (s), diesel fuel tank initial fuel g ( (s )� ur- P chase, and related electrical costs. Fire Suppression System A gas -based (e.g. Halon) fire suppression system. Telecommunication Systems Cable raceway design and installation, patch panels, and related structured cabling needs within the facility to provide inter - connection between users. Permittin g Costs related to any state and local permitting and any fees needed for expedited permit processing. Rigging Crane rental and rigging costs for delivery and setting of items like generators, UPS, chillers, transformers, and other heavy items. 0. House equipment from multiple "bandwidth" providers, to support providing local connectivity to businesses and residences, as well as provide connectivity to larger (na- tional & regional) bandwidth providers. 0. Act as a commercial data center space, leasing space and utilities for local and regional businesses to house equipment for many purposes (ie., as primary data center space for companies too small to build "best in class" data center space, as additional data center space to augment existing space elsewhere, or as geographically separate disaster re- covery space). `. As a general rule of thumb, new data centers tend to cost between $1,000 and $1,500 per square foot. Major work items required for a data center include the following: Colo Options Draft Only — Do Not Distribute 9/21/10 3( Page 15 of 20 CONSTRUCTION ACTIVITY Y DESCRIPTION Facility Monitoring Controls Miscellaneous Costs Commissioning Preventive Maintenance Colo Options Draft Only — Do Not Distribute Centralized facility monitoring system capable of continuously monitoring all infrastructure hardware components and alert- ing appropriate personnel in event of alarm conditions Other unitemized costs, including project insurance, initial warranties on major mechanical and electrical components, as- built drawings, etc. Once the initial construction is complete and all mechanical systems have been installed, integrated testing of all systems is required, including generators, UPSes, HVAC, monitoring controls, and infrared heat scans of all electrical terminations and equipment. Initial maintenance on all building components to meet com- pliance with manufacturers' guidelines to prevent warranty voids and ensure coverage for entire warranty period. If Eagan and/or local businesses provided the bulk of financing for a data center focused on meeting needs of local businesses, prudence dictates that the initial structure be modest but expandable. Also, since this space will most likely be occupied by numerous different companies, it is prudent to provide physically separated areas, to prevent a fire in one area from affecting the others. Given these requirements, the costs below describe a "starter" facility of approximately 5,000 square feet that would be easily expandable to 20,000 square feet. A "starter" structure of 5,200 square feet initial size, expandable in 5,200 square feet increments provides adequate room for growth. This pricing is based on single story, precast concrete wall and roof sections, assembled on -site on a poured -in -place concrete slab. For the initial building, there would be approximately 3,000 square feet of useable data center space. For each additional 5,200 square feet expansion, more space would be allocated for the data center portion, providing approximately 4,000 square feet useable data center space. Each expansion would be separated from each other by concrete walls, which would provide fire and water segregation between units. COST ESTIMATES The cost provided in the table below are estimates, based on the cost of previous projects. The building design is modular, and floor space could be expanded in roughly 5,000 square foot increments up to 25,000 square feet. As a rough rule of thumb, data center costs on a per foot basis swing between $1,000 /square foot and $1,500 /square foot, based on local construction costs, cost of local labor, and specialized internal designs. 9/21/10 Page 16 of 20 Racks, cable systems, cages Telecom Permitting Rigging Facility Monitoring Equipment Miscellaneous Testing and Configuration Preventive Maintenance Totals CONSTRUCTION ACTIVITY AVE OF` COST ;- 5.000 SQUARE FOOT BUILD- ING' SQUARE FEET EXPANSION (10,000 SQ. FT TO- AL) 0,000 SQUARE FEI EXPANSION 0,000 SQ FTTOTAL.) 9.7% 3.9% 3.9% 3.2% 0.5% $475,000 j $425,000 $175,000 1 $175,000 $175,000 $175,000 $145,000 j $145,000 $24,000 ' $24,000 $75,000 ' $75,000 $95,000 $95,000 $50,000 $50,000 $45,000 1 $45,000 $75,000 I $75,000 $4,749,000 $4,424,000 Design and Engineering 8.9% Construction Administration i 5.3% Site Prep and Construction 50.0% - } Mechanical Equipment 7.2% Electrical Service, Equipment Fire Suppression Colo Options Draft Only - Do Not Distribute $450,000 $240,000 $2,400,000 $325,000 E $375,000 $240,000 $2,200,000 $325,000 $775,000 $480,000 $4,400,000 ELECTRICAL SERVICE The relatively high fixed cost of providing electrical service to a new property suggests an initial investment to bring enough electrical capacity to handle anticipated expansion. For an initial installation, 5,000 amps of electrical service would support the facility, with 1,000 amps allowed for initial structure, and 1,000 amps for each add -on 5,200 square feet module, so the initial 5,000 amps will support up to a 26,000 square feet total structure. Redundant feeds would not be considered a "must have" requirement in a facility of this size, as on -site backup generators would be adequate to meet emergency power needs in the event of a power failure. $650,000 $850,000 $350,000 $350,000 s $290,000 $48,000 $150,000 $190,000 $100,000 $90,000 $150,000 $8,873,000 9/21/10 Page 1 7 of 20 Potential Partners and Customers If Eagan chooses to make direct investments in a colocation facility (as opposed to just providing traditional economic development incentives like land, tax incentives, and utilities access), there are several different kinds and types of possible partners and users. Note, however, that the needs of the partners described below vary widely, and in advance of a definite plan to build a facility, we believe it will be difficult to get firm commitments from interested parties. M. Long haul carriers — Companies like XO, Level 3, and others build and operate data centers to enhance the value of their long haul fiber networks. Concentrating custom- ers in a data center creates a synergy between the two lines of business (long haul fiber and colocation) that makes both more valuable. One firm in this category that has expressed an interest in Eagan suggested they would be looking at a facility in the range of 20,000 to 30,000 square feet, or about a $25 million to $40 million project. While they were open to a direct investment from the City, they indicated they gener- ally found such partnerships difficult to manage, and were more interested in tradi- tional incentives: land, assistance with utilities, expedited permitting, and tax incen- tives. There was also keen interest in access to City -owned fiber to reach local cus- tomers who may wish to buy Internet access or long haul network connections. 0. Data center companies — There is a wide variety of firms that specialize in the financ- ing, construction, and management of data centers. Many of these firms specialize in "carrier hotel" facilities of tens of thousands or hundreds of thousands of square feet, and these large buildings come with price tags of tens of millions or hundreds of mil- lions of dollars. In a discussion we had with a firm in this category that was interested in Eagan, a direct financial investment by the City was of no interest, given the overall probable cost of the project ($50 million to $100 million). Dual power feeds from two substations or two separate grids was regarded as desirable, as was the availability of community -owned fiber. 0. Local competitive network and service providers — Local and regional competitive service providers like Velocity, Hiawatha, and others are very likely to place equipment and network connections in an Eagan facility, but are not likely to want or need large amounts of space. These firms might be renting a rack or two of space and/or a small amount of secure space (.e.g. a cage). 0. Eagan major businesses — Eagan has several very large firms with substantial existing data centers and storage facilities in their existing buildings. A separate data center was of interest to several of these companies, who were interested in a variety of uses, including off -site back up and data storage, expansion space for business operations, and improved access to lower cost long haul Internet and data transport services. Colo Options Draft Only — Do Not Distribute 9/21/10 Page 18 of 20 Some of these firms indicated an interest in hundreds and thousands of square feet of storage space. Eagan small and medium businesses — Small and medium -sized businesses in Eagan will benefit from improved options for specialized Web hosting, lower cost data backup and storage options, and lower cost Internet access for hosted servers. If City fiber is available for business use between some Eagan business and commercial areas and the data center, many more Eagan businesses would benefit from the increased service options and competition. ► Incumbent providers — Incumbent service providers like Comcast and Qwest already have substantial facilities of their own, and are not likely to need or want much space in a new facility. However, if enough other businesses are located in an Eagan facility, these companies would probably put a small amount of equipment there to offer competitive services to existing customers and to attract new customers. M. State agencies — As part of a larger disaster recovery planning effort, it is possible some state agencies would be interested in space in the data center. If the center had connections to a new southern fiber route for improved route redundancy and diver- sity, the facility would likely be of more interest. However, state budgets are tight and planning horizons tend to be long. 0. Higher education — Most colleges and universities have their own data centers, but there may be some interest in an additional facility for backup and redundant data storage. However, an Eagan location may not offer any significant advantages as op- posed to other data centers in the region. 0. Data container /pod users — A growing trend among larger data center customers is to expand via "pods," which are standard steel shipping containers that are outfitted with equipment racks, cable racks, electric power distribution, and integrated cooling sys- tems. While these pods are expensive, they are much less expansive than building ad- ditional permanent floor space, and allow for expansion in much smaller increments than a typical data center expansion design. These pods are also likely to have a grow- ing role in disaster recovery and public safety, as pre- outfitted pods could trucked to a data center and turned up within a few hours, bringing critical systems online from an alternate location. New data centers that want to be able to accommodate pod sys- tems will need an area where these can be parked to access electric power and network connections, and given the winter conditions in Minnesota, it may be necessary to provide an enclosed space to park them (i.e. a garage type design). Colo Options Draft Only — Do Not Distribute 9/21/10 Page 19 of 20 Copyright © 2010 Design Nine, Inc. All rights reserved. Provided for the exclusive use of the City of Eagan, Minnesota. Reproduction strictly prohibited without express written permission. Disclaimer The telecommunications business is continually evolving. We have made our best effort to apply our experience and knowledge to the business and technical information contained herein. We believe the data we have presented at this point in time to be accurate and to be representative of the current state of the telecommunications industry. Market changes and new technology breakthroughs may affect our recommendations over time. Design Nine, Inc. presents this information solely for planning purposes. This document is not intended to be a replacement for formal engineering studies that are normally required to implement a telecommunications infrastructure. No warranty as to the fitness of this information for any particular building, network, or system is expressed or implied. Design Nine, Inc. will not be responsible for the misuse or misapplication of this information. For more information: www.designnine.com Colo Options Draft Only — Do Not Distribute 9/21/10 Page 20 of 20 • DESIGN NINE we build networks that perform Evaluation of Existing Buildings for Data Center Use Three existing buildings were visited and evaluated for rehabilitation as a data center. 37 CONFIDENTIAL RESTRICTED DISTRIBUTION DRAFT October 4, 2010 Fire Admin Building • No ground floor access to the basement or the first floor, meaning extensive modifications. Currently, both floors have steps as the only way to move equipment in or out. New heavy capacity freight elevators would be needed as well as substantial modifications to the existing garage area/loading dock to bring up to the first floor level. • Three floors instead of one, meaning more costly conversion and less usable space. Multi -floor buildings have the potential of sprinklers going off on upper floors and having water damage on lower floors. • The lot is small and would preclude any substantial expansion, which would make it a poor candidate if the goal is to have a facility that is seen as a viable 511 building alternative. • The cooling system would have to be completely replaced and the internal electric cabling would have to be upgraded. Warehouse 1 • The lot size will limit expansion. The building is a steel frame warehouse approximately 50' x 100' in size, making it on the small side for the kind of data center Eagan is contemplating. Nearby buildings would make any substantial increase in size impossible. • The cooling system would have to be replaced, and the electric service within the building would have to be replaced. • Raised floors would be required. • The pre -fab steel frame exterior would have to be substantially upgraded with improved insulation on the walls and roof to reduce cooling costs. Warehouse 2 • The building is very large, and only a portion would be needed for the kind of data center (10,000 to 20,000 square feet) that is being suggested by some colo firms. Rehabbing only a portion of the building raises an issue of what to do with the remainder of the building? If other portions of the building are leased out, it may become difficult to expand the data center. If a portion of the building is reserved for future data center expan- sion, then lease payments for unused space will raise the cost of operating the data center. • It would depend upon what portion of the building is allocated for the data center, but if it was placed near the front of the building, many of the loading dock doors would have to be removed and replaced with an appro- priate solid wall. • The cooling system would have to be replaced, and the electric service within the building would have to be replaced. • Raised floors would be required. • If a firm was interested in provisioning a larger facility of 50,000 to 100,000 square feet, it is possible this building might be a candidate. However, the cost of renovations are likely to be very high. Many new data centers are being built on a modular footprint of approximately 5,000 square foot modules to allow a minimum design nine, inc. • 2000 kraft drive, suite 2180 • blacksburg, va 24060 • 540.951.4400 • info @designnine.com • www.designnine.com • DESIGN NINE we build networks that perform start up investment and maximum flexibility for growth. This building would require a substantial early in- vestment to make it usable. Commercial Building 1 • This is a partially occupied commercial building with approximately 10,000 square feet of space available for business and commercial use. This is below the minimum size that the colo firms we have met with are look- ing for, with most interested in starting at 15,000 to 25,000 square feet, and some have indicated an even larger initial facility. • The high density servers and network equipment typically used today would require replacement of the cooling system, and the electric service within the building would have to be upgraded to meet the increased power requirements. • The building would require extensive interior renovations to provide an open floor plan. • A raised floor and overhead cable racks would be required. • The design of the building does not allow for modular expansion. City Parcel 1 • The City of Eagan has an undeveloped parcel on the corner of Yankee Doodle Road and Mike Collins Drive. • This is in an existing commercial and industrial area of the city, so the zoning is already in place for a coloca- tion facility. • The parcel is approximately 15 acres, which is an excellent size and would easily accommodate both a starter facility of 25,000 square feet, and would support expansion well in excess of 100,000 square feet. • Utility service (water, sewer, and electric) would be required at the site. • North Lake is adjacent to the property. The lowest point on the property, according to City records, is twenty- five feet higher than the lake, and some areas of the property are seventy -five feet higher than the lake. The lake has no history of flooding. Flood risk appears to be minimal. • The parcel is located Dakota Electric territory and near a Dakota substation. The parcel could be served by a second loop from Dakota Electric and is also on the border with Xcel Energy and could be served from two separate power grids if necessary. • The building is very near the new City public safety building, so fire and emergency response would be excel- lent. • This parcel appears to be a good candidate for a colocation facility. design nine, inc. • 2000 kraft drive, suite 2180 • blacksburg, va 24060 • 540.951.4400 • info @designnine.com • www.designnine.com October 2010 Tech -Savvy Missouri Turns Eyes On Data Centers By Christopher Chung Information technology firms are creating a buzz in Missouri, and no one minds the background noise. In the last five months, two information technology giants, IBM and Unisys, announced their decisions to move to Missouri. IBM will be opening a global service delivery facility in Columbia, Mo., while Unisys has chosen St. Louis as the site where it will develop applications for the Apple Mac, iPhone and iPad for federal clients. Digital Realty Trust, a San Francisco real estate firm that develops and manages data centers, recently expanded its data storage facilities in St. Louis, and XIOLINK, a data center company based in St. Louis, is also expanding in the area. There are numerous reasons why Missouri is winning when it comes to site selection for IT- related facilities and why the state has set its sights on attracting new data center investment. High -tech firms benefit from low operating costs, turnkey telecommunications infrastructure, a safe environment for protecting data, a talented IT workforce, and aggressive incentives. Missouri consistently ranks among the top five states for the low cost of doing business. The Show -Me State has shown high -tech companies that it makes sense to operate in a state where power is cheap and abundant and taxes are low. Missouri has the third - lowest business energy costs in the country, the fourth - lowest commercial electricity costs, and the fifth - lowest corporate income tax rate. Firms that reap the benefits of having selected the state for their headquarters include: IT solutions provider, Cerner Corporation; data center and cloud computing services firm, Bick Group; Cass Information Systems, the nation's leading provider of payment and information services for financial, accounts payable, transportation, logistics and utility needs; and Savvis, the leading global provider of managed IT infrastructure services. With over 2 million high -speed lines including fiber, cable modem and satellite, Missouri offers a turnkey infrastructure that substantially reduces start-up costs. "Missouri is fortunate to have a number of high -speed broadband providers that are well connected to the Internet backbone and that provide customers with ample 39 bandwidth to meet their communication needs," said Richard Telthorst, President and CEO of Missouri Telecommunications Industry Association, the trade group for the industry in the state. "Companies want to know, 'Can you connect me with the Internet? Can you give me a broadband pipe that is big enough for my needs today and tomorrow ?' The answer is yes, Missouri can." Telthorst also noted that within the last 6 months, Missouri telecommunication providers have been awarded more than $100 million in federal stimulus funds to further deploy high -speed broadband throughout the state. Another reason why Missouri is an ideal location for data centers is because the state offers a safe and secure environment for digital warehouses. Missouri boasts more than 15 million square feet of underground sites, providing natural climate control, enhanced security and reduced vulnerability in a state that is already at a low risk for natural disasters. Moreover, cooling components at data center facilities in drought -free Missouri can be expected to operate continuously and without failure. Water is plentiful in the state that sits at the confluence of the two largest river systems, the Mississippi and the Missouri, in North America. In fact, no drought - related Presidential Disaster Declaration has ever been recorded in Missouri, even during the drought of 1976 -77 that resulted in an emergency declaration in 27 states, including five states in the Midwest. Strategically located in the nation's center and at a low risk of terrorist attack, the state is highly favorable as a disaster recovery area. Missouri's tech talent runs deep, easily matching data center needs for highly skilled IT workers. Firms that choose Missouri have access to graduates from among 34 institutions in the state that offer a bachelor's or graduate degree in computer science, and nine Missouri colleges and universities that offer college degrees in electrical or computer engineering. The state offers aggressive incentive packages to help seal the deal with companies considering a move to Missouri, yet in the case of IBM and Unisys, officials from both companies commented that more than state aid, an educated workforce was a primary factor for the decision. The state touts a tech -savvy workforce, low power rates and overall business costs, data safety and security. Firms that choose to store their valuable data in Missouri (like Emerson Electric, Charter Communications and Suddenlink Communications) can expect to find success. Christopher Chung is Chief Executive Officer of Missouri Partnership, a public private non-profit corporation working closely with the Missouri Department of Economic Development and regional and local economic development organizations around the state. Missouri Partnership will be exhibiting at the Data Center World conference, to be held October 3— 6 in Las Vegas, Nevada. Data Center World is presented by AFCOM, the premier data center association representing 4,500 of the largest data centers around the world. Liz) 3HYBERDATA November 5, 2010 Tom Garrison Communications Director City of Eagan 3830 Pilot Knob Road Eagan, MN 55122 Mr. Garrison: HyberData, LLC 601 Carlson Parkway, Suite 1250 Minnetonka, MN 55305 952 - 224 -5202 As you know the Twin Cities metro area is in need of additional Ethernet carrier hotels situated outside the downtown Minneapolis or St. Paul areas. There is also a shortage of data center space in the Twin Cities Metro area. Carrier hotels want to be in or well connected to colocation facilities. The Metro area does not have a combined large scale carrier hotel / colocation facility. HyberData believes that current local demand can easily justify an additional 200,000 to 500,000 square feet of additional colocation data center space. Current expansion space requirements are being served in other parts of the country due to a lack of qualified space locally. National studies indicate a market such as this is not over served until it has in a surplus of 500,000 square feet of space. I estimate this market would need to build almost 1,000,000 square feet of new space to replace its existing, obsolete inventory. Power, location, connectivity and flexibility are the essential components to a data center's selection. Third -party providers build and manage these resources for small, medium and an increasing number of enterprise users because of their ability to more efficiently manage and construct them. This results in savings in both capital and time. Yet it is carrier neutrality that will be the most valuable to the diverse and varied interests of users of Ethernet services so proximity to a carrier hotel is of utmost importance. HyberData's design is modular, scalable, and addresses users with rapid growth and varied densities who increasingly utilize the "cloud." We take advantage of the Midwest's natural climate and combine that with improved operating parameters to maximize the cost savings of free cooling (using the outside air temperature to cool a data center). Data centers have improved significantly over the past ten years resulting in a more reliable, lower cost operation. Improved connectivity has allowed Minnesota's data centers to be useful to national users. We plan to capitalize on that benefit. Eagan's interest in expanding its business to business fiber network would be a significant benefit to users wanting to connect to diverse carriers and colocation facilities. The City of Eagan is a desirable location as it is along the north -south carrier fiber corridor serving the metro area and is located south of the Minnesota River. Eagan also has several business entities with significant network bandwidth users. The aggregate usage of these users might be leveraged to motivate carriers to locate within the City. Companies continue to need more and improved data center space and will expand in those facilities that provide them the operational advantages and connectivity they want. The next best place that can provide this combination of infrastructure services will receive most of the interest. I think that should be Eagan for the reasons I've mentioned today. Yours very truly, ohn Livingston President HyberData z/ Summarized Recommendations 1) Accept consultant Cohill recommendations to pursue private co- location facility on city land big enough to support future carrier hotel/ meet point as a key strategy to keep and grow jobs in Eagan 2) Accept consultant recommendation to commit to $250,000 - $500,000 a year for 3 -5 years to extend public purpose city duct and fiber to business parks and commercial areas beginning with a focus of where the right of way is already crowded to create open access fiber ring that can be used by any carrier. 3) Accept consultant recommendations to make a policy commitment to work with service providers or long haul carriers to establish fiber through routes to establish southern fiber routes out of the Twin Cities, including financial assistance to get a southern fiber route into the City. 4) The City should without delay clearly articulate and promote a well- designed package of economic development and financial incentives to any firm interested in the City's vision to have a modern, energy- efficient data center and carrier hotel. The City package of incentives would include the commitment to invest in fiber to most commercial areas of the City, financial support for a southern route, assistance with land acquisition, City data on business locations and fiber routes, and in partnership with the Technology Working Group, introductions to local companies that may wish to lease space in such a facility. i-i