HRA 05/14/1992 - 29632�'"\
CITY OF FRIDLEY
80IISIN(3 & REDEVELOPMENT AIITHORITY MEETIN(�, MAY 14 � 1992
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CALL TO ORDER:
Chairperson Commers called the May 14, 1992, Housing &
Redevelopment Authority minutes to order at 7:30 p.m.
ROLL CALL:
Members Present: Larry Commers, Virginia Schnabel, Duane Prairie,
Jim McFarland
Members Absent: John Meyer
Others Present: William Burns, Executive Director of HRA
Barbara Dacy, Community Development Director
Paul Hansen, Accountant
Jim Casserly, Consultant
APPROVAL OF APRIL 9 1992 IiOUSING & REDEVELOPMENT AU'I'IiORITY
MINUTES•
;,-1 MOTION by Mr. Prairie, seconded by Ms. Schnabel, to approve the
April 9, 1992, Housing & Redevelopment Authority minutes as
written.
IIPON A VOICE VOTL, ALI� VOTINt� AYE, CBAIRPER80N COMMERB DECLARED
THE MOTION CARRIED IINANIMOIIBLY.
1. CONSIDER APPROVAL OF SATISFACTION OF MORTGAGE, ERNEST AND
RATHLEEN BERGSTROM:
MOTION by Mr. McFarland, seconded by Ms. Schnabel, to approve the
Satisfaction of Mortgage for Ernest and Kathleen Bergstrom at 5760
- 3rd Street N.E.
IIPON A VOICE VOTE, AI�L VOTING AYE, CHAIRPLR80N COMMERB DECLARED
THE MOTION CARRIED IINANIMOIIBLY.
2 . CLAIMS AATD EXPENSES :
a. Innovative Ir'rigation (Lake Pointe - Estimate #1)
Mr. Hansen stated this is the first Lake Pointe maintenance
service estimate for the 1992 contract already approved by
the HRA. The first payment is in the amount of $3,706.43.
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HOIISING � REDEVELOPMENT AIITHORITY MEETING, MAY 14 - PAGE 2
b. Innovative Irrigation (Lake Pointe)
Mr. Hansen stated this is a separate expense for the removal
of rotten wood chips, dirt, grass, etc. The cost of that
removal was $997.50.
Ms. Schnabel asked how old the wood chips were and why there
was the need to remove them when wood chips usually just
mulch.
Ms. Dacy stated she will aslc Jon Thompson of the City's
Engineering Department to give the HRA a report on the reason
for the removal of the wood chips.
MOTION by Mr. Prairie, seconded by Mr. McFarland to approve
the two payments to Innovative Irrigation, one for $3,706.43
and one for $997.50.
IIPON A VOICE VOTL� ALL VOTIN(3 AYE, CHAYRPLRSON COMMERB
DECLARED THE MOTION CARRIED IINANIMOIIBLY.
c. Expenditure Approval List dated May 8, 1992
MOTION by Ms. Schnabel, seconded by Ms. Schnabel, to approve
the Expenditure Approval List dated May 8, 1992, check numbers
2212-2220.
Ms. Schnabel questioned check number 2219 in the amount of
$19,590 for the Liquor Store Parking Lot/3rd Street project.
Mr. Commers stated he did not remember the HRA discussing this
item.
Mr. Burns stated he did not recall that any of this project
was to be charged to the HRA. It was his understanding that
the Liquor Store parking lot was to be charged to the Lic�uor
Fund, and the 3rd Street extension was to be charged to the
City Street Fund.
Mr. Commers asked staff to find out why $19,590 was charged
to the HRA and report this information back to the HRA.
Mr. Hansen stated that any expenses associated with Rice Creek
Plaza are usually reimbursed from the tenants and are included
in their common area and maintenance charge.
Mr. Commers stated that the Expenditure Approval List only
shows the disbursements. Maybe revenues could be listed at
the bottom of the page.
Mr. Hansen stated he could provide a revenue and expense
report for the HRA.
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HOUSING & REDEVELOPMENT AIITHORITY MEETING, MAY 14 - PAGE 3
Mr. Commers asked staff to put togethe� a format and let the
HRA look at it before it becomes a permanent report. The HRA
should approve the Expenditure Approval List with the
exception of check number 2219.
IIPON A VOICE VOTE� ALL VOTIN(3 AYE� CHAIRPLR80N COMMERB
DECLARED THE EgPENDITIIRE APPROVAL LIST APPROVED WITH THE
EBCEPTION OF CHECK NUMHER 2219 TO THE CITY OF FRIDLEY FOR THE
LIQIIOR PARRINa LOT/3RD STREET PROJECT.
3. RICE PLAZA UPDATE:
The HRA members reviewed the Rice Plaza update.
4. STATUS OF ONAN PROJECT:
Mr. Burns stated Onan makes both large industrial generators and
smaller gen sets for tractors and recreational vehicles. The large
industrial generators are made in Fridley. The smaller gen sets
are made in Huntsville, Alabama. Onan's large industrial generator
business is expanding, and they want to make room for additional
research and development personnel and marketing personnel in their
main facility. They are moving the research and development and
,� marketing people who are associated with the small gen sets into
a different building.
Mr. Burns stated Onan has a couple of choices. They can expand
their existing facility by 75, 000 sq. ft. or they can move them
all to Huntsville, Alabama. The City of Fridley would like Onan
to choose the first alternative.
Mr. Burns stated there are 250 jobs at stake, approximately 200
existing jobs and another 45-50 jobs will be created. Eighty
percent of these jobs are in the $40,000-50,000 per year salary
range. The project is to be completed in phases, one-half in 1992
and one half in 1993.
Mr. Burns the estimated construction costs are almost $5 million,
and total projects costs, including costs for relocating some
equipment, are estimated at $10,710,000. The construction cost
will yield a tax increment upon completion of about $168,000 per
year. Total tax increment for the remaining life of that district
is $4,119,801. Out of that, the City would obtain 10� or
approximately $411,980 for administrative/program fees. That
leaves available tax increment of $3,707,821.
Mr. Burns stated the competition is the Huntsville/Madison County
Airport Authority (population: 239,000). They are providing a
substantial incentive package to move Onan and those jobs to
�''1 Huntsville. The land would be available on a nominal lease basis.
Alabama would abate its 8% sales tax and use tax on construction
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HOIIBINa & REDEVELOPMENT AIITHORITY MEETING. MAY 14 - PAGE 4
materials, machinery, and equipment. Alabama would also abate 100�
of the property taxes which are substantially less than F'ridley's.
These incentives have been verified by Jim Casserly.
Mr. Burns stated Fridley has also proposed an incentive package.
He believed Fridley will be successful in getting another $250,000
Economic Development Recovery Grant from the State of Minnesota.
Staff is suggesting that the HRA pay up to $250,000 to run a storm
sewer from the site to Rice Creek. The project is to be assessed
to Onan and paid for by Onan from available tax increment. In
addition, staff is suggesting a 78� tax abatement through
approximately eight tax payable years. Present value of that
abatement is $500,000. A ratio of HRA support to the project costs
is about 7�a. Even with the 78� tax abatement pay-out, the City
would still end up with increment available for other projects
through the life of the district (year 2013) of almost $3 million.
Mr. Burns stated staff is recommending that the HRA give its
conceptual approval to this proposal. Onan will make a decision
in about 6-8 weeks.
Mr. Prairie asked if Onan has determined whether any contamination
exists in the potential expanded area.
� .-�� Mr . Burns stated Onan does not appear to be conaerned about any
contamination, but he can inquire to make sure.
Ms. Schnabel asked how the Huntsville/Madison County Airport
Authority gets the State of Alabama to agree to an abatement of
state sales tax.
Mr. Casserly stated he believes it is a state policy. It is the
State�s incentive to get new construction.
Mr. Casserly stated he has prepared a Comparison of Development
Incentives between Huntsville, Alabama, and Fridley, Minnesota.
He handed these out to the HRA members.
Ms. Schnabel stated that in their incentive package, the ratio of
support is 7� above the guideline of 5� as discussed with the City
Council at the last meeting. The heading of the guidelines says,
"Maximum Amounts".
Mr. Burns stated the guidelines are intended to be guidelines and
not absolutes.
Ms . Schnabel stated then the heading should be changed to make that
clear.
Mr. Commers stated it is nice to have guidelines, but he still
,� believed the guidelines are a little too restrictive as far as
° flexibility. He stated he certainly supported the Onan proposal.
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HODBIN�3 & REDEVELOPMENT AIITHORITY MEETINa, MAY 14 - PA�3E 5
It is a good project, will keep jobs in Fridley, and Onan is a
major taxpayer in the City.
MOTIOAT by Mr. Prairie, seconded by Mr. McFarland, to approve in
concept the proposed Fridley incentive package to the Onan
Corporation.
Mr. Casserly stated he had prepared a financial analysis of what
happens over eight years. The bottom line is that the City/HRA
keeps a little more than 210 of the available increment for their
programs, and about 78-790 goes to pay for the special assessment
activities and the revenue note.
Mr. Commers stated he looks at these infrastructure improvements/
storm sewer, etc., as improvements that eventually have to be done
anyway. It�s really a cost of the project area and, in all
fairness, not directly related to the Onan project.
OPON A VOICE VOTE, ALL VOTINa AYE�
THE MOTION CARRIED IINANIMOIIBLY.
3. SHEET METAL CONNECTORS PROPOSAL:
COI�IIRERB DECLARED
Mr. Burns stated Sheet Metal Connectors is currently negotiating
^ with Glacier Park Property to purchase the 6.5 acre Burlington
Northern site at the west side of Main Street opposite 59th Avenue
N.E.
Mr. Burns stated Sheet Metal Connectors is a 26 year old company
on 19th Avenue in Minneapolis. Sheet Metal Connectors manufactures
sheet metal duct work, fittings, and connectors. Their sales in
1991 were $9.6 million and sales are growing at a rate`of 10� a
year. The products are distributed nationally to about 1,700
customers.
Mr. Burns stated Sheet Metal Connectors is proposing the
construction of a 100,000 sq. ft. total concrete building with an
estimated cost between $2 1/2-3 million. The construction will
begin as soon as possible and be completed by the end of 1992.
Mr. Burns stated this is a good project and will benefit Fridley.
There are 60 full time jobs, all union jobs, with a salary range
of $30,0�0-50,000 per year. Additional tax value of the new
constructed building will be about $2,000,000. He believed the
City should be attracting strong companies to Fridley, and this is
definitely a strong, growing company. In the last five years,
Sheet Metal Connectors has doubled the size of its employment.
Mr. Burns stated the project seems to fit on the site and should
create a low volume of truck traffic.
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HOII8IN�3 & REDEVELOPMENT AIITHORITY MEETIN(3, MAY 14 - PAaE 6
Mr. Burns stated staff believes this is a good project for the SBA
504 Loan Program. The SBA Loan is a fixed interest loan for up to
20 years for the purchase of buildings or the acquisition of
property for new construction. The current rate for SBA loans is
8.84� which covers 40� of the cost of this construction and
acquisition up to an amount not to exceed $750,000. The loan is
subordinated to the primary lender, secured by a second mortgage,
and makes lending money to a company a lot more attractive with
less risk.
Mr. Burns stated the Coon Rapids Development Corporation has looked
at Sheet Metal Connectors' financial statements and has discussed
the SBA 504 financing with Jim Casserly. They believe it is a
viable project. The Coon Rapids Development Corporation is the
local development corporation for SBA 504 purposes for Anoka
County.
Mr. Burns stated industrial revenue bond financing is possible,
but not likely.
Mr. Burns stated that in addition to the SBA 504 financing which
does not involve any HRA money, staff is suggesting some tax
increment financing. Fridley is in competition with Brooklyn Park
for this project. Brooklyn Park has a very aggressive economic
,,..\ development program headed by a full time economic development
director.
� Mr. Burns stated staff is suggesting the establishment of an
economic development district for this site which is an eight year
district and that they make available $125,000-175,000 in pay-as-
you-go tax increment, based on the size of the ultimate project
costs and the tax increment eligible costs. A railroad spur needs
to be moved, and there may be some soil correction costs. Staff
is estimating providing tax increment financing for four tax
payable years through 1997.
Mr. Burns stated staff is recommending that the HRA approve this
proposal in concept.
Mr. Commers asked what is the total tax increment?
Mr. Casserly stated the total tax increment per year would be a
little over $100,000.
Mr. Commers asked if they would be able to utilize the excess
increment in any of the other districts, at least during the four
years that this pay-as-you-go is in effect.
Mr. Casserly stated they are only taking out 10% for administrative
expenses. The HRA can terminate the district after four years if
,�, the HRA chooses to do that. However, if they want the district to
run longer, for any new district they create now, only 25� of the
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HOIIBIN(� & REDEVELOPMENT AIIT80RITY MEETING. MAY 14 - PAGE 7
increment can be moved outside the district boundaries. Staff is
looking at this district as an isolated, single parcel project, and
they wouldn�t be looking for this particular development to assist
with other districts by moving tax increment.
Mr. Commers stated that if the HRA approves this project, if there
is $100, 000 tax increment for four years, they will be paying about
$40,000 per year to Sheet Metal Connectors. Then, there is another
$60,000 in tax increment. Can they take 25�a of that $60,000 and
use it in their overall common fund and there are no consequences?
They can always decide whether to terminate the district after the
four years. But, it seems that during the four years with pay-as-
you-go, they can take at least 25� and they should maximize that.
Mr. Casserly stated the $150,000 is a present value. It actually
takes $240,000 to provide a present value in 1992 of $150,000.
The amount of tax increment, however, is about $400,000. Sixty
thousand dollars is going to the company. Of the remaining
$40,000, about $10,000 is being retained by the HRA (10� for
administrative). That leaves $30,000. It is that $30,000 that
they essentially transfer into the City to cover the City's lost
LGA. Every time the City creates a district like this, it is
penalized about $1.00 for every $3.00 of tax increment. The HRA
still gets the same amount of tax increment, but the City gets a
state aid reduction of about one-third of the amount of increment
that this district generates. In order to compensate the City for
its losses, this $30,000 difference is actually paid to the
company, and the City charges the company a development fee so that
the City comes out even. From the company's perspective, they are
still only getting a net of $150,000.
Mr. Commers stated he believed this substantially increases the
cost of this project in terms of out-of-pocket costs. The HRA is
virtually taking up another $30,000 that the state is taking away.
It might be more prudent to take $150, 000 out of their fund and
give it to the company as some kind of second mortgage or payback.
It is really taking away $400,000 from the taxpayers to really give
the company about $150,000. That� is a big tax increment to
effectively provide $150,000.
Mr. Casserly stated that is correct. This is the
doing it, and they are stuck with it. But, yes,
acquire the land and sell it back to the company for
Mr. Casserly explained the LGA reduction process.
mechanics of
the HRA can
$150,000.
Mr. Casserly stated that in this situation, it is worthwhile to
create the district to break even. There might be other projects
where it will not be worthwhile to do this. Economically, it is
easy to justify creating a district when they have these kinds of
-� numbers. The HRA has the ability to not create the district.
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80UBIN(3 � REDEVELOPMENT AIITHORITY MEETIN�3, MAY 14 - PAaE 8
Ms. Schnabel stated there seems to be enough concern on the part
of the HRA to ask staff to research this project more to see if
there are any alternatives.
Mr. Casserly stated there are only two alternatives: (1) create
a district and go through the mechanics described; or (2) expand
the project area and use existing funds to assist with the
writedown.
Mr. Commers stated it seems like a good company and the kind of
business they would like to have in Fridley. He liked the SBA
financing and it is a project they probably want in Fridley, but
he is just surprised at the overall cost to do it. He was not
aware of these costs prior to the meeting.
Ms. Schnabel asked Mr. Commers if he would prefer to have staff
look at some other alternatives.
Mr. Commers stated that now that he understands how the process
for creating a district works, they should probably support the
project this time, but the HRA needs to consider these kinds of
projects more carefully in the future.
Mr. McFarland asked if there is any alternative.
Ms. Schnabel stated they could give the company a grant. How soon
does this proposal need approval?
Mr. Burns stated if the HRA can give conceptual approval at this
meeting, he can review the proposal briefly with the City Council
on May 18, 1992, and begin the public hearing process for setting
up the tax increment district. The company needs to know if the
City is supportive before they go ahead.
Mr. Commers stated he believed the HRA can approve conceptually
that they are willing to give the company some kind of assistance
in the amount of $125,000-175,000. Can the HRA reserve the right
on how they will grant the assistance?
Mr. McFarland stated if the HRA did give the company an outright
grant, everyone would benefit but the HRA.
Mr. Commers stated he did not think they should give an outright
grant without some way of recapturing some of the cost. They may
also have to investigate ways to recover costs elsewhere in other
districts by not terminating those districts earlier and possibly
extending them one or two years.
MOTION by Ms. Schnabel, seconded by Mr. Prairie, to approve in
concept the proposal by Sheet Metal Connectors.
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IIPON A VOICE VOTE, ALL VOTIATG AYE, CHAIRPERBON COMMERB DECLARED
THE MOTION CARRIED IINANIMOIISLY.
6. STATUS OF BOB SCHI2OER'S PROJECT:
This was an information item only.
7. CONSIDER AMENDMENT TO DEVELOPMENT CONTRACT, WAL-MART, INC.:
Ms. Dacy stated this is an information item. No action is required
by the HRA. It is a Council decision.
8. UPDATE ON REDEVELOPMENT AT 250 OSBORNE ROAD:
This was an information item only.
9. FIATAL VERSION OF TIF POLICIES:
Mr. Commers stated these are the amended TIF policies adopted by
the HRA at their last meeting. They are guidelines only.
Ms. Schnabel asked if the HRA wanted the word "Maximum" in the
chart entitled, "III. MAXIMUM AMOUNTS OF DEVELOPER/USER SUBSIDY".
� The HRA and staff agreed to changing the word "Maximum" was changed
to "Recommended".
Ms. Schnabel stated the HRA members should have a revised copy of
the policies and guidelines to keep in their notebooks.
10. CONSIDERATIOAT OF NORTH METRO MAYOR'S ASSOCIATION INDUSTRIAL
RETENTION PROGRAM:
Mr. Burns stated this program comes from Joe Strauss, Executive
Director of the North Metro Mayor's Association, who also does some
consulting business and is proposing to branch into a new business
called "Community Resources Partnerships, Inc.". This company
proposes to combine the efforts of Blaine, Fridley, Brooklyn Park,
and Brooklyn Center and have the four cities conduct an annual
business retention program at the cost of $30,000 each. A staff
of 6-8 people would visit retail and industrial businesses in all
four cities, compile a comprehensive list of businesses, and do a
very comprehensive survey of these businesses. The idea is to
manage economic development on a four-city basis and by providing
information, they can better match those resources with the
communities.
Mr. Commers asked what benefit it is for Fridley to get Brooklyn
Park and Brooklyn Center's business history.
^ Mr. Burns stated that one of the goals of this retention program
is that by combining information from four different cities, they
� HOIIBING & REDEVELOPMENT AIITHORITY MEETIN(�, MAY 14 - PAGL 10
create economic development opportunities for the industries that
lie within the four cities.
Ms. Schnabel questioned the annual fee of $30,00O...for how many
years?
Mr. Burns stated that at one time, they were anticipating a$50,000
grant from the State Department of Trade and Economic Development.
Ms. Schnabel stated that under "Membership Benefit'�, the proposal
said that a community was to protect and expand commercial and
industrial tax base. She would like to know what guarantees there
are that this would actually occur. That is a pretty broad
statement.
Mr. Burns stated he did not think the company can guarantee that.
He believed the company is saying that by being very systematic
about surveying industry and finding out the conditions and needs,
we, as economic development professionals and economic development
organizations, are going to be better able to respond to the
business needs and use our resources to respond to those business
needs.
Mr. McFarland asked why this isn't a City expense as opposed to
�1 the HRA's.
Mr. Burns stated he did not believe the City can afford it, and it
falls appropriately under the topic of economic development and is
more appropriate for the HRA.
Mr. McFarland stated that the City is the one that will benefit
from economic development because of the tax growth.
Ms. Schnabel stated she is just not in favor of this program.
Mr. Prairie stated that, for example, Blaine has more developable
land than Fridley, so this program will benefit the cities
differently.
Mr. Burns stated he is also concerned about giving the other cities
all this information about Fridley businesses and Fridley
businesses' expansion programs when the information Fridley gets
from the other cities may not do them as much good because of the
lack of staff.
Mr. Burns stated he has been involved in business retention work
in the past, and he is convinced that it is good and it does pay
big dividends. But, maybe they should be making a smaller effort.
Mr. Burns stated another concern is the City's and HRA's
� priorities. There has been strong interest expressed by the
„e11 HOIIBING & REDEVELOPMENT AIITHORITY MESTINt3, MAY 14 - PAGL 11
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Council and the HRA to get something started in housing, and maybe
that should be a higher priority than industrial retention.
MOTION by Mr. McFarland that the City of Fridley join the Multi-
Community Business Retention Open Market Expansion Project with
the Cities of Blaine, Brooklyn Center, and Brooklyn Park.
MOTION FAILED FOR LACR OF A SECOND.
11. OTHER BUSINESS:
Mr. Burns stated that he has spoken with Scott Ericson. Mr.
Ericson told him he now has construction financing and is hoping
for permanent financing for the Fridley Town Square project.
ADJOURNMENT:
MOTION by Ms. Schnabel, seconded by Mr. Prairie, to adjourn the
meeting. Upon a voice vote, all voting aye, Chairperson Commers
declared the motion carried and the May 14, 1992, Housing &
Redevelopment Authority meeting adjourned at 9:30 p.m.
Res ectfully s itted,
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Ly e Saba
Recording Secretary '
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