Committee Minutes

MINUTES/GROWTH FUND AUTHORITY
Monday, February 3, 1997 - 7:00 p.m.

The city council of the City of Grand Forks sitting as the Growth Fund Authority met in the council chambers in City Hall on Mon- day, February 3, 1997 at the hour of 7:00 p.m. with Chairman Carpenter presiding. Present at roll call were Council Members Beach, Polovitz, Ellingson, Hamerlik, Hanson, Sande, Klave, Babinchak, Bakken, Hafner, Hagness, Carpenter and Mayor Owens - 13; absent: Council Members Glassheim - 1.

a) D & B Specialty Foods:
Chairman Carpenter called for the public hearing on the application from D & B Specialty Foods, Terry Dahl and DuWayne Dahl, for the City to provide a 60,000 sq.ft. facility to be leased to D & B under a triple net lease, that the City provide the community portion of a PACE interest subsidy of an amount not to exceed $131,400, that the City provide a $2,000 per employee job incentive for five years for all jobs earning more than $7.50/hour, not to exceed $72,000 total; and that the company is also requesting a five-year graduated property tax exemption.
There were no comments and Chairman Carpenter closed the public hearing.

The city auditor read the recommendation from the Growth Fund Subcommittee which was approved by a vote of 5 to 1: That the City construct a 60,000 sq. ft. processing facility in the Industrial Park utilizing bonds to finance construction. The estimated cost of this facility is $3.7 million. It is recom- mended that this facility be leased to D & B Specialty Foods with the lease beginning on the date of substantial completion of the building at a rate that yields a 12% return on total investment by the City of Grand Forks in the construction of the facility to include real estate. For the first five years, cash payment required by D & B would approximate the bond service and other development costs amortized over twenty years at the average bond rate. A portion over and above the development cost amortiza- tion, not to exceed $2/square foot, would be exchanged for stock in the company at a rate equal to the initial offering price. Any portion of the 12% return exceeding the sum of the develop- ment cost amortization and the $2/square foot stock exchange will be added to the purchase price of the building if purchased by D & B at a future date. Starting in year six, the total cash lease payment paid by D & B will equal the entire 12% return on the City's investment.

The committee also recommended approval of the community portion of the PACE interest buy-down which is an amount up to $131,400 with dollar value being converted to stock at the offering price upon repayment of the PACE loan. Principals will be required to set aside, in a controlled escrow account, an amount equal to one year's bond debt service of approximately $350,000 to be used upon default of any payments of the lease. Any amounts expended from this escrow account will be reimbursed by D & B, bringing
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the account balance back to the original amount. Accrued interest will remain in the account. Approval of funding would be contingent upon the following: bank participation in an amount not less than $8 million; participation by the Bank of North Dakota through its PACE program, completion of a feasi- bility study showing favorable results which will be provided to the Growth Fund; and the placement of a minimum of $5 million of new cash equities.

It was moved by Council Member Polovitz and seconded by Council Member Beach that this recommendation be and is hereby approved.

COUNCIL MEMBER BEYER REPORTED PRESENT

John O'Leary, executive director of the Urban Development Office, reported that they overlooked something at the subcommittee level that the council may want to consider regarding this project. He stated that the applicants have committed themselves to raise $5 million in private equity through sale of stock in the company, and that they may want to put a date on how long the City will reserve the money to assist this company prior to a stock option being sold; that he discussed this with Mr. Olson of the GF Economic Development Foundation, and that June 1 seems to be a reasonable date.

Council Member Hanson asked the principals if that timeframe was adequate and fit into their plans. Mr. Dahl reported they had received their final offering from the Securities Commission and are in the process of starting to contact people to sell stock, that at the present time they are doing a revision which will take a week or so, and that four months sounds reasonable at this point, but hadn't considered a time limit on this part of the process.

Council Member Hanson moved an amendment to include a date of June 1, 1997; Council Member Hamerlik seconded the motion.

Terry Dahl addressed the council, and introduced the other participants: Steve Boneventre and his wife, Debbie; Mr. and Mrs. DuWayne Dahl, Mrs. Terry Dahl. Mr. Dahl stated he was president of the company; DuWayne Dahl is chief financial officer; and Mr. Boneventre is chief operating officer, responsible for the operations of the plant and sales. He stated that they have contacted people about filling the next few management posts in their organization and feel confident that they have some strong people to fill those positions. He stated that Mr. Boneventre has been in the pasta business for 43-45 years, and is principal individual when it comes to the pasta business, and that he and his brother are farmers and participate in the Dakota Growers Pasta Company and were very active in the project that Mr. Boneventre was involved in recently in Leeds, ND He reported
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that Mr. Boneventre worked in NY area for many years and worked for Leonardo as consultant, etc. He stated that they have a long list of customers that Mr. Boneventre knows and have talked with a few; and just recently returned from Italy and dealt with equipment manufacturer and toured some pasta plants and saw some new technology they were able to purchase. He stated they were excited about that and confident of their plant, and products they are going to produce, etc.

Council Member Ellingson questioned what would happen if applicants do not meet the $5 million; and Chairman Carpenter stated if they don't raise the funds, it would be up to the Growth Fund Authority either to extend the deadline or they would have to reapply if the City allowed that to lapse.

Council Member Beach asked if job incentive was for full-time equivalents; and Chairman Carpenter stated that job incentive was not approved at the subcommittee, that was request but not what was recommended.

Upon call for the question on the amendment and upon voice vote, the motion carried.

Upon call for the question on the motion, as amended, and upon voice vote, the motion carried 14 votes affirmative.

b) Longview Fibre Company:
Chairman Carpenter called for the public hearing on the application from Longview Fibre Company, who is proposing to construct an 85,000 sq.ft. facility for the manufacture, storage and distribution of corrugated shipping containers and related products, that the corrugated sheet stock for this facility will be supplied from the company's Minneapolis plant and converted to specific products in Grand Forks; and is requesting incentives totaling $265,600 from the City. It was also reported that the manufacturing activities will include printing, cutting, die cutting, folding and gluing operations, with total project costs est. to be $6,961,000 (including cost of land, building, equipment and moving costs). Longview proposes to have fifteen employees by the end of year one. Chairman Carpenter asked for comments from the audience, either for or against the application.

Mike Gillan, 1910 20th Avenue South, Grand Forks, stated he has been in the packaging industry in Grand Forks for the past 22 years, is a buyer of corrugated boxes, multi-wall paper bags and of polyethylene bags, that he purchases his poly bags from Hood Flexible Packaging, which is in building site which used to be Sengewald USA and prior to that Stone Container. He stated he has serious doubts as a taxpayer that the $1 million (to Stone
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Container) was well spent, that he does not look at a company the size of Stone Container, who is the largest packaging supplier in the world, the largest producer of craft paper in the world as a good, viable neighbor to the city of Grand Forks. He stated that at that time he would not sit idly by and watch his tax dollars being given to a large multi-million dollar conglomerate. He stated he would like to make a statement tonight; that he was not at any of the finance meetings, did not know of them; that the concern that he has is that those in the industry know what has happened with Longview Fibre (which is a good company and he is not against their coming to the city of Grand Forks, that his concern is the way that it is happening; that they signed a contract with J.R. Simplot and Company to supply them corrugated containers at various sites, and that they ran into problems in keeping supply to the Grand Forks plant on a regular basis out of their plant in the Twin Cities and the Grand Forks plant is a $7 million account for them, and major player in the industry. He stated that when he looked at the article in the Grand Forks Herald last week there were some comments that were made that somebody has to make a statement to that effect that maybe not fully true. He stated that presently he can make a purchase of a corrugated box from 30 different companies with a MN address; there is nobody, whether it be Simplot, American Wood Products, Marvin Windows, Polaris, any of these businesses hurting for a source of corrugated boxes; that there is adequate running time in this area to be taken care of by the vendors out there. He stated that he is not against Longview Fibre, but the feeling he gets in talking to people in the industry is that Longview is coming whether they get this money or not, that they need to make the commitment work with the J.R. Simplot Co. in Grand Forks, and feels that the City's putting up $270,000 as start-up funds for 15 jobs which will probably start in the area of $8-9/per hour, has hard time seeing that benefit worth the $270,000 grant to a multi-million dollar packaging business. He asked if there was any discussion with any industry experts in the packaging business. He stated he knows market and his biggest concern is that they're coming here for main purpose, putting in sheet plant but has problem with that kind of grant going to a company that, in his estimation, doesn't need it.

Mr. O'Leary stated he would like to clarify several comments made by Mr. Gillan; that the City did put a little less than $1 million into the expansion of a building in the FTZ for occupancy by Stone Container, when that was done was a loan to ourselves, that Stone Container pays us rent for building, that they amortized the date with interest over a twenty-year period and at the end of that time the building will be owned by the Growth Fund free and clear, that Stone's corporate policy is not to own buildings, that one they are looking at is probably exception to that policy, they are building an 80,000+ sq.ft. building themselves on 32nd Avenue South, and they have asked for the
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traditional tax exemption so that at the end of five years, it will be 100% on the tax rolls. He stated that Stone Container promised 45-50 jobs and up to 80 jobs, they didn't make that, and at the present time have 37 jobs at Stone Container, and John Comer stated that they are going to 24-hour a day clock in that plant and will be adding additional employees here in the next month. He stated that he thinks that was good investment to have Stone Container; that in fifteen years from now that building will be paid for and those revenues available to the JDA for other economic development projects.

Dick Olson, Grand Forks Economic Development Foundation, stated he can appreciate Mr. Gillan not encouraging competition, but in conversations with Simplot executives that this company does not have to be here to deal with Simplot; that Simplot would be very disappointed if they weren't in North Dakota; have to look at this company as focus on food-processing in the Valley, and this becomes magnet to every food processor they talk to. He stated this is source of supply right here; that Longview attracted to us because we have lot of food processing and lot of box purchasers; that City's first contact with them was when Marvin's was looking at the area; that they will build a corrugator here when and if the volume of box sales reaches point where corrugator makes sense, and which they think will happen in the first five years. He stated that when they build a corrugator they go from a very large capital investment they are making now and next step would be facility of about 250,000 sq.ft. with an enormous capital investment, would be on tax rolls, and employment would be approx. 120-150 people. He stated in looking at investment City making and at return at first level it's good investment.

Mr. Gillan stated he would not be in competition with Longview Fibre nor Stone Container, they buy truckload of book boxes and sell to Hansen-Maves to Kedney's, buy truckload of one bushel wheat bags and sell to various seed cleaning plants, etc.; not concerned from standpoint of Longview Fibre being direct com-petitor to Northern Bag and Box, that is not going to happen; that what Longview wants to put in here is a sheet plant, and what they will do is take cardboard sheets which will have to be produced at a full-line corrugated site, shipped into Grand Forks and then stamped out, printed, glued and converted into a finished box; and if there is a market for a full-line corrugated facility in the Red River Valley, he would bet on Stone Con- tainer. He again stated he does not compete with Longview Fibre or Stone Container, but works with them.

Chairman Carpenter closed the public hearing.

The city auditor read the recommendation: That the Growth Fund Subcommittee voted unanimously to approve the request of Longview MINUTES/GROWTH FUND AUTHORITY
February 3, 1997 - Page 6


Fibre Company, which includes a land incentive grant of $100,000, PACE loan interest buy-down of $35,600, and infrastructure grant of $130,000 for a total assistance request of $265,600.

It was moved by Council Member Beyer and seconded by Council Member Beach to approve the recommendation. Upon call for the question and upon voice vote, the motion carried 14 votes affirmative.

Council Member Hagness explained why there is money in the Growth Fund now, when there wasn't a month ago; Chairman Carpenter stated that we've always had money in the Growth Fund but this is a new budget year and there is more money available.

ADJOURN

It was moved by Council Member hanson and seconded by Council Member Beach that we do now adjourn. Carried 14 votes affirmative.

Respectfully submitted,



John M. Schmisek
City Auditor