Committee Minutes

MINUTES/GROWTH FUND AUTHORITY (JDA)
Wednesday, January 2, 2002 - 6:45 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 Wednesday, January 2, 2002 at the hour of 6:45 p.m. with Vice Chairman Brooks presiding. Present at roll call were Council Members Brooks, Bjerke, Hamerlik, Burke, Gershman (teleconference), Lunak, Klave, Kerian, Bakken, Kreun, Martinson, Mayor Brown - 12; absent: Council Members Stevens, Glassheim - 2.

APPROVE EQUITY INVESTMENT FOR SERIES B PREFERRED
STOCK IN VERACITY COMMUNICATIONS, INC.

The staff report from the Office of Urban Development relating to the public hearing for Veracity Communications, Inc. Growth Fund application, with recommendation to approve an equity investment of $100,000 for Series B Preferred Stock in Communications, Inc.

Vice Chairman Brooks opened the public hearing on the request for an equity investment by Veracity Communications, Inc. which plans to locate in Grafton, ND to provide voice and data conferencing along with streaming media services to businesses.

Mark Krauseneck, Grand Forks Economic Development Foundation, stated this is a good example of a regional project with positive impact for Grand Forks, very good leverage for Grand Forks in terms of our participation and business model that should do well, and introduced Dan Bye, Veracity Communications, Inc.

Mr. Bye stated that this morning they opened their doors in Grafton and now have an opportunity to provide considerable job opportunities as their business grows in this area and being able to work with all the different organizations in this region which are very important to them and to their success.

COUNCIL MEMBER CHRISTENSEN REPORTED PRESENT

Council Member Lunak asked why Grand Forks didn’t get this business or wasn’t considered to bring the business here.

Mr. Bye stated they were in discussions with Grand Forks and that anytime they launch a new business you start out with plans, and had considerable experience in building and managing a similar business in another space and when first came to Grand Forks, it was very early on in that stage and worked with Mr. Jim Melland and Mr. Krauseneck and they helped them a great deal in packaging their business better, approving the plan, etc. and it was determined that the position for Grand Forks to participate, if Grand Forks was to participate, would be at a later stage in the financing package, and Grafton was able and willing to participate at a very early stage. He stated the this kind of an investment and effort requires somebody to really step forward and take the risk, and Grafton was willing to take more risk by being the very first economic development organization to come into their package, and enabled all of the other pieces to flow in.

Mr. Krauseneck stated that there are also rules and terms of Century Code and political subdivision issues in terms of public financing, and their being in Grafton allowed Grafton and the surrounding communities to put in funds, also allowed the Regional Council to take a large stake in the project early on, and that would not have been possible in Grand Forks, and the total amount of public financing of which we represent approx. 20% of the local nature; that they have ND
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Development Fund funding - that if we had gone in early on we would have had to gone in a start-up company at about $750,000 - that what happened is we were able to tie in the Regional Council’s money which is re-directed federal and state money that we couldn’t have otherwise; and were able to tie in Grafton and surrounding communities funds; that the ND Development Fund which didn’t come in until end of November was able to be satisfied that they could be a partner and come in; and that we were looking for private equity so it wasn’t a public equity start-up and private equity did not come into the deal until the November timeframe. He stated this was positive for Grand Forks because it’s in the region and Grand Forks only has $100,000 in, otherwise would have been there excluding the other public financing sources early on at about $750,000 and we did not have the private investors in this project until the last two months.

Council Member Lunak stated they have regional money, private money, Grafton’s money and our money. Mr. Krauseneck stated that the SBA is involved in helping guarantee the bank loan and have State Economic Development organizations in with similar type of equity position; that he worked closely with the CEO of that fund and they weren’t comfortable in terms of coming in until later on also. Council Member Lunak stated that the reason the Growth Fund was first started was to create economic development, create jobs and we should be focusing on Grand Forks rather than Grafton.

Mr. Krauseneck stated they have an un-audited list of jobs that were created this year based on previous Growth Fund investments - we’re a regional organization and take funding from several private sector members on a regional basis in addition to city political subdivisions and county political subdivisions and not in the business to put most projects outside of the city limits, but smart business to look at the health of surrounding communities, who shop and leave their revenues in this community - we’re a trade center for these towns and we benefit by their health
and if we’re going to be able to support the new big box retail and entertainment venues that we talk about, we need the service and retail receipts from these communities. He stated we could bring start-up companies to the Growth Fund early, look for the City to take all the risk, have projects in a city limit or do something like this where everybody wins, including private sector involvement; that does not weaken the project but strengthens it for the City and speaks to the regionalism that we’re at the center of - and unless practice that kind of regional leadership, doesn’t really see a lot of solid prospects for long term health; in terms of jobs in the last year all are in the city limits and reflect good sound decisions over the years by the city council to help underwrite private investments with some public assistance in projects like this - and very likely in two-three year period they’ll have a form of their operation in our particular community - and until then should look at this as our community when the occasional project ends up in Northwood or Thompson or this project.

Council Member Bakken stated this is still a good investment for Grand Forks as people still shop here, and any jobs created around this area are still good for us as a central location for them to come to and good to have some growth anywhere in the valley.

Vice Chairman Brooks closed the public hearing.

Council Member Burke stated that the money is not a deal maker, that we haven’t voted on our money yet and their business is already in place, that this money is a good will offering and that’s not what we tax our citizens for, to make good will offerings, that we tax our citizens for economic development - if we don’t have enough viable projects closer in to spend the money on, then should
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reduce our sales tax or reallocate some of our sales tax funds to other uses - it doesn’t make sense for a community that is 40-45 miles away to be investing in a business there - same community which competed against us for a large manufacturing plant, that they were competitors for that plant and we lost to them - they’re capable of competing as we’ve heard they have resources that we don’t have access to because of the nature of their situation, and that we shouldn’t feel obligated to help bring businesses to another community.

Council Member Hamerlik stated in reviewing the Growth Fund minutes, stated there was discussion on Veracity and Western Polymer, and then committee went into executive session and passed a motion and asked for clarification. Council Member Christensen stated they did go into executive session because they discussed the financial aspects of the proposal, that he didn’t know if secretary to the committee had transcribed what they said in executive session or not, but if the issue is if you want to know that, then should have it transcribed. Council Member Hamerlik stated that the motion for Western Polymer was made before the executive session and then states the motion - that minutes should be corrected.

The city auditor stated that Terry Hanson may want to address this, but stated as he distributed minutes and commented on area in the minutes of executive session; that there was a motion made to go into executive session, but not seconded and didn’t go into executive session; that this is a draft of the minutes and won’t see that in the final copy. Council Member Hamerlik stated that he can be assured that they weren’t in executive session when they passed that motion.

Terry Hanson, Office of Urban Development, reported that when Chairman Christensen called for an executive session in the Growth Fund meeting, there was little if any discussion - that Council Member Brooks made the motion initially and if there was an executive session, the total of that session was the motion and approval of it.

Council Member Christensen, chair of the Growth Fund Committee, stated that in the executive session his comments were directed towards what the City’s investment is if we fund this project because we’re buying stock in a start-up and we get Class B Preferred with a call provision, that he pointed out to the members of the committee (and to the council), that if approved, within the first two years we get our $100,000 back plus 6% dividend - and if don’t get our money back in the first two years, then from years three to five, we can get three times our money plus our interest; and that if this transaction were to go public, expect that we will be bought out before it went public because there’s a call provision and they would buy us out. He stated that during the executive session that he pointed out his concern as to the policy of this council or future councils as far as a regional economic development corporation and what encompasses a region - how far north, south, etc. and that he doesn’t know; and this is a good time for the council to address that policy issue; and that he is going to push this group and leadership of this community to address the policy as to what they are trying to do with our economic development dollars, who benefits and at what level.

Mr. Bye stated that on behalf of regionalism and companies like Veracity and other opportunities that might exist or may be presented, really require diverse participation of multiple forms of investors, whether equity investors, debt investors, or economic development participation - without building a consortium of diverse participants there is no one entity, whether local or regional or state-wide basis, that can bring to bear the appropriate amount of resources without taking on too much risk - that spreading the risk, spreading the wealth or benefit is the only way that you can bring together enough resources to do the kinds of transactions that can create
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meaningful jobs with good quality pay and benefits and provide for an opportunity for long term growth in the economy - no one entity can get it done, does require a diverse effort.

Vice Chair Brooks stated they did receive a letter from John Snustad, chairman of the Board of the Grand Forks Region Economic Development Corporation, November 9, where he did provide a resolution that they passed about what regionalism is and what their motion was regarding the region that we support, that the council should take that issue up - but at another meeting.

It was moved by Council Member Christensen and seconded by Council Member Kerian to approve the recommendation of the Growth Fund Committee and to approve the request of Veracity Communications, Inc. for a $100,000 class “B” preferred stock equity investment.

Upon roll call the following voted “aye”: Council Members Klave, Kerian, Bakken, Kreun, Martinson, Brown, Brooks, Gershman, Christensen - 9; voting “nay”: Council Members Bjerke, Hamerlik, Burke, Lunak - 4. Vice Chair Brooks declared the motion carried.

HOLD PUBLIC HEARING AND APPROVE LOAN FOR PACE
LOAN BUYDOWN FOR WESTERN POLYMER CORPORATION

The staff report from the Office of Urban Development relating to the pubic hearing for Western Polymer Corporation Growth Fund application, with recommendation to approve funding for the community portion of a PACE interest buydown in the amount of up to $30,000 for Western Polymer Corporation.

Vice Chairman Brooks opened the public hearing on the application for funding.

Mr. Krauseneck reported that the principals were not here from Moses Lake, WA this evening, that this is a good project for us with a lot of growth downstream. Mr. Melland reported that Polymer has built a new building on Mill Road and plan was to continue using the process water from the potato plants in our region, to refine it and ship it back to Moses Lake; their long term plan was to put in a drying system to further dry the starch out of the process water from potatoes so that they can create the starch products that are actually used in papermills; their location in Grand Forks is set to serve the mid-west and eastern regions of the United States, their only plant and corporate headquarters are in Moses Lake, WA where they have a good command of the market in the western part of the United States. He stated this project will facilitate quicker creation of 8 jobs and in the future their plans are to go to 12-15 employees, the dryer is about a $600,000 investment and is the amount of the PACE loan they have approved through Wells-Fargo and the Bank of North Dakota, the total project for installation into this facility and bagging system to ship the starch out is approx. $1.2 million and this is financing half of the equipment they need; they will install dryer into their plant by the first part of April if this loan is approved, and the terms of the PACE loan participation are looking for from Grand Forks is a $30,000 loan at zero percent interest to be repaid to the Growth Fund at the end of the repayment of the original PACE loan, which is scheduled for a five-year repayment.

Vice Chairman Brooks closed the public hearing.

It was moved by Council Member Christensen and seconded by Council Member Klave to approve the recommendation.
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Upon call for the question and upon voice vote, the following voted “aye”: Council Members Hamerlik, Burke, Gershman, Lunak, Christensen, Klave, Kerian, Bakken, Kreun, Martinson, Brooks, and Mayor Brown - 12; voting “nay”: Council Member Bjerke - 1. Vice Chairman Brooks declared the motion carried.

ADJOURN

It was moved by Council Member Hamerlik and seconded by Council Member Kreun to adjourn. Carried 13 votes affirmative.

Respectfully submitted,



John M. Schmisek
City Auditor