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Committee Minutes

Growth Fund Committee

Thursday, September 8, 2005, 4:00 p.m.
Urban Development Conference Room

Vice Chairman Eliot Glassheim called the meeting to order.

Roll Call:

Present: Gerald Hamerlik, Eliot Glassheim, Terry Smith, Jon Ramsey, Doug Christensen
Also present: Peggy Kurtz, Keith Lund, Connie Mangan, Dr. Steven Moser, Duaine Espegard, Cheryl Gaddie, Klaus Thiessen, Jim Melland, Tu-Uyen Tran, Connie Tripplett, Judi Paukert

Approval of Minutes (8/15/05):

It was moved by Jon Ramsey and seconded by Terry Smith to approve the minutes of the August 15, 2005. Voting "aye": Gerald Hamerlik, Eliot Glassheim, Jon Ramsey, and Terry Smith; voting “nay”: none. MOTION CARRIED. Mr. Christensen attended the meeting at this time.

Northwood Mills LLC Growth Fund Application:

Jim Melland introduced Marcy Douglas and Bruce Uglem of the Northwood Economic Development Corporation. They are requesting PACE participation from the Growth Fund to help finance a soybean crushing plant in Northwood, ND. The plant will generate 17 new positions. Mr. Uglem said this project makes sense in rural North Dakota and their Executive Committee is happy to support it. Mr. Uglem reported they had their groundbreaking this morning with legislators and the Governor present. He presented an architectural drawing of what the proposed plant will look like, adding that it will be a Concrete Inc. building. He reported that many Grand Forks contractors would be working on the project. Ms. Douglas stated the future of a soybean plant in this area is promising and, if they work hard, they can make it a huge regional effort for economic development. There were eight communities considered in eastern North Dakota for this project and they are very excited to be named the chosen community. There won’t be a refinery portion right now, but there is potential to add in the future. They are looking at an expansion in two years because of the demand of the product. They will have separate lines for both genetically modified and non-genetically modified oil. The plant will be built to food-grade standards so when there is a need to go to the refined portion, they will be ready. The oil that will be produced will be bio-diesel ready. They have 29 acres now and have retained an option on additional land. They have also approached the ND Soybean Council for promotional dollars to entice more soybean business. Ms. Douglas stated that Grand Forks does rely on the outer region for revenues, according to an NDSU poll. She stated they have requested $130,000 from the Growth Fund for the PACE portion of their loan. They are currently working on raising other funds as well. She reported that Northwood is actively growing; they have a grocery store coming in and have a youth center opening tomorrow. Their total project is $8.2 million and they will be acquiring funds over the next couple of years but are running into a need for short-term funds. She felt this project is suitable for Growth Fund assistance because it produces a value-added ag product. Doug asked when we would get the $130,000 back and Jim reported that the maturity date of the loan through American Federal Bank is 10 years.

It was moved by Gerald Hamerlik and seconded by Jon Ramsey to approve the PACE request from Northwood Economic Development in the amount of $130,000. Mr. Hamerlik asked about the average salary range and Ms. Douglas stated that the average warehouse worker salary is between the $28,000 to $30,000 mark. Eliot asked about the labor market and Ms. Douglas stated they would draw from the entire Grand Forks area. Eliot asked about guarantees and Ms. Douglas replied they will follow the standard PACE agreement. Jon added that no one owns more than 20% of this project. Jim stated the American Federal PACE amount is about $1.125 million for the building acquisition/improvement and the total American Federal loan is $4.975 million. Doug asked who is guaranteeing the American Federal loan. Ms. Douglas stated it would be a Business and Industry Loan guarantee through USDA, adding that they have 16 partners. Doug asked how we get our $130,000 back if the project fails. Jim explained that, when we do PACE loans, we advance pay them at a discounted level and the funds are held by the State and disbursed as loan repayments are received from the company to the lender. If a company default 5 years into the loan and has a 75% balance on the loan, we should get 75% of our buydown dollars back because they have not yet been disbursed. Duaine Espegard stated that the PACE money is subsidizing the interest rate, so if the project fails, we get the unpaid money back and there is nothing to guarantee. Doug disagreed, stating we are at risk if we fail to get the amount back that is already paid out. Keith stated we would have a guarantee for the $130,000 from those who are guarantying the American Federal loan. Jon pointed out, on Section 5 of the application that contains the American Federal loan information, there are two guarantors in at 50% and that is how we should structure our guarantee, not at 100%. Doug felt we should approve the PACE amount and have staff address the guarantee issue. Keith stated he would have a term sheet available for the JDA meeting. Terry stated we have to inform the guarantors so they know what is being required of them. Voting "aye": Gerald Hamerlik, Eliot Glassheim, Jon Ramsey, Terry Smith, and Doug Christensen; voting “nay”: none. MOTION CARRIED.

Request from UND Entrepreneurship Internship Program:

Klaus introduced Steve Moser, Associate Dean of the UND College of Business and Public Administration, who was joined by Cheryl Gaddie and John Eikhoff. Klaus reported that the GFREDC reviewed the project and recommended that, although it was an excellent program, it is not in line with the four strategic focus areas in the Growth Fund policies and therefore should not be supported by the Growth Fund Committee. Dr. Moser explained that both the City and the Kauffman Foundation had supported their internship program in the past; however, recently, the Kauffman Foundation has indicated that they will not be able to support the program at this time. He distributed a list of businesses that have used the intern program. He stated that this program assists businesses starting at their current point and helping them grow. The program has been in existence since 1999. He stated that many businesses have hired their interns and continue to use more interns. This also provides an opportunity for students to do the things that they wouldn’t have an opportunity to do in the classroom. Bruce Gjovig and Dr. Moser meet with the interns on a weekly basis and offer expertise along the way to both students and businesses. The program offers a way for students to connect with a meaningful job that they may want to have in the future. They are trying to keep young people here in the community and feel this is an excellent way to do this. All funds they are asking for go directly to the students. No funding comes into the pockets of the University and it is used as match money. When Kauffman funds were available, they matched $10,000 with $40,000 in other donations from UND, City, and in-kind dollars. The internship program is an incentive to make hiring interns more attractive to businesses. They ask the business to chip in their part, which is then matched by money from other sources. Mr. Hamerlik asked if all the interns were going through the College of Business and Public Admin. and Mr. Moser replied some were Engineering interns. Mr. Hamerlik asked if they were tied in with the ND employment program. Mr. Moser stated there hasn’t been a centralized intern program at UND. Students receive 3 credits through the course and it is a requirement for an Entrepreneurship major. They tap into people all across the university matching interests to jobs. Eliot agreed that this might be a way to make contacts in the business community and asked if they had a sense of whether interns work for people full time. John Eikhoff replied that he has 3 interns working for him right now, adding that it was a great tool for connecting students with businesses and there is the infrastructure on campus with people who are willing to spend time to develop this program for students. Doug asked how we justify paying one intern a higher wage using City money than another intern would receive. Mr. Eikhoff stated that, when they first started with the internship program, they were a small company and weren’t in a position to experiment and hire people and pay them the money. Right now, they have 12 staff and 100 people out in the field and they have changed dramatically through the past years. The first student they hired was a marketing person who subsequently wrote their marketing strategies. Every experience they have had with interns has been good.

Doug stated we must explain to our constituents why the City writes checks to businesses that have gross revenues of hundreds of thousands of dollars and why one person is getting paid less per hour then another. Dr. Moser replied that the company doesn’t get the money to pay the intern; all funds are disbursed through UND payroll to the students. Jon reported he has had personal experience with the program and believes that it offers students a unique opportunity with businesses that they wouldn’t normally have. John Eikhoff stated, after hiring 3 interns, he would probably lean towards using the program without a subsidy, but probably other businesses wouldn’t until they get exposure to it. He stated the financing provided by the City in the past was for population retention. Bruce Gjovig added that it came at a time when there was an effort to retain our youth in the community. He agreed with Mr. Eikhoff that some businesses can continue on their own, but 2/3 wouldn’t have done it to get their intern. Eliot agreed that this came out of the youth retention committee and wasn’t due specifically to the flood but to keeping educated people in town. Eliot asked about the kinds of jobs the students hold; whether they are doing and learning and contributing. Mr. Eikhoff added that their first intern is now their marketing director.

Doug asked if there was a report on how many people stayed in Grand Forks because of this program. Dr. Moser replied that he did a survey of previous interns going back to 1999 and did receive a fairly good response rate, which indicates that there were a number of people that stayed in town. Doug asked if the Committee could get some hard data from this survey. Dr. Moser stated he knew, off the top of his head, about 6-8 that remained here, out of 100 people. Cheryl Gaddie reported that the last intern she hired was working behind a cash register at a local business and wanted to do this program because she wanted to find out about entrepreneurship. The intern came to work for Cheryl and is still working for her. She now wants to open her own business. Cheryl added that there was no better way to experience other than in a small business. Doug suggested that they do a fund drive to businesses that have embraced the program so they have a public-private partnership so we can match private dollars. Duaine Espegard felt that this was a great program although the GFREDC recommended no Growth Fund support for it. The question is whether taxpayer money that should be used to create jobs be used instead to pay interns. Jon Ramsey felt, as a taxpayer in Grand Forks, the City should provide some support, but as a Growth Fund member, he wasn’t sure the program fit into the policies.

Mr. Hamerlik asked at what point are we supporting the academic area. By having students learn, and by giving credit, we are funding UND programs and to some extent private business. If it is academic, then it’s not economic development. One of the key questions he has is how many interns actually stay here. Mr. Moser stated their intention is absolutely to keep these people here. They presented this program to the GFREDC because they felt it is an economic development program and they would like to see it continue. Mr. Hamerlik felt it was a policy issue. Bruce Gjovig thanked the Council members for the City’s previous support and stated it should continue because it has impacted 100 students and 60 companies. He stated we are in the business of subsidizing the growth of jobs, and this is just a different type of job. They are getting private sector leverage as usual. There have been 100 jobs in the community that have been impacted by this. The City has a good policy in investing in the growth of jobs and in hiring students to help with this growth and that internships have a lot to do with growth of a company. He stated their Entrepreneurship program is the 14th best program in the country and the internship program is part of this. It’s not a subsidy for academics because no money goes to academics. Terry asked if State funds could be used through the business start-up program or through Job Service for this purpose and felt that UND may have to seek out different sources of funding for this. Doug stated the previous Kauffman request came right to the Council, and not the Growth Fund Committee, and the Council funded it through the 2163 fund. Eliot Glassheim moved, and Mr. Hamerlik seconded, to set aside $15,000 for 2 years with the requirement that the program raise $3,000/year in match. Eliot felt, as we have redrafted the policies, we may have lost some flexibility on what we can do with the money, which is intended mainly for job creation. He added that perhaps a case could be made, by linking energetic talented young people with existing businesses, that we are making it possible to stimulate some business growth; however, not in every case. It’s almost like part of the administrative cost, such as when the EDC staff works with local businesses offering advice and mentoring, so there still is an economic development outcome to it. He felt we should continue the linkage of young people with businesses. Dr. Moser stated that, even when people don’t stay here, we still have created jobs that we wouldn’t have had before, so it’s hard to say what the impact has been. The numbers don’t tell the whole story.

Mr. Hamerlik asked where the program is right now and Dr. Moser replied he had asked John Schmisek, and received approval, for the remainder of money from the previous year so they have enough money to do six interns. They have all interns placed except one. Funds have been requested in the past to continue the program for the next year so it is usually a year behind. Mr. Hamerlik moved, and Mr. Ramsey seconded, to table the request until the October or November meeting in order to receive more information on whether past participants are still working in Grand Forks. Voting “aye” were Gerald Hamerlik and Terry Smith. Voting “nay” were Jon Ramsey, Eliot Glassheim, and Doug Christensen. The motion failed.

Mr. Hamerlik left the meeting at this time. Doug stated he didn’t want the City to be a continuing source of funding for UND scholarship programs. John Eikhoff stated he would be the source for the $3,000 matching funds. Doug felt they should think about a 1-for-1 match and see if they have private support from past users. Jon Ramsey stated he would like to see this happen and would like to see the City find the money, but didn’t feel it fell within the parameters of the Growth Fund policies. If we look at the list of participating businesses provided earlier, they are not primary sector employers. He was in favor of the program, but the problem was to mesh with the Growth Fund policies.

Keith felt the Growth Fund policies and procedures offer the Committee the flexibility to do any project they feel has merit. He suggested that they could recommend to the City Council to fund this out of 2163 (the economic development fund). Jon Ramsey moved, and Eliot Glassheim seconded, to not fund at the Growth Fund Committee level but to forward the request to City Council and recommend that they fund out of 2163. Voting “aye” were Terry Smith, Jon Ramsey, Eliot Glassheim, and Doug Christensen. Voting “nay” – none. MOTION CARRIED.

Jon added that it would be a good idea to provide Council with a report indicating what has been the retention of this program. Doug stated he will be asking UND to work on weaning themselves from City funds. Eliot suggested that perhaps this was very appropriate for Chamber funding. Duaine felt the request did not qualify for City funding and that the 2163 fund was still taxpayer dollars. Eliot felt the public purpose of this program was different, which is why we don’t want to fund it through the Growth Fund; that the retention of people has some value and that’s why we’re interested in taking it further to the Council. Doug stated that one of the primary “pillars” of the community is the University and the City has begun the process of partnering with UND in economic development projects. He added that, while it goes against his grain as a conservative to fund a UND payroll, he looks past this to a way to facilitate people staying here.

Monthly Report – August 2005:

Keith distributed and reviewed the August 2005 report.

Project Update:

Keith and Klaus stated they had no new information to report. Duaine Espegard reported that the EERC’s hydrogen lab was up for Center for Excellence funding.

Other Business:

Eliot stated when redrafting the policies, they have discussed about whether a business could make a deal with us on partial repayment of a loan if their business had closed. We have a request that has been waiting for a year and we have now adopted a means by which we can address their request. He asked for a special meeting within the next week or 10 days; adding that the business will have to get their appropriate paperwork submitted and staff would need to do their due diligence. After discussion, a special meeting was scheduled for Monday, September 19, 2005, at 8:00 a.m.

Adjournment:

Eliot adjourned the meeting

Respectfully submitted,

Peggy Kurtz
Urban Development

Eliot Glassheim
Vice-Chairman