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MINUTES/GROWTH FUND AUTHORITY (JDA)
Thursday, November 18, 1999 - 12:00 Noon-------_______

The city council of the city of Grand Forks sitting as the Growth Fund Authority (JDA) met at the council chambers at City Hall with Chairman Carpenter presiding. Present at roll call were Council Members Brooks, Polovitz, Lucke, Hamerlik, Glassheim, Carpenter, Lunak, Klave, Beyer, Babinchak, Bakken, Hafner, Martinson, Mayor Owens - 14; absent: Council Member Bouley.

Chairman Carpenter asked for a motion to waive notice requirements. It was so moved by Council Member Bakken and seconded by Council Member Hafner. Upon roll call the following voted “aye”: Council Members Brooks, Polovitz, Lucke, Hamerlik, Glassheim, Carpenter, Lunak, Klave, Beyer, Babinchak, Bakken, Hafner, Martinson, Mayor Owens - 14; voting “nay”: none. Chairman Carpenter declared the motion carried.

Chairman Carpenter asked John O’Leary, Urban Development, to provide a general overview of the project.

Mr. O’Leary reported that earlier this year they came in contact with a major economic development client who indicated an interest in establishing a presence in Grand Forks and that client indicated they were in a growth mode and maybe looking for a site for a major distribution center to be located somewhere in the continental United States and they began discussions with those people in terms of possible sites and what site requirements would be and the overall impact to the community as well as what their expectations would have been on a site if this community were chosen. He stated that they met with this body last week to discuss the specific terms and conditions of what that proposal may consist of and to give staff and leadership of the Jobs Development Authority some guidance throughout the negotiation process. He stated this is a significant facility and it’s been policy of the JDA, although the law provided otherwise, to do these kinds of negotiations in more of a public forum, and in this instance there were two reasons not to do that: 1) was the proprietary nature of the client they were dealing with, their long term business plans, their expansion plans into the market place would have provided a disclosure to their competition which would have compromised them in the immediate and long term; the second reason is that economic development in the United States is a very competitive process and as they fulfill their proposal expectations for our client, didn’t want to reveal our negotiating positions with other communities who may and probably are interested in the same client.

Mr. O’Leary stated that over the years, since 1984, on four separate occasions you’ve outgrown the Industrial Park, that it adds to the tax base and creates new jobs; the size of this facility would mandate a site of nearly 80 acres and there wasn’t room in the Industrial Park to look at that as a potential location. He stated they began to search other sites, there were some specific site requirements that this client required us to have, that a large distribution center of this kind would require rail access, proximity to N/S E/W highways and in addition they were interested in having the necessary support services for their employees, proximity to restaurants, proximity to truck service and other services that the business itself would demand. He stated they went through a site selection process over the past several weeks and narrowed this down to two sites that either one of them would work, one better than the other because it fulfilled the expectations

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of their client more completely and that site is on the corner of 32nd and the railroad crossing on the south end of town; and after consultation with other City staff as well as other individuals and agencies that were interested in economic development in Grand Forks that this site was chosen. Other industrial developments have happened recently in that proximity and there was infrastructure that came out to the site plus the basic infrastructure that the railroad would offer. He stated there are some very unique requirements to this project because of the scope of the building and the size of the project; this project is monumental in size and would employ hundreds of individuals, would add substantially to our tax base and would have a significant impact on Grand Forks, the Red River Valley, and virtually the whole state. He stated it was important that they prepare a proposal that was well thought out and that plugged in as many resources as we possibly could bring to the table, both hard resources in terms of dollars but also soft resources, quality and quantity of our labor force, the tax environment, the business environment in Grand Forks and in North Dakota.

He reported that last week they walked this body through a number of financing alternatives for that project; most industries today are not interested in owning their own facilities, would prefer to rent, that frees up precious working capitals so that they can grow their business in other kinds of dimensions. He stated the four alternatives that were discussed last week were 1) flat subsidy to the business which would allow the client the authority to go out and find their own financing in other ways and that would essentially have put the business in an ownership position; secondly, would be to provide or secure a private developer who may be interested in building a building and leasing it back to our client; 3) is that City would find a direct partner where the JDA or some other entity would form a liability corporation; and 4) is the JDA would secure financing from local lenders and pursue the construction of the project itself.

He stated there are some important timeframes that are involved here; the client has indicated that they need to be in the building by fall of next year and that means that since we did not have a facility large enough in Grand Forks or close to it that would accommodate their needs and would have to build one, regardless of what the mechanism was of the construction process and have that facility ready for occupancy at that time. he stated that the time frames would require them to take some pro-active steps to position the JDA, the city council and the community of Grand Forks to receive this business in a timely way; the steps would require us to acquire some land, prep that land for winter construction, and that would allow us to go into a winter construction season, that winter construction is expensive enough without having to take the frost out of the ground before commencing any activities. He stated it would also provide them with some additional time to finalize many parts of the puzzle that have to come together in the next few weeks - the financing, ownership issues, construction process and the ultimate ownership - who would own the building and how lease arrangement would be developed. He stated in order to meet a winter construction deadline between now and about the next thirty days, need to acquire a site, strip the black soil off the top, bring in some aggregate and cover the site with some insulation so that frost will not permeate the ground too deeply. He stated that last week this body walked through some potential resources that may be available to assist us in this endeavor, that staff and others have been discussing those resources with the appropriate
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agencies (some federal, some private, some local and some national), and those resources are continued to be discussed.

He stated that it should be noted that this proposal is being developed by the Jobs Development Authority and is at our instigation, that we think in our discussions with the client that they are committed to further expansion, that they have not solicited a proposal from us or from anybody else, they are, however, interested in what we are doing and we are in discussions with they almost daily. He stated that the risks and the benefits we have taken, are similar to what other steps the JDA has taken in the past, that virtually the entire Industrial Park has been expanded and grown in a way that we are talking about now. He stated that if we proceed with the acquisition of this land and prepping it for winter construction in the event that our client decides to use another location for future growth, the money will not have been wasted, our Industrial Park continues to grow and if we do not use this land today it will be placed in our inventory for future industrial growth similar to other properties in the Park.

He stated that in the development process, the financing is a work in progress, the final mechanisms have not been established yet but considerable headway made in a number of fronts on how this kind of a project could be developed in a relatively short time frame. The owner has not been established yet and that will be driven by the financing mechanism that ultimately selected. He stated they have some preliminary cost estimates for the building but those are under discussion with the client depending on what the needs of the client are in the way of the facility itself. He stated there are some specific action steps that need t be taken in order to continue the process: 1) confirmation of actions taken last week to purchase the land, 2) confirmation of authorization received last week to prep the land for winter construction and 3) to authorize proper City officials to enter into preliminary negotiations with our client reflecting on what their needs are and our capacity to respond to those needs. Like every other economic development deal that the JDA and the City has entered into, the final terms and conditions will come back before this body in an open meeting to be discussed, debated and approved; that is the practice and the policy in the past and will continue to be the policy of the City. he stated he wished he could go into additional detail on this project but he has not been authorized by the client to release the client’s name and for that reason respect those wishes and really can’t divulge a whole lot more information about the specific activities that would take place in the building. He stated this is a significant economic development project, if we are successful in this process, the client promises to be a major employer in the city of Grand Forks and could be in fact one of the largest employers in the area and that alone makes this a process that deserves the full attention of the staff and all the rest of the players in the community, including the Economic Development Corporation, local lenders and the business community as a whole; that the project promises many spin-offs in a variety of areas that make this a very promising kind of endeavor for us to get into; however, he stated that this is not a sure thing, no economic development process is a sure thing; that this will take a lot of negotiations and a lot of discussions with our client and responsiveness on their part of what we can do and can’t do and in turn a responsiveness on our part in trying to fulfill the needs of our business that we’re now discussing. He stated he would try to answer any questions.

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Council Member Lunak questioned location of the site; Mr. O’Leary stated he discussed this issue with the Planning Department if this were a good site for future industrial growth, Mr. Potter concurred that this is an alternative to our present Industrial Park, that our Industrial Park is somewhat landlocked as on one side have the Interstate, to the south is 17th and to the west are the RR tracks, that they looked at the site across the RR tracks, that parcel is much larger is 191 acres but some disadvantages to that site, that there were some disadvantages to that site in addition to not having services for employees, site larger than needed and because the RR tracks crossed DeMers Avenue at that intersection would have created some traffic issues that would have had to be addressed as shifts change within the facility and as transportation in and out of there, and those were two primary sites they examined. Mr. O’Leary stated they have a purchase option with the owner and purchase option says that if the City does not proceed with the execution of it we’ll need to restore the site to its original condition. He stated that time is so crucial that with winter right before us and if we don’t start on this now, the window of opportunity will have come and gone and December 15 which is our target date to have the final financing, the final ownership and hopefully the executed agreement with the client in place, all of those could not happen if we do not have a site and the site is not prepared for winter construction. It was noted that the site is out of the city limits, and Mr. O’Leary stated that one of the difficulties they have with a large building in a community like Grand Forks that it’s extraordinarily hard to find financing for a building like that because the residual value should the business fail or relocate, etc. the residual value of that building is substantially less than a similar building would be if located in Minneapolis, etc. and finding another tenant to occupy that building is much more favorable. He stated there are some programs that are available to help communities like Grand Forks to secure financing for a large business in a rural area, one of the programs they are discussing is the B & I Program through Rural Development Administration, that program requires the loan be for a facility outside the city limits and we need to address that issue with our funding sources, the advantage to that is that the Rural Development Adm. would guarantee up to 70% of the loan and that makes a huge difference to the lending agencies if we secure debt for a facility because it reduces their risk in the marketplace.

Council Member Brooks stated that no one from the company was here and that the City has nothing in writing from them, and also don’t see our Economic Development director here, and that we haven’t heard from him and not getting any input from that group and that’s an integral part of this and we haven’t heard from them. Mr. O’Leary stated that when they started this process the position of director of Economic Development was vacant and director came into his present job in the middle of the negotiations of the discussions with client, that Mark --- and our staff have met several times to talk about different alternatives on financing, structuring this deal and have another meeting this afternoon for further discussion and need to pull the resources of Economic Development team into this. He stated it’s unusual for the Board to be involved with the structuring of an economic development deal, but have Board members that have been involved in the process because of their capacity in other ways in the community (lenders, developers, etc.) Mr. O’Leary stated he hasn’t asked them for a resolution of support.

Mr. O’Leary stated that the size of the facility hasn’t been determined yet, but based on
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discussions they’ve had with the client was a half million sq. ft. and if building that size
that has one implication on the number of jobs and the spin-offs and if larger than that, it’s even better, and those discussions are on-going with our client.

Council Member Lucke stated the ground rules apparently are that we’re supposed to honor this confidentially agreement which doesn’t even have the parties we’re talking about in it, but when Mr. O’Leary mentions a large distribution center if there’s anybody in the room that doesn’t understand what we’re talking with here, they’re probably not smart enough to be in the room, but the deadline and who instigated this and whether this was solicited or not, understand now you’re on record on that, why the deadline and why putting pressure on us saying there’s a deadline. Mr. O’Leary stated that in discussions with the client, they indicated that it’s their desire to be in the building by next Christmas season and if going to try to do that in the year 2000 and start backing off from that date, the first back-off date for a facility of this size and takes a while to move into, things that have to be done after construction and that takes about six weeks so if the building is done by September 1 and 6 weeks time to install distribution system, computer system, etc. that are leasehold improvements for the tenant, puts us into middle of October and if end up with a date of completion ready for occupancy after those things are done that puts them into building into Christmas marketing season, and in order to meet September 1 deadline have to start construction this winter, put in footings, erect walls, etc. as soon as can in the spring, and plan over the winter months would do preliminary kind of work with footings and as soon as the weather permits in the spring would start with the full fledged construction of the facility. Council Member Lucke stated he hears that to be his plan and have no letter from the company that that’s their plan, and what concerns him is that the Mayor and you (Mr. O’Leary) can make an offer of this magnitude to this company without council’s prior approval and if they don’t think they can trust this body a week to keep just as quiet as him and other people who signed earlier confidentiality agreements he has a major problem with that. Mr. O’Leary stated that the discussions they’ve had with the client were only that, the negotiation process is one of give and take and every step along the way with this client, as well as any other economic development client they deal with , it’s made absolutely clear that the ultimate determination is in hand of the city council and the JDA depending on the circumstances. Council Member Lucke asked if the document dated November 4 and signed by the Mayor was not in their hands before the press conference in New York, Mr. O’Leary stated it was. Council Member Lucke stated they weren’t notified until the Friday after that and that’s his problem. Mr. O’Leary stated that the document that was in their hands was a preliminary proposal to them and it says in the document that the financing hasn’t been put into place, says the final terms and conditions of this are subject to the review and approval of this body, and they understand that this is preliminary.

Council Member Brooks stated he knew the company wants to remain anonymous, but that we can get something in writing from them to assure us.

Chairman Carpenter stated that there are some actions that need to be taken, and asked for a motion to authorize and confirm the acquisition of approximately 77 acres of land adjacent to
32nd Avenue South for a price of $1.25 million. It was so moved by Council Member Hafner and
seconded by Council Member Bakken.

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Council Member Martinson asked if the price of that land was negotiated; Mr. Swanson stated there was discussion and negotiation and the price works out to approx. $16,200/acre and that is the equivalent to the price that has been utilized in the acquisition of property by the City in the southend and do have appraisal information that supports that value.

Upon roll call on the motion the following voted “aye”: Council Members Brooks, Polovitz, Hamerlik, Glassheim, Carpenter, Klave, Beyer, Babinchak, Bakken, Hafner, Martinson, Owens - 12; voting “nay”: Council Members Lucke, Lunak - 2. Chairman Carpenter declared the motion carried.

Chairman Carpenter stated the next action is the nature of timing and importance of this, and asked for a motion to confirm and find that exigent circumstances exist for immediate action on site preparation for possible winter construction; and that the time frame for construction, if approved, is extremely short (end of fall 2000), and the need to undertake site preparation for possible winter construction, that present weather conditions are favorable to undertake site preparation for winter construction, and imminent onset of cold temperatures and winter weather require this. The motion was moved by Council Member Beyer and seconded by Council Member Hamerlik

Council Member Lucke stated he doesn’t think this is a deadline imposed by this company, but our own self imposed deadline and putting us in a position to make a bad decision.

Upon roll call on the motion the following voted “aye”: Council Members Brooks, Polovitz, Hamerlik, Glassheim, Carpenter, Klave, Beyer, Babinchak, Bakken, Hafner, Martinson, Owens - 12; voting “nay”: Council Members Lucke, Lunak - 2. Chairman Carpenter declared the motion carried.

Chairman Carpenter then asked for a motion to authorize entry into agreement with M.A. Mortenson for site preparation in an amount not to exceed $1 million. The motion was moved by Council Member Beyer and seconded by Council Member Glassheim.

Council Member Martinson stated that there are local contractors that are big enough to handle this, and asked why Mortenson’s and asked if they could put this out for bids. It was stated that the bidding process would take too long and that only Mortenson’s that was asked though utilizing local contractors. Council Member Brooks asked if have to go out on bids on site preparation and if this was a legal motion. Mr. Swanson stated that in light of your finding, that this is an appropriate motion, and that the site preparation is not the construction, but believes under the circumstances if it’s the wishes of the JDA to do so, it is a defensible position (on time alone or on conditions that are here), that in light of the factual findings you’ve made it is appropriate, and in addition there is a question as to whether or not this constitutes a public building at this point, but what doing is attempting to preserve the site for possible future
construction. Council Member Lucke stated that there was some earlier advice given that there’s
a way to possibly go further with this in a lot larger numbers than what talking about here, and
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also not use the bid process and would like an attorney general’s opinion with our fact pattern in it that that’s going to be permissible. Council Member Carpenter asked if he was asking for an opinion on the motion before us now, and Council Member Lucke stated no he was not, but Mr. Swanson just alluded to the construction being an exception to this rule and alluding to the previous meeting, the closed meeting, where he asked the question as to how they could do what is being considered entering into without their being bid laws followed, that there apparently is a way and he would like an attorney general’s opinion on that same question. Mr. Swanson asked to clarify what they were discussing, and that is if the City were not building the building and if City were entering into a lease with a private developer or the economic development client and they were building their own building, the City would not be obligated to bid that building, and that they can get an opinion with that regard that the ownership of the building under the scenario they were discussing and that there were four different scenarios that Urban Development put forth on financing and what they were suggesting was that if the City is not the builder or the owner of the building and that we’ve entered into a lease on the land, and they can obtain that but may take some time to get that.

Council Member Martinson stated that he had some problem with the language, not to exceed $1 million and open-ended there. Council Member Beyer stated she assumed they would have unit quantities and justify every unit cost that’s done. Mr. Swanson stated there have been discussions and negotiations on draft agreement but no proposed agreement that could be presented to the council and is still being negotiated and concept would include unit price payments. Council Member Lucke stated that nobody else has been given an opportunity to bid them, an unfair process without letting someone else in the business being given an opportunity to bid it.

Upon roll call on the motion the following voted “aye”: Council Members Polovitz, Hamerlik, Glassheim, Carpenter, Klave, Beyer, Babinchak, Bakken, Hafner, Owens - 10; voting “nay”: Council Members Brooks, Lucke, Lunak, Martinson - 4. Chairman Carpenter declared the motion carried.

Chairman Carpenter stated there was another action that we would need motion to authorize JDA officials and staff to negotiate agreement with prospective economic development client subject to final approval by the JDA. The motion was moved by Council Member Beyer and seconded by Council Member Lunak.

Chairman Carpenter stated this would authorize the chairman, vice chairman and officials to work with negotiation with the staff (that Council Member Carpenter is chairman of the JDA and Council Member Glassheim is the vice chairman).

It was moved by Council Member Brooks to amend the motion that if also include Economic Development staff. Council Member Martinson seconded the motion.

It was noted that Mr. O’Leary had indicated that Economic Development was a part of these
negotiations. It was noted that staff included City staff including personnel from Mr. O’Leary’s
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office, city finance director, city attorney and others who would be need to be involved.

Upon call for the question on the amendment, and upon roll call vote, the following voted “aye”: Council Members Brooks, Polovitz, Hamerlik, Carpenter, Lunak, Klave, Beyer, Babinchak, Bakken, Hafner, Martinson, Owens - 12; voting “nay”: Council Members Lucke, Glassheim - 2. Chairman Carpenter declared the amendment carried.

Upon call for the question on the motion, as amended, and upon roll call vote, the following voted “aye”: Council Members Brooks, Polovitz, Hamerlik, Glassheim, Carpenter, Klave, Beyer, Babinchak, Bakken, Hafner, Martinson, Owens - 12; voting “nay”: Council Members Lucke, Lunak - 2. Chairman Carpenter declared the motion carried.

ADJOURN

Chairman Carpenter stated there was a possibility that the JDA may have to meet early next week and asked what the availability of the members of this body will be as it is the week of Thanksgiving; there didn’t seem to be a major problem with that.

It was moved by Council Member Hamerlik and seconded by Council Member Martinson to adjourn. Carried 14 votes affirmative.

Respectfully submitted,



Saroj Jerath
Deputy City Auditor