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Growth Fund Committee
Wednesday, June 28, 2006, 4:00 p.m.
Urban Development Conference Room
1405 1st Avenue North, Grand Forks, ND 58203
Chairman Christensen called the meeting to order.

Roll Call:

Present were: Eliot Glassheim, Terry Smith, Jon Ramsey, and Doug Christensen. Also present were: Keith Lund, Peggy Kurtz, Klaus Thiessen, Judi Paukert, Rick Duquette, Jonathan Fu, Hal Gershman, Greg Hoover, and Connie Mangan.

Approval of Minutes (5/16/06 and 5/24/06):

It was moved by Jon Ramsey and seconded by Terry Smith to approve the minutes of the May 16th and May 24th meetings. Voting AYE: Eliot Glassheim, Terry Smith, Jon Ramsey, and Doug Christensen. Voting NAY: None. MOTION CARRIED.

Bateman Farm Lease:

Doug said, basically, this request is for the renewal of an existing farmland lease. He asked if this was for five years and Greg replied it was, adding that the land in question is roughly the back half of the REAC property. The two changes of substance are (1) we delineated in this lease to ensure that the renters know that we can come in with proper notice and take control of the land for economic development purposes; and (2) the addition of a crop not in the previous lease. Greg said we also checked with a couple of farmers and the county agent as far as the rental price of other farmland in the area to make sure our numbers weren’t out of line. Eliot asked, if we come in with a legitimate use and take the land, would our penalty be between $6,000 and $9,000, depending on the type of crop and Greg replied affirmatively. It was moved by Eliot Glassheim and seconded by Jon Ramsey to recommend approval of the revised lease to the JDA. Voting AYE: Eliot Glassheim, Terry Smith, Jon Ramsey, and Doug Christensen. Voting NAY: None. MOTION CARRIED.

Government Services Administration (GSA) Lease Proposal for Corporate Center II:

Greg said the GSA has committed to seven years with a probability of another eight. We have covered our cost over that time and have requested permission from EDA to lease to the GSA, and we expect it to be approved. We have notified Community Bank because the improvements are over $55,000. We have had no takers since Noridian left. Doug asked about the base lease rent rate and Greg replied that the rate is $12.50 for the first 7 years, at which time it increases to $15. They will also continue to pay other expenses including an escalation cost for operations and taxes. Greg said that 27 parking spaces in the ramp are also built into the lease. Doug clarified that the request is to give the federal government $245,000. Greg added that it’s recovered through the lease payments. Connie said that the tenant improvements are $243,996.48. We are financing a loan through the Growth Fund over 7 years at 7.5% interest. They are paying that in addition to the $6.75 per square foot. Jon said this figures out to about $3,700 per month. Doug asked how much money are we going to have left in our Growth Fund 5996 account. Greg said we are projecting, at the end of the year to have a total of $5.1 million of which $1.6 million would be sales tax, $2.7 million would be JDA, with EDA RLF at roughly $678,000. Doug said his last packet from John Schmisek indicated that 2163 has a balance of approximately $800,000. Doug asked if the JDA fund balance included the investments, which are about $1 million. Greg replied that they did not, because this was the cash balance. Doug asked what we have in the pike for deals. Greg replied REAC and Klaus added the possibility of Amazon moving downtown and perhaps an LM expansion. We will also most likely be approached by UND Aerospace Faculty and Engineering for a UAV project. They have received Centers of Excellence funding and need community support. Doug said the issue is whether we’ll have enough money left to fund other deals as opposed to financing the GSA. Terry asked what the building costs us right now. Doug said if we get too low on remaining funds, we wouldn’t have anything for future deals. Eliot felt this project would provide positive income because we would be netting $100,000 a year for the use of the space, which gives us a payback on the loan of 2½ years. Greg added that the other thing to consider is we’ve got some profit built into the $6.75 square foot operating. Additionally, we need to keep in mind that we don’t get the entire 2163 sales tax fund because it also goes to beautification, arts, special events, Canad, etc. Those are policy decisions that have been made to take money out of 2163. Doug said his information says there’s a cash carryover of $2.7 million. Greg reiterated this is cash. Doug asked what the cash balance was in 5996 as of today. Greg felt it was not useful to look at it as of today. Doug asked what the expected expenditures are. Eliot said we have more now and we are projecting expenditures of some of it to get it down to $2.7 million. Doug said this builds cash in your cash carryover based upon excess income from rentals. Greg explained that we start with the cash carryover from last year, we add our estimated revenue, we subtract out what our operating costs are and what we expect to do in deals. What this is telling us is that, as of today, if we don’t do any more deals, we will have $1.62 million in 2163 and, at the end of the year, we will have $5.1 million. Doug said he knows that as of today, we have around $600,000 in 2163 and that builds at about $140,000 a month. If the EDC needs more money, we need to decide if we are going to subsidize the federal government or make sure that our EDC has bullets. Greg said that the Council has taken funds out of 2163 so if you need more bullets to give to EDC, then the Council needs to address this. Greg said he recommends this deal because it stops the flow of cash out of the building. Connie reported that we are losing $178,000 a year for the bond payment and $100,000 of reimbursement costs, for a total of $278,000 a year. Doug asked what the costs are to keep this building running. Greg said we can get the Committee a complete breakdown of costs. Eliot asked if $178,000 is the bond payment for this building and if we have no income to cover this and Connie concurred. Jon said this deal will cover $150,000 of the $278,000 that we are losing. Greg added that they will be paying for their utilities so our operational costs will also go down. Eliot asked how firmly is this a package deal whereby they must have that loan money in order to make improvements or they are not interested. Greg said this is very firm. Eliot asked why they didn’t go to a bank. Greg replied this is how the federal government has operated for the last 10 years. Greg summarized that we are losing money, we haven’t had anyone in there since 2003, and we haven’t got any other prospects. Doug said it’s not the issue of whether or not we want to do the deal, but rather he would like some information to be able to say why he financed the federal government for $245,000. He asked if this building was going to be full when we lease this space to them and Eliot replied this just includes the 3rd floor, so we will still have some other continuing expenses for the other floors. Jon asked how many employees and Connie replied 15. Eliot said the key issue is that we’re losing $178,000 for the bond payment a year, which means we will make up the loan to the GSA in a short period of time. To me, that’s a sound enough business reason to do it. It’s important to the City not to be draining that money away. Hal asked if there was there the ability in 5996 where we can sell a bond. Greg replied that we have sold off most of our properties so we don’t have the rental income. Jon said between the P and I on the $243,000 loan and the lease rent, we’re going to recoup $211,000 because the payments on the loan are about $44,000 P and I. Effectively, if it’s all going back into 5996, we will recoup that quickly. Eliot said we don’t know what the demands are going to be on the fund and we have always have to balance whether we do a deal or not have money left over for another deal. If the other deals are good enough, it’s always been the City’s position that we’ll work to find the money. It was moved by Eliot Glassheim and seconded by Jon Ramsey to recommend approval of the GSA lease as presented to the JDA. Voting AYE: Eliot Glassheim, Terry Smith, Jon Ramsey, and Doug Christensen. Voting NAY: None. MOTION CARRIED.

Monthly Report – May 2006:

The Committee reviewed the May 2006 monthly report. Greg asked Connie to schedule a meeting with Doug and himself to go over certain loans.

REAC Tech Park Management Structure:

Greg distributed a memo from Klaus and himself. Klaus explained this memo is a result of yesterday’s meeting, where it was decided to look at adding some flexibility and clarification to the initial recommendation of support. Klaus felt it was a good meeting. One issue was that there was some uncertainty about the 20 acres that are to be designated for the initial phase of this project. It was recommended by Chairman Christensen that an entity be formed with a governance structure to be made up of 5 individuals; two from UNDRF, two from the City; and one position to be determined. It was also identified that we would deed 5 acres of land to UNDRF on which the 50,000 square foot anchor facility would be built. We would also provide the grant and contingent loan. The other conditions would be left on the table but there was some uncertainty as to whether they would require EDA support. The two major changes are to get a governance commission/authority in place and deed the remaining 15 acres to that commission/authority. In essence, the project would have 20 acres of dedicated land to work with, we would determine the governance of that commission/authority. Also a master plan needs to be initiated for the entire 77 acres. Klaus stated that the discussion today is putting some flesh around this governance commission and putting it together in a letter to UNDRF.

Doug reviewed the May 16th minutes, at which time Greg suggested to go out for a consultant to help us determine the rules and regulations for the tech park. There was some talk at this meeting about a master plan. UNDRF wanted 20 acres but we decided to give them give 5 and we’ll keep ownership of the other 15. Doug felt that UNDRF didn’t feel this gave them participation in the overall planning or development of first 20 acres of the tech park. Doug invited them to the meeting yesterday but they did not attend. Doug said it doesn’t matter if the 20 acres goes into a separate entity, but they are putting infrastructure adjacent to that 20 acres as well as building out infrastructure on the 20 acres and if they don’t agree on the 5th person on the commission, it will never happen. To get this thing moving, Doug felt we should create an entity and put the 20 acres in because we were already going to deed the 5 acres anyway. The entity will have the governance over the remaining property and they’ll approve who comes in. Klaus felt they are going to expect a little more detail, such as will the Mayor appoint the 2 city reps, who will the 5th representative be, and it was his impression that they are going to need that before they respond back to us. We can move forward in writing with what Doug has said, and request a response from them or we can attempt to flesh it out right now. Doug said that local participation doesn’t mean local businessmen writing the check; it just means someone other than the applicant. Eliot added this also meant we hope to attract future businesses on the come. Jon said he will recuse himself if it comes to a vote and Doug added that he can be involved in discussions. Eliot asked why would we want to give them anything more than we already have (5 acres). What are the pros and cons of the City holding on to the other 15 acres and doing it on a project-by-project basis? Klaus said their position is they want assurances that, if they get another development, this land will be available to them. We want to get them to turn the soil and get the project going. We all view this as not just the building. The issue now is the building and the 5 acres versus the 20 acres but the ultimate goal for us is the research, enterprise, and commercialization campus. We are responding to wanting to get the project moving forward given what happened at the meeting yesterday. How do we ease their concerns and get the project to go. It’s not an issue of right or wrong, it’s an issue of how do you make it go. Eliot asked what the relationship would be between the governing board and new projects and asked if we would be neutral enough in our review processes in terms of the deals made because we have a stake in the authority. Doug said they will have the ability to entice new people by virtue of free land and then Klaus and the EDC will have something to market as well. Keith said the discussion yesterday was that this new entity will own the 15 acres and have responsibility for what’s listed here. Terry asked if there was concern that, by giving them the 15 acres, we weren’t going to see any payback. Jon said another point to consider is, if nothing ever happens with it, we don’t want to relinquish control of that land. Doug said if that happens, then it comes back to the City. Klaus said if they get this 50,000 square foot building done, this will be good indication of success so it’s the key to getting this project done. He added that they want to break ground in the fall and Jon agreed that they are looking at opening up in September of 2007. Doug said we can put on a condition that, if nothing gets done within a period of time, the land comes back to the City. UNDRF has indicated, if they didn’t build on the City’s land, they could build on University land right south of the Hilton Garden Inn. Doug felt this was not a good idea because of the City’s plan for an under or overpass in this area plus they won’t then have the ability to create a campus. Doug said that we can create a nonprofit agency that has duration of 10 years and, at end of this time if there is no development, then the land comes back to the City. Eliot said we should have the City Attorney look at the structure that we want, whether it should be an authority, commission, or nonprofit. Doug said an authority can’t hold title until it’s incorporated and it is a 501c3 and doesn’t pay tax. Anytime you do deals and give away the ground, they’ll pay tax. If you are leasing the ground, then they will pay tax on the structure on top of it.

Klaus suggested that we move forward with the two points as a result of yesterday’s meeting. We will add a statement about creating an entity for a certain length of time and indicate after that time period, the assets will revert back to the City. The rest is us just speculating about how they will respond. Doug said he would like to empower Klaus and Keith to present this and come back with recommendations on how we can move forward. Klaus felt we should give them this initial correspondence and Doug agreed. Klaus said the bottom line is if they don’t get that first building up in 24 months, it won’t matter. Jon felt this is a better deal for them because they don’t have to pay for it. Klaus said our focus remains on getting the building up.

Keith suggested approving the first two points on the second page of the memo and, beyond that, there has been a discussion of a sunset clause with the assets of this new entity reverting back to the JDA as such time as it appropriate. Eliot asked whether a 10-year time frame was too long. Klaus felt we will know long before that if it will succeed. Keith added, if it’s successful, then we could extend the life of the entity and with a master plan and updated PUD, we can easily move to another tract. Doug felt, if doesn’t work after 3 years, then they could hold the land for another 7 years. Doug felt the authority/commission should include the Mayor and two people appointed by him and two people appointed by UNDRF; then it’s a City asset. Klaus said we need to remember that they have five prospects already, three of which are solid. Doug felt we should change the life of the entity to 7 years. Klaus replied, if the project doesn’t fly within 24 months, it doesn’t matter if it’s 7 or 10 years. Doug said the motion is the two points in the memo and we will deed the property to an entity and the life of that entity is to be determined. The land will be deeded only after the entity and governance have been created. Eliot felt the question is what to put on the deed so that, if it’s not developed after X years, it reverts to the JDA. Hal asked if we would get back 15 acres or the entire 20, which includes the 5 we initially gave them. Jon said if we take back the entire 20 acres, we are effectively saying we will take back the building. Rick felt we should convey our idea in the two simple points that we have here with some details still needing to be sorted out. We need to have Howard Swanson look at the process and structure. This group needs to convey a vision and commitment to a partnership with UND. We will work out the details as we get into this. Terry felt we should stay with the 15 acres because we’ve already said we’re giving them the five acres. Rick said we need to let them have the opportunity to respond to us. Greg suggested that the letter come from the chair. Doug felt we should just move #1 then because we don’t need #2 to get this done. Keith disagreed because they want some assurances that no incompatible use will go into the adjacent land; that it has to be an eligible use and the look of it has to be complementary to the development. It’s important for the Foundation to know that there is commitment and vision there. It was moved by Terry Smith to approve #1 and #2 recommendations as presented on the second page of the memo to the Committee from Klaus and Greg, and to direct staff to submit it in writing to UNDRF for their response. These recommendation are (1) that the JDA deed the balance of Phase I (15 acres) to a yet to be created entity established to provide governance over future development of phase I. The board of directors of the new entity will consist of two members nominated by the JDA, two members nominated by the Research Foundation, and one mutually agreeable at large member. This entity will be responsible for the future development of phase I to include the infrastructure development, construction of additional facilities, leases, and land transfers and sales; and (1) after successful conclusion of the Master Planning process, a revision to the existing Planned Unit Development (PUD) will be submitted to the Grand Forks City Council for approved so that future development is consistent with the findings of the approve Master Plan.

Eliot asked if this included a discussion about the possible recapture of land if it’s not used. Klaus said we will talk to them about it but will have to come back to the Growth Fund and flesh out the details anyway. Eliot Glassheim seconded the motion. Eliot said we own the land so the question is do we want it back or not. We want them to have it if they are going to build. Eliot added to the motion to have staff also discuss the ultimate resolution of the land and Terry concurred to add this to his original motion. Voting AYE: Eliot Glassheim, Terry Smith, and Doug Christensen. Voting NAY: None. Jon Ramsey recused himself and did not vote. MOTION CARRIED.

Adjournment:

Jon Ramsey moved to adjourn. Voting AYE: Eliot Glassheim, Terry Smith, Jon Ramsey, and Doug Christensen. Voting NAY: None. MOTION CARRIED.

Respectfully submitted,


Peggy Kurtz
Urban Development


Doug Christensen
Chair