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HomeMy WebLinkAbout2011 [02] Feb 09CITY OF ST. JOSEPH ECONOMIC DEVELOPMENT AURTHORITY Meeting Minutes — Wednesday, February 9, 2011 Present: EDA Board Members, Chad Davey, Steve Frank, Tom Skahen, and Dale Wick. Absent: Heinen. Also present: St. Joe Meat Market Owners Carol and Harvey Pfannenstein, Pfannenstien's CPA Steve Meyer, St. Joseph Finance Director Lori Bartlett, TIF Specialist Traci Ryan, and EDA Director Cynthia Smith - Strack. Oath of Office: Chad Davey. Strack administered the oath of office to Mr. Chad Davey. EDA Board Members welcomed and congratulated Davey on becoming a member of the EDA. Call to Order. Chairperson Wick called the February 9, 2011 special meeting of the St. Joseph EDA to order at 3:00 p.m. Agenda. Chairperson Wick introduced the agenda. No changes to the agenda were requested. Motion by Skahen, second by Wick to approve the agenda as presented. Motion carried 4 -0 Preliminary Request for TIF /Abatement Assistance: St. Joe Meat Market, Harvey /Carol Pfannenstein. Chairperson Wick introduced the agenda item and the Pfannensteins, Mr. Meyer, Ms. Ryan, and Ms. Bartlett. Wick requested an overview of the item by Strack and then suggested follow up by Mr. Pfannenstein and Mr. Meyer. Strack noted Pfannenstein had submitted a pre - application for tax increment financing and potentially tax abatement assistance in conjunction with a $354,000 (construction cost) expansion to the St. Joe Meat Market retail facility at 26 1t Avenue Northwest. The expansion includes an addition to the retail space and additional cooler space. The expansion will allow the facility to process meat products at the retail shop versus the location on Minnesota Street resulting in productivity gains. In addition, investment in new equipment will provide increased operational efficiencies. The goal of the expansion is to ensure long -term viability of the establishment and to retain jobs within the community. The Applicant is reporting a $70- 80,000 gap in funding and requesting assistance from the City to close the gap. The project to increase operational efficiency and increase productivity will not occur without gap financing. The Applicant has noted that if the gap in financing is not filled and operational /productivity efficiencies implemented the operation will likely close or leave the City. The Applicant's CPA has developed a 12 month cash flow projection and a three year profit/loss pro forma which illustrate the need for EDA/City assistance. Strack noted that pay -as -you go TIF, tax abatement, and revenue sharing from another TIF District as authorized by the 2010 Minnesota Jobs Bill were potential sources of financial assistance for the Meat Market. Strack noted that the construction cost and increase in market value as projected by Bob Lindvall at Stearns County are markedly different. The projected market value is $238,200 which results in a reduced projected revenue stream for both TIF and abatement that is significantly lower than the demonstrated gap. In addition, the requested assistance is pay -as- you -go (or rebated over time) and not 'up- front' TIF /abatement. The pay -as- you -go assistance results in less benefit over a longer period of time for the project. Strack noted that as described in the staff memo included in the EDA packet, the preliminary application appears to meet TIF policy criteria and abatement policies were the same as those for TIF. Strack reminded EDA members that the preliminary application process was instituted so as to determine whether or not a proposed use of TIF /abatement made sense. If so, the EDA could make a recommendation to the City Council to accept the preliminary application and initiate the final application and preparation of documents. Mr. Pfannenstein addressed the EDA summarizing the businesses 50 years within the City and relating the series of events which resulted in the current business arrangement in two separate facilities. Pfannenstein stated the current operation was not as efficient as the proposed operation, but that the expansion would not move forward without assistance by the City /EDA. Pfannenstein indicated his options if the project would not move forward were to close or to move to a different town. Strack asked Pfannenstein to explain the operational efficiencies expected from the expansion. Pfannenstein reviewed current processing procedures and how they would change if the expansion proceeds. Pfannenstein noted the expansion would reduce the amount of product handling which in turn should free up capacity so that additional product can be processed. In addition, Pfannenstein noted that machinery efficiency was expected to result in less consumption of water and electricity thereby reducing costs but increasing sustainability of those resources. Skahen inquired as to whether or not Pfannenstein could comment on business volume since the supermarket opened. Pfannenstein noted a decrease in retail sales, especially milk and bread. Pfannenstein noted that the closing of Loso's had resulted in a slight boost in retail sales. Pfannenstein stated that he is a customer at Coborns and does not harbor ill -will against the business, rather, Pfannenstein stated he needs to adjust to a changing market by improving efficiency and increasing capacity. Pfannenstein noted the presence of excess demand which should be captured by increasing capacity. Skahen clarified that Pfannenstein would be looking to increase the sale of specialty meat products. Pfannenstein noted that was the correct and that although some produce would be available, that line of sales was not profitable due to duration of product freshness. Frank noted studies show most consumers shop at two or more grocery stores and that the most cost effective produce is usually found at ALDI. Frank noted Pfannenstein faced a great deal of competition. Meyer responded by noting Pfannenstein's market is very specialized and that based on the projections, they are assuming some risk. Meyer noted that the profittloss projections even with assistance illustrate a small loss in the next three years, although the loss volume decreases each year as debt is reduced, operational efficiencies are realized and sales ramp up. Meyer noted that the Pfannensteins could make more money elsewhere but chose to remain committed to the City and their employees. Meyer noted that the expansion was a decision based on maintaining a business that has seen profit margins shrink as changes in the market occur. Meyer stated that the Pfannensteins want to adjust to the changing market and remain in business in St. Joseph, even if that means belt- tightening over the next few years. Meyer reminded the EDA of the business's history within the City, the regional retail draw of the business, and the fact business maintains a very good reputation with consumers, employees, and other businesses. Meyer stated that he would not recommend the Pfannenstein's move forward with the expansion without assistance from the EDA/City. Skahen asked Meyer whether the proposed expansion would, in his professional opinion, be profitable. Meyer stated that he thought the expansion would be profitable if the City provided assistance. Pfannenstein noted in the fall processing is turned away (excess demand) due to lack of processing space. EDA Minutes — February 9, 2011 2 Ryan inquired as to on what the $70- 80,000 gap was based. Meyer noted the gap was based on pro formas. Harvey reiterated anticipated operational and machine efficiencies anticipated as they are represented in the pro formas. Ryan reviewed potential revenue streams including economic development TIF ($28,789 over nine years based on market value increase of $200,000, not accounting for MV appreciation, and assuming 90% return of increased increment); city abatement ($27,240 based abatement through year 2036 with a two percent inflation factor and assuming only new city taxes generated would be abated); and potential one time incentives available through use of excess TIF revenue as allowed by 2010 Mn. Jobs Bill. Ryan noted that available TIF and abatement are not sufficient to fill the projected gap and that the 24 year term not likely beneficial to the City or the business. Skahen inquired as to whether or not the project would move forward if the assistance available only amounted to $50- 60,000 over a ten year term. Pfannenstein indicated he'd like to speak with Meyer but that he thought the project could move forward with that level of assistance from the EDA/City. Ryan will update projections based on market value increase of $234,200 and administrative retaining of five not ten percent of the TIF increment. The projections will be available for the City Council meeting on February 17'h. Pfannenstein and Meyer will attend the Council meeting as well. Motion Skahen, second Frank to recommend the City Council approve the pre - application and authorize submittal of the final application for TIF /Abatement. Motion carried 4:0. All guests departed the EDA meeting. Speaker at St. Cloud Times EDA Forum: Wednesday, February 16th Wick introduced the agenda item and noted that he would be attending the forum on behalf of the St. Cloud Area Economic Development Partnership. Strack noted that the forum sponsored by the St. Cloud Times would allow the distribution of information regarding St. Joseph and the EDA and that the Times was allowing two speakers from each City. Mayor Schultz has indicated he will attend the meeting which left one other spot available. Strack noted she has responded to the Times as being available for the event. Strack requested the EDA discuss representation at the forum and potential messages to communicate. The EDA requested Strack attend the forum on behalf of the EDA and that the items spoken to include authorizing local incentives. Plaque for Board Member Jacobson. Wick introduced the topic. The EDA directed Strack to order a plaque honoring Jacobson which will be presented at a future EDA meeting. Adjournment. Meeting adjourned by consensus at 4:45 PM. Cynthia Smith - Strack EDA Director EDA Minutes — February 9, 2011 3