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HomeMy WebLinkAbout6.A. Business Incentives for Compass Datacenters LLC-Res. No. 7300 General Business 6. A. `iE4;��:C N'1�;1 TO: Mayor and City Council FROM: Mark McNeill, City Administrator DATE: OS/07/2013 SUBJECT: Business Incentives for Compass Datacenters LLC-Res.No. 7300 (D) Action Sought To hold a Public Hearing, and consider a business subsidy for Compass Data Centers, LLC. There should also be a discussion of a continuation of tax abatement assistance, in view of new job creation numbers. Background The City Ilas been negotiating with Compass Data Centers, LLC, for several months, concerning the construction of a data center in the Dean Lakes commercial area. On April 9th, a public hearing was held,which authorized 50% of property tax abatement to Compass over a 9 year period of time. That abatement was contingent upon the City entering into a contract with Compass, and provided for the creation of 40 jobs over 3 years, which would be housed in 109,000 square feet of building. The annual average pay per job was represented as being$68,000. On April 30th,the City received word from Compass that instead of constructing five modules "pods" it had instead signed with a single user,meaning that only four pods would be created. In addition, instead of the 40 jobs, only 15-18 jobs would be created. However, build-out would be in a single year,rather than over three years. This leads to two questions: First are the SAC credits--the purpose of this public hearing is to consider the offer of up to 60 SAC credits to assist Compass in coming to Shakopee. The Resolution which is attached has been modified to show the new size of the building(90,000 square feet versus the original 109,000 square feet). If the Council so chooses, it could proceed with extending up to 50 SAC credits to assist Compass without re-noticing the public hearing. At a 2013 value of$2,435 per SAC credit,this equates to $121,750. The unused SAC credits would be returned to the City. It should be noted that a previous City Council allocated up to 400 SAC credits to be used for economic development purposes. Extending SAC credits to Compass, or any other economic development prospect, will not impact sewer rates paid by other Shakopee properties--these 400 SAC units are a part of 1,100 SAC credits which were received by the City several years ago when a large user went"off-line". Again,their use for Economic Development purposes will not impact the rates paid by other sewer users. Secondly,there needs to be a new discussion as to whether the City wants to proceed,given the change in number of jobs to be provided. On April 9th,the City Council approved the 50%property tax abatement(a�nounting to $251,555). That was contingent upon the City and Compass entering into a contract, which assumed a minimum creation of 40 jobs. If the Council is okay with the 15-18 jobs,the contract would reflect that, and abatement could proceed. However, if the new numbers are determined by the Council to be insufficient, no contract would be negotiated, and the abatement becomes moot. Recommendation This issue raises the question as to what level of development needs to be generated to qualify for economic development assistance. lt is evident t11at commercial activity is picking up, and Shakopee has been receiving more than its share, perhaps based in part on incentives being provided. However, before proceeding much further,there needs to be more in-depth review by the EDAC and the City Council, in terms of what will qualify--how many jobs, and at what salary levels, should be provided in order to qualify for City assistance? The new economic development coordinator is putting information together which will help to facilitate discussion at future meetings. Absent that discussion, I do not recommend proceeding with the offer of abatement. As Council has more flexibility on SAC credits,that could be offered as a compromise in exchange for the creation of the 15 to 18 jobs. Budget Impact The use of SAC credits will reduce the number of credits available for future incentives. Relationship To Visioning This supports Goal D, "Maintain, improve, and create strong partnerships with other public and private sector entities." Requested Action If the Council wishes to proceed with the offer of SAC credits, it should adopt the attached resolution: Resolution No. 7300, a Resolution Granting Business Subsidy to Compass Data Centers,LLC, or any of its affiliates. Attachments: Compass SAC Resolution CITY OF SHAKOPEE, MINNESOTA RESOLUTION NO.7300 RESOLUTION GRANTING BUSINESS SUBSIDY TO COMPASS DATACENTERS,LLC,OR ANY OF ITS AFFILIATES BE IT RESOLVED by the City Council (the"City Council") of the City of Shakopee, Minnesota (the"City")as follows: Section 1. Recitals. 1.01. Compass Datacenters, LLC,a Delaware limited liability company, or any of its affiliates (the "Developer"), has proposed to acquire, construct, and equip an approximately 90,000 square foot data center building(the"Minimum Improvements")on real property(the"Property")located in the City. 1.02. On April 9, 2013, following a duly noticed public hearing, the City Council approved granting the Developer a property tax abatement(the '`Abatement") on the Property in order to finance a portion of the costs of the acquisition, construction, and equipping of the Minimum Improvements, all pursuant to the terms of Minnesota Statutes,Sections 469.1812 through 469.1815(the"Abatement Act"). 1.03. In order to make the Minimum Improvements financially feasible, it has also been proposed that the City provide the Developer with up to 50 SAC credits for the Minimum Improvements, which are valued at an amount of$121,750(the"City Development Assistance"). 1.04. The proposed City Development Assistance constitutes a business subsidy under Minnesota Statutes, Sections 116J.993 to 116J.99 (the `Business Subsidy Act"), and on the date hereof the City Council has conducted a duly noticed public hearing in accordance with the Business Subsidy Act. 1.05. The City intends to enter into a Contract for Private Development (the "Contract for Private Development"), which shall include a subsidy agreement, with the Developer, which shall set forth the terms of the Abatement and the City Development Assistance proposed to be provided by the City to the Developer. Section 2. Findin�s. 2.01. The recitals set forth above are incorporated into this Resolution. 2.02. It is hereby found and determined that the acquisition, construction, and equipping of the Minimum Improvements would not be economically feasible without the City Development Assistance. 2.03. The City Development Assistance shall be provided to the Developer pursuant to the terms and conditions of the Contract for Private Development, including the subsidy agreement, to be approved by the City Council. Section 3. Restrictions on Cit�Development Assistance. The City Development Assistance granted pursuant to this Resolution shall not commence until the City and the Developer mutually agree on the terms and conditions of the Contract for Private Development. 423042v1 JAE SH155-297 1 Section 4. Implementation. The Mayor and City Administrator are authorized and directed to execute and deliver any additional agreements, certificates or other documents that the City determines are necessary to implement this Resolution. Section 5. Effective Date. This Resolution is effective upon execution in full of the Contract for Private Development. Approved by the City Council of the City of Shakopee,Minnesota this 7`h day of May, 2013. Mayor ATTEST: Finance Director/City Clerk 423042v1 JAE SH155-297 2