HomeMy WebLinkAbout14.A. Challenge Printing Inc. Application for Business Subsidies (Tax Abatement)
;'1 !J,
CITY OF SHAKOPEE
Memorandum
TO: Mayor and City Council
FROM: Economic Development Advisory Committee
Paul Snook, Economic Development coordinat~
SUBJECT: Recommendation from Economic Development Advisory
Committee: Challenge Printing location to and expansion in
Shakopee; Application for Business Subsidies (Tax Abatement)
MEETING DATE: June 1, 2004
Introduction
At the meeting of April 28, 2004, the Economic Development Advisory Committee
considered Challenge Printing, Inc.'s Application for Business Subsidies (for tax
abatement), enclosed as Exhibit A, for the company's location to and expansion in
Shakopee, at the former ADC building at 1000 Valley Park Drive in Valley Green
Business Park. The ED Advisory Committee passed a motion to recommend that the City
Council:
. Direct staff to prepare a Contract for Private Development between the City,
Scott County and Challenge Printing (the contract outlines the provisions of
the tax abatement) for consideration at a public hearing on the proposed tax
abatement as mandated by the Minnesota Business Subsidy Law (MS
116J.993 - 116J.995)
. Set a date for a public hearing on the proposed tax abatement as mandated by
the Minnesota Business Subsidy Law (MS 116J.993 -116J.995)
Enclosed as Exhibit B are the minutes of the April; 28, 2004 ED Advisory Committee
meeting.
Representatives from Challenge Printing will be at the June 1 st City Council meeting to
present their request and to field questions from the Council.
challenge cc memo 2.doc
Background
Challenge Printing Inc. is undergoing a consolidation and relocation plan that will move,
the company's operations to Shakopee, to the former ADC Telecommunications building
at 1000 Valley Park Drive. The need for the expansion stems from a growing business
being located in multiple facilities with an inabilityto expand in any ofthose facilities.
The cost of relocating the company involves moving large amount of heavy equipment,
selling two buildings, acquiring and renovating new space in Shakopee, terminating
leases and leaseholds, and losing sales and employees. In order to keep up with the
market and grow the business, Challenge needs to relocate to the larger former ADC
facility, expand the facility and acquire additional/new equipment.
The proposed location / expansion is to include approximately 250,000 SF of
manufacturing space, 75,000 SF of office space, and 90,000 SF of warehouse space. Total
estimated expansion cost is just over $3 million. Total estimated fee and permit costs are
$20,000. Estimated new machinery and equipment cost is $9 million. The anticipated
completion of the expansion will be nine months from approvals.
The current number of employees at the existing facilities in Eden Prairie is 380. These
positions will be transferred to the new Shakopee facility. The company estimates that an
additional 80 positions (above those that are moved from the existing facilities), paying,
between $12 per hour ranging up to above $32 per hour, will be created with the
Shakopee expansion. The value of health insurance benefits for the positions is estimated
at between $2,246 and $7,488 per year.
Discussion
The company is requesting local and state participation in the proposed expansion,
namely $2 million in tax: abatement participation on the part of the City and County, and
from the Minnesota Department of Employment and Economic Development (DEED), a
$500,000 Minnesota Investment Fund loan ($100,000 of which can be retained by the
City in order to establish an economic development revolving loan fund per DEED
program guidelines), and up to $400,000 in Job Skills Partnership (MNJSP) funding for
workforce training.
This project is in the interest of the City in that it is an attraction and expansion of a new
manufacturing business. The attraction and expansion of Challenge Printing will
contribute to the stability of the local economy since Challenge would be a significant
entity in the basic sector of the local economy (that is, it manufactures and exports goods
to regions beyond Shakopee, bringing new money into the local economy). The proposed
move to and expansion in Shakopee will result in further diversification of the local
economy and significant expan~;ion of the employment base.
challenge cc memo 2.doc
Staff has reviewed Challenge's Application for Business Subsidies, and finds that the
project essentially meets the City's goals as outlined in its Business Subsidy Policy,
including:
. The project is consistent with the City's Comprehensive Plan.
. The company will enter into a Contract for Private Development with the City and
County that is consistent with statutory requirements, including a commitment to
remain in business at the site for a minimum of five years after the benefit date
and compliance with the specific job and wage goals established for the project (in
the Contract for Private Development).
. Promoting economic development that will expand the commerciallindustrial tax
base for the City;
. hnproving the community's. economic vitality through the creation and expansion
of livable wage manufacturing jobs;
. Provide significant economic impact (multiplier effect) within the community;
. Encourage economic and commercial diversity within the community;
. The project is consistent with environmental regulations and does not create an
environmental hardship for the community.
. Construction of the project will not commence until the City, County and
applicant have entered into a Contract for Private Development.
Tax Abatement / Analvsis
. Springsted, the City's financial advisor, conducted a tax abatement projection,
enclosed as Exhibit C.
. Under the proposal, property taxes abated would be comprised of 1.) The increase in
value of the existing building when the building is reassessed after the sale, estimated
at 2,975,000 (the base estimated market value ofthe building is $7,375,000), and 2.)
The value of the expansion improvements, estimated at $2,621,400.
. The abatement would occur over a fifteen -year period from 2006 - 2020. This is a
longer term than previous abatement projects with CertainTeed and ADC
Telecommunications, which had six year terms. The difference between those
projects and Challenge is that CertainTeed and ADC were expansions of existing
Shakopee businesses, while the Challenge project involves the attraction (and
expansion) of a new business to town.
challenge cc memo 2.doc
. The City would abate a total of $541,641 over the full term, while Scott County
would abate a total of $611 ,815 over the full term. The total abatement from the City
and County would be $1,153,465.
. The cumulative (all abatements) limit for Shakopee and Scott County in anyone year
is 10% of current levy; both the City and County will be well within their respective
limits in this abatement scenario.
. A $5,596,400 increase in market value for the subjectproperty and the attendant
increase in property taxes attributable to the project (post abatement term).
. Challenge investment activities directly attributable to move / expansion:
Land Acquisition / Building Cost 11,500,000
Site Development / Building Improvements 3,000,000
Professional Services 385,000
Fees & Permits 20,000
Machinery & Equipment 9.000.000
TOTAL $ 23,905,000
. The company currently has 380 employees at three different facilities elsewhere in
the Twin Cities Metropolitan area; these. jobs will be retained with the move to /
expansion in Shakopee. In addition to the 380 jobs, the company will be adding
approximately 80 new livable wage jobs (with benefits) in Shakopee upon
completion ofthe project. The annual wage for most ofthe positions ranges from
$35,000 - $56,000 (the new jobs estimate is conservative).
. The project will increase the diversity of job opportunities for Shakopee residents,
and add to the well-paying and growing manufacturing job base.
. The location and expansion of Challenge Printing in Shakopee will have a positive
economic multiplier effect. For each manufacturing job created by Challenge, there
will be an additional number of "support" (non-manufacturing) jobs created in and
around the community. According to the National Association of Manufacturers,
every $1 million in final sales of manufactured products supports 10 jobs in the
manufacturing sector and six jobs in other sectors (such as services, retail,
construction, etc.). This job creation includes some areas outside the city, given that
Shakopee is part of the metropolitan area economy. Upon completion of the move /
expansion, the total employment at the\Shakopee plant will be 460 (Note: this is a
conservative estimate by Challenge).
challenge cc memo 2.doc
. Retention of and increase in service and retail businesses (new / additional goods
and services) attributable to the influx of new employees; attendant spending in
Shakopee from resident and non-resident employees.
. Employees moving to Shakopee and their attendant spending (i.e. real estate, goods
from local merchants, etc).
. The project is compatible with the ED Advisory Committee's, EDA's, and City
Council's goal of facilitating the retention and expansion of high quality economic
development as identified in the Economic Development Strategic Plan, and
diversification of the local economy as identified in the City Council Goal Setting
Session in April of 2004.
. The project is compatible with the City's business subsidy criteria/policy in that it
(the project) would increase the tax base, create a significant number oflivable wage
jobs, and provide a significant economic impact within the community.
Minnesota Investment Fund
Regarding state participation, MN Department of Employment & Economic
Development (DEED) staff is of the preliminary opinion that the Minnesota Investment
Fund (MIF) would be a good fit with Challenge's expansion project. The maximum loan
amount per project is $500,000, and depends upon number of new jobs to be created and
the proposed pay level; the amount also depends upon the current competitive situation
for this program. MIF is a grant to the City and a loan to the company. An additional
benefit to the City of using the MIF program is that itpresents the City the opportunity
to establish an economic development revolving loan fund. The first $100,000 of the
MIF program would be paid back to the City for that purpose (to establish an economic
development revolving loan fund).
Staff is assembling and submitting a Pre-Application to DEED for the MIF program.
After approval by DEED of the Pre-Application, a more detailed Part II Application, for
which the City must pass a resolution, will be submitted to finalize the process, and to
receive a grant upon approval.
Minnesota Job Skills Partnership
The purpose of the program is to act as a catalyst between business and education in
developing cooperative training projects that provide training for new jobs or retain
existing jobs. Grants are awarded to educational institutions with businesses as partners.
The maximum available of MJSP funds is $400,000 per grant. Challenge Printing will
likely lose a number of its current employees as a result of the move, which will create a
need to train new employees. The City would be the coordinating agent in this project;
staffwill be working with Challenge, a local technical college, and MN Department of
challenge cc memo 2.doc
Employment & Economic Development through the Minnesota Job Skills Partnership to
arrange customized training.
Options
1. Per recommendation of the Economic Development Advisory Committee,
proceed with processing Challenge Printing's application for tax abatement by
1.) Directing staff to prepare a Contract for Private Development between the
City, Scott County and CertainTeed for consideration at a public hearing on the
proposed tax abatement; and 2.) Set a date of June 22, 2004 for a public hearing
on the proposed tax abatement.
2. Table for additional information
Recommended Action
Offer and pass a motion to 1.) Direct staff to prepare a.Contract for Private Development
between the City, Scott County and Challenge printing, Inc. for consideration at a public
hearing on the proposed tax abatement; and 2.) Offer and pass Resolution No. 6062,
setting a date of June 22,2004 for a public hearing on the proposed tax abatement.
challenge cc memo 2.doc
CITY OF SHAKOPEE
RESOLUTION NO. 6062
RESOLUTION CALLING FOR A PUBLIC HEARING ON THE TAX
ABATEMENT FOR CERTAIN PROPERTY IN THE CITY OF SHAKOPEE
WHEREAS, the City of Shakopee ("City") has contemplated granting a property tax
abatement in order to facilitate development of a manufacturing, office and storage facility (the
"Development") on certain property in the City located at 1000 Valley Park Drive, all pursuant to
Minnesota Statutes Sections 469.1812 through 469.1815 (the "Act"); and
WHEREAS, the City Council has determined to consider granting tax · abatement. of a
portion of the City's share of property taxes on the Development Property and to hold a public
hearing thereon in accordance with the Act; and
NOW, THEREFORE, BElT RESOLVED by the City Council of the City of Shakopee,
that:
1. The City Administrator is authorized and directed to prepare a notice for publication
in the City's official newspaper setting a public hearing before the City Council on Tuesday, June
22,2004 at 7:00 p.m. in the council chambers on the proposed tax abatement. The notice shall be
published in the newspaper at least 10 but not more than 30 days prior to the public hearing, and
shall be in substantially the form attached hereto.
2. The Administrator is authorized and directed to take all other actions necessary to
bring the proposed tax abatement before the City Council at the time ofthe public hearing.
Approved by the City Council of the City of Shakopee this 1 st day of June, 2004.
Mayor
ATTEST:
City Clerk
JKp.209214vl
SH235-JO
NOTICE OF PUBLIC HEARING
Notice is hereby given that the City Council of the City of Shako pee, Minnesota will meet at
7:00 p.m. on Tuesday, June 22, 2004 at City Hall, 129 Holmes Street, Shakopee, Minnesota 55379-
1376, to conduct a hearing regarding granting ofa property tax abatement under Minnesota Statues,
Section 469.1812 to 469.1815 for certain property in the City of Shakopee located at 1000 Valley
Park Drive (referred to as the "Property").
At the hearing, the City Council will consider granting an abatement of a portion of the
City's share of property taxes on (1) a new manufacturing, office and storage facility to be
constructed as an expansion of the existing manufacturing facility on the Property, and (2) increases
in market value of the existing facility after completion of the expansion. The abatement is
proposed for a term of fifteen years, and the City estimates that aggregate total amount to be
collected during that time period is approximately $550,000.
The proposed abatement constitutes a "business subsidy" under Minnesota Statutes, Section
1161.993 to 116J.995. Information concerning the proposed project, including a summary of the
terms of the business subsidy agreement, will be on file at City Hall on and after the date of this
notice. Any person wishing to express an opinion on the matters to be considered at the public
hearing will be heard orally or in writing.
Dated: [Date of Publication]
/s/
City Clerk
SJB-248403vl
SH235-15
'.- .... ".". .
.
A
CITY OF SHAKOPEE
Application for Business Subsidies
OBEE
C01V1MUNITY PRIDE SINCE 1857
'129Holmes Street South Shakopee, MN 55379
Phone (952) 233-3800 Fax (952) 233-3801
" .,.
Shakopee subsidy app.doc
. '. .... . .,", .~. " ,. . , . .:,::: .',', ..... :' ..,."::.. ":. 'j'" , ~. .... .. . ~
". .... ....
.
.. .... ... ..
Apri/13,2004
The Honorable John Schmitt
and the Shakopee City Council
129 Holmes Street South
, ,Shakopee,- MN 553?~'
. '
Dear Gentlemen,
Challenge Printing Inc. is ready to embark on a new chapter in our
Company's history. The Consolidation and Relocation Plan will indeed be
the largest and most difficult project that we have ever undertaken. Our
Company is willing to take the next step and make a commitment to grow
our Company in the community of Shakopee and we need your help.
In this letter of introduction, I wanted to tell you what Challenge Printing,
Inc. is all about, and why we want to consolidate and move our
"operatio.ns to the City of Sh.akopee.
Challenge Printing began its operations sixteen years ago with one person
and a vision of what was possible. We have created a $70 million
company that is now a leader in the printing business. We currently
provide employment to almost 400 employees with an average wage of
$50,000 per year. Challenge has a long history of incremental growth in
sales volume and employee payroll and has subsequently provided local
businesses with opportunities to grow with us. Attached isa history of
our statistical growth in the areas of Sales, Employees, and Payroll
Dollars.
Challenge would like to consider the City of Shakopee for our new home
for a number of reasons. Easy access to the southern metro area,
facilities large enough to handle our operations, room for expansion, and
opportunities to tap into a local labor source in a fast growing community.
On the other hand, we are concerned about the distance that our
.employees and customers will, have to travel, we know we will lose some
percentage of both by" moving "across the river". We are also concerned
about our ability to attract experienced craftsmen to travel to Shakopee.
........ ..... ".
,,'
.
From our first meeting with Mr. Snook, I felt as though Challenge Printing
was a company that was important to the City of Shakopee. It is exciting
to see the potential for a mutually beneficial relationship and it is
encouraging to be acknowledged as an entity that could bring value to
your Community.
We are submitting the attached Application for Business Subsidy for your
review. The cost of relocating our Company will be quite detrimental to
our net worth and earnings for several years. Moving. our large amount of
heavy equipment, selling two buildings, acquiring and renovating new
space, terminating leases and leaseholds, combined with losing sales and,
employees will come at a price tag in the $3 to. $4 mHlion range for .our, ,
business. With your approval of this subsidy, we can be much more
confident in our ability to continue our successes and yours.
Challenge does have a lot to offer to the City of Shakopee and to Scott
County. 'In the last 5 years, Challenge Printing Inc. has added 100 new
jobs to our business and 200 new jobs in the last 10 years. We have
budgeted for an annual payroll in the amount of $25 Million this year and
expect to grow our employee population by 10% in 2004 alone. The
Company will continue to grow and plans to be much closer to 500
employees in another 4 years.
, We look forward to having an opportunity to meet with, you and your, '
staffs to develop an agreement that could be beneficial to our mutual
interests.
Sincerely,
Robert J. Lothenbach
Owner & CEO
'. ... ..
..' ~. . . '; ..:......,...:.... ;.-:. '. i ,. ....
-
,
.. ",. .
CHALLENGE PRINTING, INC.
Growth Statistics 1988 to 2004
Sales Volume Employees Payroll
Annual Change Change Annual Annual Per
Year-end (Thousand $ ) Percent Number Percent Wages Employee
1988 $696 10 $207,037 $20,704
,
1989 $2,268 225.9% 30 200.0% $727,381 $24,246
'1990, ' $3,877 '70.9% 50' 66;7% :$~ ,173,621 $23.472
1991 $6,657 71.7% 88 76.0% $2,070,481 $23,528
1992 $8,557 28.6% 93 5.7% $2,675,592 $28,770
1993 $13,265 55.0% 185 98.9% $4,927,952 $26,638
1994 $21,942 65.4% 225 21.6% $8,087,293 $35,944
1995 $28,292 28.9% 263 16.9% $9,724,434 $36,975
1996 $34,326 21.3% ' 295 12.2% $11,820,107 $40,068 ,
1997 $32,534 -5.2% 282 -4.4% $12,147,862 $43,078
1998 ' $35,962 10.5% 295 4.6% $13,962,572 $47,331-
1999 $40,083 11.5% 301 2.0% $15,330,998 $50,934
2000 $41,569 3.7% 306 1.7% $14,737,608 $48,162
2001 $51,840 24.7% 325 6.2% $16,781,663 $51,636
2002 $58,178 12.2% 370 13.8% $19,867,004 $53,695
2003 $68,718 18.1% 406 9,7% $22,291,523 $49,687
Proj. 2004 $77,352 12.6% 440 8.4% $25,319,851 $57.545
..'.... , ~' ", " .' . . .... . :~,
.
.. ......,
Section I: General Information
** Witlt this application, please submit a f01'11lalletter requesting tlte assistance.
1. Business Name: Challenge Printing Inc.
2. Address: 7500 Golden Triamde Drive
Eden Prairie. MN 55344
, 3. Contact Pe:rson:: ' Jiin Bayliss'
4. Telephone: (952) 903-4485
5. Fax: (952) 942-0010
6, E-Mail: ibayliss@challengeprinting.com
7. Brief Description of the Business I Company: Challenge Printing is a $70 Million Co.
serving 5 national print segments: Commercial Offset. Point of Purchase, Folding Cartons,
UV Printing and Pressure Sensitive Labels.
8. Parent Corporation,,, if any': N/A .. ."
9, Consultant infonnation, if applicable:
Name: Winthrop & Weinstine. Mr. NonnJones
Address: 225 South Sixth Street. Suite 3500. Minneapolis. MN 55402-4629
Telephone: (612) 604-6605 Fax: (612) 604-6905
E-Mail: njones@winthrop.com
10 Type of Subsidy Requested:D Tax Abatement: All real property taxes generated
in any tax-pavable year bv extending the City's and
County's local tax rate against the tax catJacity of the
Proposed Proiect for a period of fifteen vears.
11 Amount of Subsidy Requested: $2.000.000.
12 Public Purposes of the Subsidy: To provide financial assistance that will, make the
relocation possible for a growing company to ioin the City of Shakopee and Scott
County. The Companv will provide 460 very well paving iobs to the Community and
will substantiallv increase the taxable base value of the Property with the planned
additions and improvements. This relocation will remove unused and vacant
, Rroperty from the City through the re-establishment of commercial activity.
Shakopee subsidy app.doc
0'. . ,
13 Location of Proposed Project: 1000 Vallev Park Drive. Shakopee. MN
14 Legal Description of Project Location:
Lot 1. Block 1. Plat #27154. Valley Park 9th Addition.
11. Property Identification Number(s): 27-154-001-0
12. Present Ownership of the Site: 1000 Vallev Drive, LLC
13, Name I Description of the proposed project (Attach site plan, if available):
Challenge Printing Inc. Relocation and Consolidation Plan
14. Size of the Property 1.285.020 sq. ft.
15.' Estimated Total Building Square Footage 415.398 ' sq. ft.
16. Estimated size of the Proposed Facility:
Manufacturing I Assembly / Processing 250.324 sq. ft.
Office 75.074 sq. ft.
Research Laboratory 0 sq. ft.
Warehousing 90,000 sq, ft.
Other (please Specify ) sq. ft.
TOTAL 415.398 sq. ft.
Shakopee subsidy app.doc
. ....' . ." , . ,.~.., "
.' ,'.,." .,...,.' . ..."'..... ..... ......
, -
,
17, Estimated Project Costs:
Land Acquisition Included in Bldg. Cost
Site Development (Building Addition.) $ 5.350.000
Building Cost $ 11.500.000
, StreetIRoad Improvements (include y'o~~r costs only) , $
Utility Improvements (include your costs only) $
Capital (machinery and equipment) $ 9.000.000
Professional Services (archit., engin.,legal, fiscal) $ 385.000
Fees and Permits (same as total from below) $ 20.000
" Other ,(please, specify " ) $
TOTAL $ 26.255.000
18. Estimated Fee and Permit Costs:
City Permits and Fees $ 20.000
(Grading and Building Permits, Park Dedication Fees, etc.)
Metropolitan Council Fees $
(SAC and WAC Charges)
Other fee or pennit costs $
(please Specify )
TOTAL $ 20.000
19.. Indicate the proposed start date for construction and estimated date of completion:
Start immediately upon approvals. expected completion within 9 months
Shakopee subsidy app.doc
. , ~ . -.. ..., " ;
. .....
20. Proposed Financing Source(s):
Equity $ 1.725.500
Bank Loan (Equipment Lease) $ 9.000.000
(Check one): 10 Tax Increment Financing, OR
o Tax Abatement $ 2.000,000
Life Insurance Co. Loan '$ 13.529.500
Other Local Government Assistance $
(please specify )
State of Minnesota Assistance $
(please specify )
TOTAL $ 26.255.000
, '21. If tax increment fInancing is request~d; ple~se submit a list 'of eligible project costs (Refer to
Section V of the Business Subsidy Policy):
(
22. The City reserves the right to request tax returns and/or other financial statements from the
applicant for the years of operation.
23, The City reserves the right to request three bank references from the applicant.
Shakopee subsidy app.doc
" , .. " ' .. .'
.~..
..
A
Section II:
Employment, Wage and Benefit Information
A. EMPLOYMENT
1. Does this project involve the relocation of jobs within the State of Minnesota?
DYes
, "
, a, Ii s6, provide a statement of why the project cannot be completed at.its current
location / facility:
ChaIIent!e Printing Inc. currently operates out of 3 separate buildings totaling
238.477 sq. feet. Consolidation of our operations is a key ingredient in our ability
to continue to control our cost. quality and the timeliness of our services to our
customers. Our current location does not allow expansion for this pUIpose.
b. Number of full time equivalent (FTE) permanent employee positions at current
, Minnesot~ .location / facility to be relocated to Shakopee: ' 380
2. If the project is an expansion of an existing Shakopee facility, what is the current number
ofFTE permanent employee positions?
3. Estimated Number ofFTE permanent employee positions to be created (within 2 years of
issuance of Certificate of Occupancy) as a result of the project 80
4. TOTAL number of current and estimated new FTE permanent employee positions (No.2
+ No.3 from above) 460
Shakopee subsidy app.doc
.
~
B. WAGES
1. What will be the minimum hourly wage (exclusive of benefits) of the FTE permanent
employee positions created by the project? $ 11.00
2. The hourly wage of each new pennanent FTE employee position, with separate bands of
wages, is as follows:
Total Number of
Wage Levels Per Hour FTE Permanent Emp10vee Positions
Less Than $12.00 41
$12.00 -16.99 65
$17,00 - 21.99 91
$22.00 - 26.99 89
$27.00 - 31.99 51
$32.00 and Over 43
C. HEALTH INSURANCE BENEFITS
The value of health insurance benefits proVided by the employer for "t~e above referenced jobs;
. '. .
, separated by bailds of wages, is as follows: .,' '
Wage Levels Per Hour Value of Health Insurance Benefits
Less Than $12.00 $ 2.246 / year
$12,00 -16.99 $ 2.714/ year
$17.00 -21.99 $ 3.649 / year
$22.00 - 26.99 $ 4.586/ year
$27.00 - 31.99 $ 5.521 / year
$32.00 and Over $ 7.488 / year
-. "
Shakopee subsidy app.doc
CITY OF SHAKOPEE, MINNESOTA
OFFICIAL PROCEEDINGS OF THE
ECONOMIC DEVELOPMENT ADVISORY COMMITEE
REGULAR SESSION
APRIL 28, 2004
Members present: Jeff Jansen, Brae Felber Marshall Walker and Committee Chair
Brian Langdon
Members Absent: John Mauritz
Staff Present: Paul Snook, Economic Development Coordinator
Others Present: Bob Lothenbach and Jim Bayliss from Challenge Printing, Inc.
Call to Order
EDAC meeting called to order at 6:30 p.m. Wednesday, April 28, 2004 by Committee
Chair Langdon.
Approval of A2enda
Jansen moved to approve the agenda; seconded by Walker;.passed unanimously.
Challen2e Printin2
Snook provided background on discussions with representatives from Challenge Printing,
Inc regarding relocation and expanding in Shakopee (in the former ADC
Telecommunications "1000 Building"). The company submitted an Application for
Business Subsidies for tax abatement for consideration by the Economic Development
Advisory Committee and City Council. Snook said the the EDAC is asked to review the
application and make recommendation to the City Council to enter Contract for Private
Development between the City, Scott County and Challenge Printing for consideration at
a public hearing on the proposed tax abatement, and set a date for a public hearing on the
proposed tax abatement as mandated by the Minnesota Business Subsidy Law.
Bob Lothenbach and Jim Bayliss from Challenge Printing are in attendance at tonight's
meeting to make presentation to and field questions from the EDAC.
Challenge Printing Inc. is undergoing a Consolidation and Relocation Plan that will move
the company's operations to Shakopee, to the former ADC 1000 Building. The need for
the expansion stems from a growing business and the current business being located in
multiple facilities with an inability to expand in those facilities.
The global cost of relocating the Company involves moving much heavy equipment,
selling two buildings, acquiring and renovating new space in Shakopee, terminating
leases and leaseholds, and losing sales and employees. In order to keep up with the
market and grow the business, Challenge needs to relocate to the larger former ADC
facility, expand the facility and acquire additional/new equipment. The existing former
ADC facility will have to be extensively modified to accommodate Challenges operation.
Snook continued to explain that the proposed location / expansion is to include
approximately 250,000 SF of manufacturing space, 75,000 SF of office space, and 90,000
SF of warehouse space. Total estimated expansion cost is $5.3 million. Total estimated
fee and permit costs are $20,000. Estimated machinery and equipment ast is $9 million.
The anticipated completion ofthe expansion will be nine months from approvals.
The current number of employees at the existing facilities in Eden Prairie is 380. These
positions will be transferred to the new Shakopee facility. The company estimates that an
additional 80 positions (above those that are. moved from the existing facilities), paying,
between $12 per hour ranging up to above $32 per hour, will be created with the
Shakopee expansion. The value of health insurance benefits for the positions is estimated
at between $2,246 and $7,488 per year.
The company is requesting local and state participation in the proposed expansion,
namely $2 million in tax abatement participation on the part of the City and County, and
Minnesota Investment Fund (MIF) and Job Skills Partnership (MNJSP) funding from the
Minnesota Department of Employment and Economic Development(DEED). The
financing is needed in order to defray extraordinary costs associated with facility
expansion and therefore induce the company to expand its operations in Shakopee .and
thus preserving and enhancing job and tax base growth for the City, County and State.
Challenge operates existing facilities that cannot accommodate expanded operations.
Without the financing, the facility would likely remain vacant, absent of a job creating
and tax generating business, for the foreseeable future.
Snook pointed out that staffhas reviewed Challenge Printing's proposed location and
expansion and corresponding Application for Business Subsidies, and finds that the
project meets the City's goals as outlined in its Business Subsidy Policy, including:
. The project is consistent with the City's Comprehensive Plan.
. The company would enter into a Contract for Private Development with the City and
County that is consistent with statutory requirements, including a commitment to
remain in business at the site for a minimum of five years after the benefit date and
compliance with the specific job and wage goals established for the project (in the
Subsidy Agreement).
. Promoting economic development that will expand the commercial/industrial tax
base for the City;
. Improving the community's economic vitality through the creation and expansion of
"basic sector" (manufacturing-related) livable wage jobs;
. Provide significant economic impact (multiplier effect) within the community;
. Encourage economic and commercial diversity within the community;
. The project is consistent with environmental regulations and does not create an
environmental hardship for the community.
. Construction of the project will not commence until the City and applicant have
entered into a Contract for Private Development.
Snook added that Challenge still needs to submit the $5,200 application fee and that this
will be paid ifEDAC provides a positive recommendation and the City Council approve
ofthe abatement. Ifthe EDAC passes its recommendation, staffwill have Springsted, the
City's financial advisors, conduct financial analysis for the project for further
consideration by City Council, and proceed with applications to DEED for MIF and
MNJSP.
Snook concluded by asking the EDAC to review Challenge Printing's request and
Application for Business Subsidies and provide recommendation to the City Council /
EDA to enter a Contract for Private Development between the City, Scott County and
Challenge Printing, and set a date for a public hearing on the proposed tax abatement.
Jansen asked to verify how many employees would be initially located in Shakopee.
Lothenbach responded that the current employment is closer to 420 than 380 (there has
been an increase since the submission of the application) positions but that some ofthem
will not transfer because of the move; some employees can't or wont commute to
Shakopee. Those positions will represent a turnover. It is expected that about 40 - 50
employees will not make the transfer. In addition, the employment projections related to
the expansion are very conservative.
Langdon asked what type of printing Challenge does. Lothenbach provided background
and responded that Challenge is more successful than many other printing companies
since it is very diversified as to its product mix and the multiple printing solutions it can
offer its customers. Lothenbach added that with this expansion to Shakopee Challenge
Printing will be the first printer in North America to have an eighty-one inch press.
Langdon asked where Challenges customers / market is. Lothenbach replied that
Challenges customers are U.S. - based, with sales offices nationwide.
Walker asked what the positions are ofthe employees that will not be transferring.
Lothenbach replied that the majority of those jobs are the skilled positions and possibly a
few office positions. Lothenbach added that the company has made a commitment to
assist employees with moving expenses, real estate location costs, and other related
items.
Langdon mentioned that Challenge Printing seems to have a non-pretentious, hard-
working, blue collar work ethic, which is a good fit with Shakopee.
Jansen asked if there are performance guarantees from the companies that sell Challenge
its printing equipment / machinery. Lothenbach replied that the supplier companies do
provide performance guarantees to Challenge. Lothenbach added that Challenge has a six
month exclusive period from the press suppliers, so Challenge has a leg up on its
competition.
Jansen moved to have the ED Advisory Committee make recommendation to the City
Council to enter Contract for Private Development between the City, Scott County and
Challenge Printing for consideration at a public hearing on the proposed tax abatement,
and for the City Council to set a date for a public hearing on the proposed tax abatement.
Motion seconded by Walker; passed unanimously.
Other Business
There was no other business
Adjourn
Walker moved to adjourn the meeting; seconded by Felber; passed unanimously; meeting
adjourned at 7:42 p.m.
I Assumptions Report I
City of Shakopee, Minnesota
Tax Abatement Projection
Challenge Printing Inc. Project
Scenario 0 City/County Only
Type of Project Tax Abatement
Maximum Duration of Tax Abatement 15 Years
Current Year 06/01/04
First Abatement Year 06/01/06
Final Abatement Year 12/01/20 (15 Years of Abatement)
2003/2004
Base Estimated Market Value $7,375,000
Base Net Tax Capacity (NTC) $146,750
Non-Abated NTC $146,750
Assessment/Collection Year
2004/2005 2005/2006 2006/2007 2007/2008
Base Estimated Market Value $7,375,000 $7,375,000 $7,375,000 $7,375,000
Increase in Estimated Market Value 0 5,596,400 5,985,542 6,386,358
Total Estimated Market Value $7,375,000 $12,971,400 $13,360,542 $13,761,358
Total Net Tax Capacity $0 $258,678 $266,461 $274,477
Local Tax Capacity Rate 95.782% 2003/2004
Fiscal Disparity Deduction 36.077%
City of Shakopee, Minnesota Abate? Yes 32.433%
Scott County Abate? Yes 36.635%
ISD#720 Abate? No 21.517%
Other Tax Rate 5.197%
Current City Levy 8,340,478 @ 10.000% 834,048 Max Abate - 834,048
Current County Levy 34,951,145 @ 10,000% 3,495,115 Max Abate - 3,4951115
Present Value Date & Rate 06/01/04 @ 6.00%
Bonds Note (Pav-As-You-Go)
Bonds Dated 06/01/04 Note Dated 06/01/04
First Interest Date 02/01/05 Note Rate 6.00%
Underwriters Discount 1.50% Note Amount $645,600
Notes
Abate the increase in value (estimate $2,975,000) when the building is re-assesed after the sale
Abate the increase in value (estimate $2,621,400) of the new expansion
Include a market value inflation factor of 3%
Abate CITY and County share of taxes
Prepared by: Springsted Incorporated (printed on 5/27/2004 at 1 :25 PlWl). Challenge Project City-County 5-27 -04.xlsAssumptions
I Projected Tax Abatement Report I
City of Shakopee, Minnesota
Tax Abatement Projection
Challenge Printing Inc. Project
Scenario D City/County Only
This Pro' ect
Less: Less: Retained Times: Statutory Less: Maximum Maximum Maximum
Annual Total Non-Abated Fiscal Captured Tax Tax C'T eed & Adjusled Tax Tax Tax Total
Period NetTax NetTax Disp.@ NetTax Capacity Annual Abatement Dean's Lake Abatement Abatement Abatement Abatemenl Tax
Ending Capacity Capacity 36,,0773% Capacity Rate Total Tax City Max Projects City Max City County School District Abatement
1 2 3 4 5 6 7 8 9) 10 11 12 13 (14)
2004 12/31/04 146,750 146,750 0 0 95.782% 0 834,048 0 834,Q48 0 0 0 0
2005 12/31/05 146,750 146,750 0 0 95,782% 0 859,069 0 859,069 0 0 0 0
2006 12/31/06 258,678 146,750 40,381 71,547 95.782% 68,529 884,841 61,592 823,249 23,205 26,211 0 49,416
2007 12/31/07 266,461 146,750 43,188 76,523 95,,782% 73,295 911,387 70,268 841,119 24,819 28,034 0 52,853
2008 12/31/08 274,477 146,750 46,081 81,646 95,782% 78,202 938,728 108,668 830,060 26.480 29,911 0 56,391
2009 12/31/09 282,734 146,750 49,059 86,925 95,,782% 83,258 966,890 116.456 850.434 28,192 31,845 0 60,037
2010 12/31/10 291,238 146,750 52,128 92,360 95,782% 88.465 995,897 119,079 876,818 29,955 33,836 0 63,792
2011 12/31/11 299,998 146,750 55,288 97,960 95.782% 93,828 1,025,774 116,551 909,222 31,771 35,888 0 67,659
2012 12/31/12 309,021 146,750 58,543 103,728 95,,782% 99,352 1,056,547 120,053 936,494 33,642 38,001 0 71,643
2013 12/31/13 318,314 146,750 61,896 109,668 95.782% 105,042 1,088,243 123,660 964,583 35,569 40,177 0 75,745
2014 12/31/14 327,886 146,750 65,349 115,787 95.782% 110,903 1,120,890 127,376 993,514 37,553 42.418 0 79,972
2015 12/31/15 337,745 146,750 68.906 122,089 95,782% 116,939 1,154,517 131,203 1,023,314 39,597 44,727 0 84,324
2016 12/31/16 347,900 146,750 72.569 128,581 95,782% 123,157 1,189,153 135,145 1,054,008 41,703 47,105 0 88,808
2017 12/31/17 358,359 146,750 76,343 135.266 95,782% 129.561 1,224,827 139,205 1,085,623 43,871 49,555 0 93,426
2018 12/31/18 369,132 146,750 80,230 142,152 95,782% 136,156 1,261,572 143,386 1,118,186 46,104 52,077 0 98,182
2019 12/31/19 380,229 146,750 84,233 149,246 95,782% 142,951 1,299,419 147,694 1,151,726 48,405 54,676 0 103,081
2020 12/31/20 391,658 146,750 88,356 156,552 95.782% 149,949 1,338,402 152,130 1,186,272 50,775 57,353 0 108,127
$1,599,587 $18,150,204 $1,812.467 $16,337,737 $541,641 $611,815 $0 $1,153,456
Prepared by: Springsted Incorporated (printed on 5/27/2004 at 1 :25 PM) TA Challenge Project City-County 5-27.04,xls