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HomeMy WebLinkAbout09-26-11 WSMinutes Lakeville City Council Work Session September 26, 2011 In attendance: Mayor Mark Bellows Council Member Laurie Rieb Council Member Kerrin Swecker Council Member Matt Little Council Member Colleen LaBeau Staff: Steve Mielke, City Administrator Dave Olson, Community and Economic Development Director Tom Nesseth, Senior Accountant Dave Lang, Senior Accountant Brenda Visnovec, Liquor Operations Manager Allyn Kuennen, Associate Planner Gene Abbott, Building Official Judi Hawkins, Deputy City Clerk The meeting was called to order at 6:00 p.m. by Mayor Bellows. ITEM #1 — The Minneapolis St. Paul Regional Economic Development Partnership, "Greater MSP," is a newly created private - public partnership dedicated to growing the economy of the 13- county Minneapolis -St. Paul region through coordinated leadership. The organization has a 5016 non -profit status. Community and Economic Development Director Dave Olson presented a brief overview of the initiative and introduced Kathy Schmidkofer, Executive Vice President, and Sara Barrow, Investor Relations Director. Economic Development Commission members Jack Matasosky, Jeannie Schubert, Sheila Longie, and Bob Brantly, and Chamber of Commerce Executive Director Todd Bornhauser were also in attendance. Ms. Schmidkofer presented an economic assessment of the MSP region and the goals of the organization. Dakota County Community Development Agency has contributed $100,000 to help launch the Greater MSP program. Other member cities in Dakota County include Apple Valley, Burnsville, Eagan, and Rosemount. The group's objective is to raise the profile of and attract businesses to the Twin Cities metro area through marketing of the area's assets. Ms. Schmidkofer outlined the region's assets which will attract businesses: a history of economic prosperity; large, diverse private sector; a highly educated workforce; top tier research institutions; and a high quality of life. A Job Growth Task Force has been formed with the objective of developing strategies and policies to promote the retention, creation, and attraction of quality jobs in the Twin Cities region. The organization will provide a coordinated effort for business development through global outreach. City Council Work Session Minutes September 26, 2011 Page 2- Council Member Swecker asked if jobs in the medical technology field are declining. Ms. Schmidkofer stated that this area is still a hub and there are still many jobs here, especially in manufacturing, but the goal is also to retain those industries. EDC member Jack Matasosky asked how the advocacy would work and how Lakeville specifically would be represented with the organization. Ms. Schmidkofer stated that the group does not want to duplicate the efforts of other organizations, such as the State Chamber of Commerce, but wants to make sure potential businesses are receiving accurate data and information about the region. The Board of Directors is 70% private and 30% public, similar to the funding structure, so representation will be from both sectors. Council Member LaBeau asked 1) How is spending allocated. Ms. Schmidkofer stated that about half of the current assets go to administrative salaries, including marketing, business development, etc. 2) How can Lakeville be confident of benefits. Ms. Schmidkofer stated that all member cities would benefit from having the opportunity to bid on projects. Council Member Little asked about the organizational structure and how that would protect a city the size of Lakeville. Ms. Schmidkofer stressed that the entire area is included in the marketing plan and it is critical to the program to be fair and objective. All members will have a fair share of opportunities for exposure. She asked the Council to compare the cost of the program to having an additional economic development specialist on staff. Todd Bornhauser, Executive Director of the Lakeville Area Chamber of Commerce, asked what types of jobs have been lost in this area. Ms. Schmidkofer focused on what jobs will be added, specifically to deal with an aging population: health care, education, etc. Greater MSP is asking Lakeville to join the organization at a cost of $25,000 annually. The EDC will review the program and provide a recommendation to Council for possible consideration as part of the 2012 budget. ITEM #2 — Steve Mielke provided a brief history and background of how the Liquor Study had come about with Council determining that it was necessary to conduct an analysis of Lakeville's municipal liquor operations. At their June 6, 2011 meeting Council authorized Shenehon Company to proceed with Phase One of the study. Presenting the report were Bob Strachota, President of Shenehon, and Scot Torkelson, Vice President. They explained that Shenehon primarily focuses on business and commercial real estate appraisals and related research, and they are experienced in municipal liquor appraisals. Shenehon was given three tasks as part of Phase One. The first was to measure the economic impact on retail development from operations of municipal liquor stores in the City. This task was to study if, because of municipal liquor, there are retailers that are not coming into Lakeville. The second task was to compare the financial impact on Lakeville with municipal liquor operations to the alternative of licensed private liquor stores. The third task was to study the economic impact on Lakeville's revenues from liquidation of City Council Work Session Minutes September 26, 2011 Page 3- municipal liquor stores (real estate and businesses) and improved tax base with potential new development. Task #1. The study looked at the economic impact of municipal liquor and whether other retail businesses avoid the area because of municipal liquor. Mr. Torkelson stated that the overwhelming attraction for business to any community is demographics. The study looked at siting criteria of the top 15 retailers in the US and where they are located in the Twin Cities in relation to cities with municipal liquor. They also looked at retail space per capita and asked if Lakeville is under - served with retail based on population. The study found that of the 15 top retailers in the US, seven were already located in Lakeville. In addition, every one of the top 15 has locations in cities with municipal liquor. Four large local retailers were specifically studied - two of those are already located in Lakeville and three have locations in a city with municipal liquor. Based on their analysis, municipal liquor stores do not impact retailers locating in the city. Council Member Little asked why the top 15 retailers were chosen. Mr. Torkelson stated that these larger companies are most likely to have formalized siting criteria. Their locations are also more likely to attract other retailers. Costco is rated #3 of the top 15. Their siting criteria would preclude Lakeville as an ideal location since there is not a major shopping center nearby. Of their two prototypes one is customer - based, and the other is business -based and would not include a liquor component. Costco has a store in Eden Prairie, which is a municipal liquor city. Other local retailers with strong presence include Byerly's and Lunds, which has stores both with and without liquor and serves a high -end clientele. Trader Joe's, whose target clientele is double - income households with no children, has also come into the area. Lakeville's population per household is higher than their target goal. Trader Joe's has located on the west coast in cities with municipal liquor. Mr. Strachota added that their liquor business is more of a way to get people to the store than a high profit component of the business. The study could not identify top retailers that have avoided Lakeville due to municipal liquor. Amount of retail space per capita was also studied. The Twin Cities metro area has 23.2 square feet per capita of retail space overall. Lakeville's built -out retail is 19.1 square feet per capita. Since Lakeville is located at the edge of the MUSA, not an "embedded" city, there are fewer shoppers than a city which draws from all sides. This is considered a very high amount of retail for the area and there is a very high occupancy rate. Task #2. This compared the financial impact on Lakeville with municipal liquor operations to the alternative of licensed private liquor stores. This included impacts on property taxes, payment in lieu of taxes (PILT), financial contributions to the community, philanthropic endeavors, licensing fees, and calculated the impact on property taxes on the average residential property. Municipal liquor stores average 15,000 residents per store; Lakeville serves an average of 18,651 residents per store. Private licensed liquor stores are more competitive: there is an average of 5,245 residents per store. Private stores are likely to be smaller but more numerous. An anticipated total of nine private stores would exist in Lakeville based on the data. They would generally locate in existing shopping malls, in City Council Work Session Minutes September 26, 2011 Page -4- closer proximity to residential areas. New construction would not be anticipated. No new development is expected to be attracted to the city because of private liquor licensure. There would not be a significant addition to the property tax base from new private liquor stores locating in the city. Regarding payment in lieu of taxes, the current amount of $69,000 paid by municipal stores is entirely retained by the City. With private stores, the amount of taxes retained by the City would be $15,215. Regarding philanthropic endeavors, private stores are limited in charitable contributions to the community. Municipal liquor stores generally are more likely to be engaged in giving back to the community at all age levels. No change would be anticipated in the contributions of other business in the community. Top ten corporate givers according to Forbes include Target, Walmart and McDonalds, which are already located in Lakeville. According to the League of Minnesota Cities license fees must approximate the cost of issuing the license, policing, and license activities. They are not meant to be a moneymaker for the city. Shenehon looked at the earning history of Lakeville's three stores and determined a stable cash flow, even during a difficult economy. This is likely to continue in the foreseeable future. The three stores provide annual cash flow of $1,175,000, equal to $112M of real estate being developed and added to the tax base in the city. Loss of that revenue would increase taxes on an average residential property by $50 and on an average commercial property by $244. If the two existing liquor store properties were sold and added to the tax base the amounts would be $49 and $236 respectively. Task #3. This task looked at selling both the stores and the businesses. The real estate is more valuable with the protections of a municipal operation than under private licensure. The businesses' market value is estimated at $6,450,000; the approximate real estate value is $3,400,000. Net proceeds from the sale of the businesses and real estate, less the bonding debt, are estimated at $6,490,000. Considering the limitations on where and how much of that money could be invested the annual return would be about 1 %, or $64,900 annually. The municipal liquor operations are currently realizing an 18% return. Former Mayor Ed Mako expressed his concerns about additional expenses for police enforcement with private liquor stores. Council Member LaBeau asked about distribution of the $1.75M annual revenue and using it to pay down debt. Mr. Torkelson stated that how the money is used by the City is a policy decision and is not reflected in the report. LaBeau stated that one of the reasons Council members saw a need for the study was to look at the need for an additional store. Mr. Torkelson stated that is a question that would be studied in Phase Two, if the Council decides to proceed with that phase. Mel Verley of Lakeville asked if the return on the invested funds had been studied at different levels other than 1 %. Mr. Torkelson stated that they have only done 1% but could City Council Work Session Minutes September 26, 2011 Page -5- look at figures for other interest rates. Mr. Verley asked if employee costs are fully funded within the organization for retirements. Yes, they are part of the general budget and there are no outside obligations. What impact does the existing debt have on the City's future borrowing if that debt were to be removed? Mr. Torkelson stated that that was not studied as part of this; also, $3M is not a significant number associated with Lakeville's debt. Council Member Little asked if they would anticipate higher police costs with private vs. public businesses. Mr. Torkelson stated that has not been studied as part of Phase One, however, he would presume that it would cost more if there were additional private sector stores. Past studies have shown that private stores had a lot more problems and calls to the Police. Brenda Visnovec stated that local and national market studies show that along with increased density in liquor stores goes an increase in social issues. Mr. Torkelson stated that is particularly true with small stores of 3,000 square feet or less. Council Member Swecker stated that it is a very informative study and thanked them for their presentation. Ron Gerk, 10466 W. 175th Street, asked who had written and approved the questions. Mayor Bellows stated that the questions had been written by staff and approved by City Council. Mr. Gerk questioned the study in the demographics required by businesses in order to locate a store, particularly Costco. He asked if there is debt on Valley Lake Park because of the liquor store. Mr. Mielke responded that one of the costs associated with construction of the Galaxy Store was improvements to the park and that the city retains ownership of the park. Mr. Gerk questioned the property value placed on the stores, the rate of return on investments, and use of liquor revenues in the general fund. Council Member Little asked Shenehon if they could justify the 1% rate of return which was stated. Mr. Torkelson stated that is a rate over the next five years, based on today's economy. The rate is also predicated on the limitations of investing municipal funds. Council Member LaBeau asked about store locations, is it better to be in a freestanding building or in the end location of a strip -mall. Mr. Strachota stated that one problem in being in a mall is the lack of control of rent expenses. Mr. Torkelson added that the City has an advantage in owning since the City is able to borrow money at a lower rate. Finance Committee member Doug Anderson asked for clarification of the income statement from which the analysis is based. Does it include the interest cost on the debt; and how does it include the cost of capital that was originally invested. He stated he has a number of other questions and asked the Council to pass the report along to the Finance Committee for additional conversation and discussion. Mr. Anderson believed it might be helpful as citizens to become more informed, especially on the question of an additional store. Mr. Torkelson explained the formula for their analysis and stated the capital expenditure was included. Mr. Strachota added that they have appraised several private liquor businesses and from what they have found the Lakeville stores are running efficiently. City Council Work Session Minutes September 26, 2011 Page -6- Mayor Bellows stated that last fall the private vs. municipal liquor was a huge issue in the community, fueled in part by the perception that Costco chose not to locate in Lakeville due to municipal liquor. He feels the community values private sector vs. public and believes it would be worthwhile for the Finance Committee to look at the study, even though that was not the intent of the committee. He asked what the next steps would be for the Council. Steve Mielke stated that if the Council wishes to have a presentation at a Council meeting that could be arranged. The Council may or may not decide to move forward with the next phase. Council Member LaBeau stated that she would be in favor of the Finance Committee looking over the report. Council Member Swecker is concerned that they are committed to doing a lot of work with the budget right now and she would like them to focus on that. Council Member Little asked what instructions would be given to the Finance Committee if they were given the report. Mayor Bellow stated it would be to review the report and bring back questions if they have any - he would like their stamp of approval. LaBeau believes it would be a way of gathering more information, and approval or disapproval would be for the Council. Little asked if they would be approving the study or recommending what Council should do moving forward. He feels there should be some defined instructions for the committee. LaBeau stated she is not comfortable spending money on land without understanding everything about it. Little stated that Council has been given this information in order to make their decision about moving forward with municipal liquor and questions the purpose of the Finance Committee review. Mayor Bellows stated that as an advisory board he would like their input and feedback on the study. He believes the outcome of the study is clear but he does not want to go forward with expanding the liquor business without a united community. Swecker and Little stated that they would support review of the document by the Finance Committee with specific direction as to what their task should be. Steve Mielke suggested it might be helpful to have review, observations, and comment by the Finance Committee. Recommendations from the Finance Committee would be entering into a policy level area. To review the findings of the study and provide comments could be advantageous. The mayor and council members agreed. Mr. Mielke added that the study could be helpful in making a decision on expansion if it is determined to stay in the business. ITEM #3 — Lakeville Electrical Inspections Program As part of the 2012 -13 budget issues in June, Council reviewed the concept of whether to continue the electrical inspection program at the local level or return it to the State. At that time the consensus was to continue at the local level, but staff was asked to look at possibly contracting the service to a private vendor. Staff compared costs of an in -house electrical inspector with a contracted inspector program. Fiscally, the inspections program for the past couple of years has not brought in enough revenue to pay for the full-time position. Many neighboring communities have gone to a contracted position. During the State shutdown, several cities that depended on the State Electrical Inspections changed to a contract program in order to keep construction moving. A contracted service would allow the city to retain a percentage of the permit fees. This would allow for a guaranteed positive City Council Work Session Minutes September 26, 2011 Page -7- cash flow, however, lower service levels would be anticipated. Permit holders would likely be offered a block of time in which to set up an inspection, rather than an appointed time. Three options were identified for Council consideration. Option 1 would transfer the program back to the State, Option 2 would contract with an electrical inspector and issue permits through the City, and Option 3 would be to continue with the current program of an in -house electrical inspector. City Council believed that Option 2, a contracted electrical inspector program, offered the most cost effective service and directed staff to proceed with preparing an RFP. If inspections become busy again it would be possible to review the decision at a later date. Budget issues will be addressed at work sessions in October and November to adjust the budget if Council chooses. Council Member Little asked that the issue of ice rinks be readdressed. He requested that Parks and Recreation Director Steve Michaud prioritize the ice rinks and then look at options for a phased approach of reopening rinks. Mr. Mielke stated that the rink budgets fall into two different budget years. If Council directs staff to reopen rinks, revenue sources must be identified; the cost is approximately $7 -8,000 per rink, or about $35,000 total per year. The decision was made as part of the 2011 budget not to open additional rinks this year. If Council wishes to look at reopening rinks in the 2012- 13 season that would need to be added to this year's budget deliberations. Council Member Swecker asked if it would be possible to staff warming houses with volunteers. Mr. Mielke stated that it had been attempted a few years ago before the decision to close the rinks was made. The volunteer program was not successful. Little stated that he would like to see a prioritization of which of the closed rinks the parks staff would choose to open if they could open one, two, three, etc., without any trade -off for currently open rinks. Mayor Bellows suggested time be allowed at the October work session for this discussion. Mr. Mielke stated that it is not too late in the season to provide additional rinks if Council directs staff and determines a revenue source. JJ Ryan, 16024 Hubbard Drive, said he would welcome the opportunity to prioritize the rinks and start bringing them back. He asked if it would be possible to "share the pain" with another rink and open their neighborhood rink instead of another. Mayor Bellows said he would be willing to discuss that. Bill Messerich, 16162 Gunflint Circle, said he moved into Highview Heights because of the hockey rink being there. He believes the rink would be heavily used by the neighborhood. Scott Salmon, Havelock Way, also said he chose his lot because of its proximity to the ice rink. He stated that the LNHS assistant hockey coach also lives in the neighborhood and would like the rink reopened. ITEM #4 — Development Forum Issue Review Mayor Bellows stated that the document summarizing the results of the Development Forum was excellent. Steve Mielke had presented the document to the Parks, Recreation and Natural Resources Committee and to the Planning Commission. He identified administrative issues to be reviewed and policy issues. Some of the policy issues are simple City Council Work Session Minutes September 26, 2011 Page -8- changes and others have huge implications across the community. Some of the changes are already being implemented such as use of checklists and providing better information to applicants and educating them on the process if necessary. Some of the current procedures can be streamlined, i.e., shortening the process by not requiring the final plat to go through Planning Commission and Council if there are no changes from the preliminary plat. In response to developers requesting changes in the required design standards, Mr. Mielke believes the City must maintain a long -term approach for both aesthetics and durability. Mielke stated that developers had asked to be consulted in the decision - making process when changes are proposed. Issues discussed as a result of the forum included responsibility for funding of public infrastructure; when do some development fees get paid; and whether more high density housing is needed in the city. He believes the forum was very productive and will have positive impact on the city/developer relationships. Mayor Bellows also heard favorable comments from the public and believes it was a positive experience. Council directed staff to continue to implement the administrative process and to prepare for a discussion of the policy issues that will need to be addressed by Council. ITEM #5 — Park Dedication Fee Review In response to a request from the developer of Crescent Ridge Second Addition to consider reducing the current park dedication rate for that plat, staff is reviewing park dedication fees. Other communities have been surveyed to determine methods for arriving at fees, and if they have lowered their fees as a result of the economy. There are several methods that neighboring communities use to arrive at their fees, but no cities have lowered their rate. Council was provided with several options for possible action: maintain the same fees; review park dedication fees as part of the 2011 Parks and Open Space System Plan; take a south of the river average; reduce single - family rate to multi - family rate; or consider a combination of some of these options. All of the plats submitted in 2011 have paid the existing rate and additional plats are not likely to be submitted this year. Staff has received comments from both sides of the issue. Council Member LaBeau stated that as a member of the Builders Association she is concerned about the cost of lots. Council Member Swecker interjected that she had received two calls today and is wondering if LaBeau had spoken to the City Attorney about a possible conflict of interest regarding this issue because Shamrock (developer of Crescent Ridge) is her father. LaBeau stated that she had not spoken to anyone about it but does not believe she has any financial interest or conflict. LaBeau stated that she is concerned with a court case by the Builders Association a couple of years ago in Shakopee and Elk River concerning building permit fees. And she stated that there had been another case involving Bloomington that dealt with park dedication fees and the ten percent dedication requirement. She asked if staff had looked into those cases and considered them. LaBeau stated she is concerned with possible litigation over park dedication fees. Mielke stated that it is not just land value that can be taken into consideration but also long term needs as established in the park plan. He feels it is City Council Work Session Minutes September 26, 2011 Page -9- important to determine a methodology for establishing fair land valuation and park standards when determining fees. LaBeau asked about looking at building permit fees also. Mielke stated they will also be reviewed. ITEM #6 — Council Committee and Inter- agency Reports • Cedar Corridor Improvement Group There is significant discussions about identifying a revenue source for buses to operate on the new BRT line through Apple Valley and Lakeville. HiPP Work continues on administrative courts, sharing of equipment and training opportunities. ITEM #7 — Adjourn The meeting adjourned at 9:05 pm. Respectfully submitted, �Vx�" i . 160 J d' Hawkins Deputy Clerk Mark Bellows Mayor