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HomeMy WebLinkAbout1997-07-16 Council Minutes - Work SessionKENAI CITY COUNCIL WORK SESSIC JULY 169 1997 KENAI CITY COUNCIL CHAINBERS 8:45 P.M. Council Present: Williams, Bookey, Swarner, Measles, Bannock. Council Absent: Smalley and Moore. Stall' Present: Freas, La Shot, Frates, Burnett, Ernst, Semmens, Kornelis, McNair. Others Present: David Lucas, Peninsula Clarion. Topic of Discussion: Engineering Support Inc.'s (ESI) Development Proposal for a Structural/Industrial Fire Training Facility. City Manager Ross referred to his memorandum which was included in the work session packet. He explained there were two issues involved with the development of the ESI facility. (1) the site; and (2) development of a non -potable well. is Site: Ross explained, administration recommended the ten -acre parcel, back from the UAA lease, be used for the ARFF and ESI sites. Instead of sectioning out a piece of property for ESI, administration now recommended the land not be sold back to the Airport Land Fund, but leave it as General Fund land until it is known how the site development proceeds. The maximum impact would be that $2,400 could be lost next year in interest. The flexibility of not having to resurvey, replat, etc. is more of an advantage. Well: Ross explained, he felt the city should investigate placing a non -potable well on the location. A change order would have to be made with the ARFF contractor because the city would have to negotiate with FAA as to what portion of the work would be grant eligible, what portion could be picked up by Airport Lands, and what portion would be General Fund (because of ESI's location). He added, he felt this would be the cleanest way to do it. The problems experienced with low water pressures on hot summer days would be increased if the city system were used to fill the ARFF tank. Administration recommended the city drill a non -potable well to meet the fire training needs of both ESI and ARFF. • • KENA! CITY COUNCIL WORK SESSION JULY 16, 1997 PAGE 2 0 n oal441.t.,.eego-AW-ina Ross referred to the information included in the packet in regard to negotiations with Mr. Ranc of ESI. Ross explained he met with Ranc on July 5 and they discussed ESI's proposal. During that meeting, Ranc agreed the proposal they first brought was not up for discussion. Ross reviewed the points of negotiation with council — remembering that ESI and ARFF were two different concepts. 1. ESI requested a 30-year lease at $1.00 per annum: Ross noted, the normal lease rate for the property would be approximately $250 per year. Administering a $250 lease, with appraisals, etc., the amount would not be recovered because the property would need reappraising every five years. Administration had no problem with the $1.00 per year rate. 2. ESI requested five-year relief from property taxes: Ross noted if an ordinance was adopted, similar to the borough's, taxes would run from $1,750-$3,500. Full relief would be $3,500-7,000. Ross and Semmens were not enthused about setting that precedent. At this time the city had no ordinance which would allow the relief. Ross added, he didn't feel the relief would be a deal -buster when considering the amounts affected to the city. 3. ESI requested the city provide water supply, lines and hydrants to the site at an approximate cost of $20,000. Administration feels nothing should be provided on -site, only lines to the site. Hydrants would be provided by ESI. As part of a negotiation item, they are reviewing hydrant repair and maintenance because the city is the only sourrce that does it in the city at this time other than a private contractor. 4. City wants ESI to be responsible for all their site development, i.e. pad, concrete, etc. 5. The City would be responsible for utility extensions to the site. Enstar has not responded whether they can extend a 2" line to the site. Ross added, Administration is aware the 2" line would not be extended in the configuration that gas lines are normally extended because of looping requirements. ESI is in direct contact with Enstar. 6. ESI would pay all domestic utility charges to their site. None are anticipated. • KENAI CITY COUNCIL WORK 3E3SION JULY 169 1997 PAGE 3 7. ESI would provide industrial/structural training to the Kenai Fire Department at no charge on a space available basis. It is a way to recoup (over the years) what the city will have put into it. 8. Specific standards of performance would be included in the contract, i.e. operation, local management, etc. Ross explained he had priced out what could be recovered by the city based on projected students in the next 1-1/2 to 2 years of sales tax. Ross reported Ranc did not have any objections to the concept. Council gave their feelings on the lease and property tax. No. 1 (30-year lease at $1.001: Measles stated he had no objections to Administration' proposal. Bookey agreed it was the cleanest way in which to do it. No objections. No. 2 (five-year relief from property taxes): Finance Director Semmens reviewed the structure of the Borough's ordinance. Semmens explained 50% of the assessed value of the property would be exempt from taxation up to five years. In order to qualify, . the property could not have been previously taxed as real or personal property by the Borough; must be used in a trade or business in a way that creates employment in the Borough; generates sales outside the Borough of goods and services produced in the Borough; or materially reduces the importation of goods or services from outside the Borough. Williams noted if the city would create an ordinance patterned after the Borough's ordinance, it would give ESI a 50% reduction of taxes for up to five years. If the city would create an ordinance of its own exempting 100% for up to five years, the ordinance would have to stand for other companies coming to- the area with_ a business unlike others in the city. Williams asked for clarification offering the following example: If a retail company moved into the city and there was a 100% exemption in place, would a second retail company be able to qualify for the same exemption. Semmens stated he didn't think they would qualify under the Borough's ordinance. He added, the idea was to be an attraction for a totally new business but it would not be fair to an existing business if a tax exemption was given to a business to entice them to the area in order to put the first business out of business. The Assembly makes that determination. He added, he believed the ordinance was created in anticipation of a plastics plant being developed in Nikiski. He was not aware of the Borough ever using the ordinance. • • KENAx CITY COUNCIL WORK 9E39ION JULY 16, 1997 PAGE 4 Williams suggested the city's ordinance be patterned after the Borough's ordinance in order to limit it to 500/6 for five years and use it as a negotiable item. Ross answered, he did not think that would be a problem as the dollar amounts were not that high (approximately $3,500). Williams asked if council agreed with that point. Bannock stated he did not as there was a value at issue. He did not want to offer the exemption as the city was not an overtaxed government organization. Williams added, the city would make up the difference in sales taxes collected. Bookey stated the sales tax was not the only concern of the council. The multiplier going through the community will be more significant, i.e. hotels, restaurants, rental cars, etc. To him, that was where the benefit of financial gain would come into play. Bookey stated he had no objection to offering a tax exemption. Swarner stated, she thought the city's ordinance should be patterned after the Borough's ordinance for continuity. Measles stated he didn't have objection to it. He added, if there was some confusion in the ordinance as to what type of business would qualify, it should be reviewed and • perhaps re -word the city ordinance, giving the city's ordinance more strength. Bookey agreed. Ross asked, as far as discussions with ESI, he could pattern their discussions after the Borough ordinance as far as the monetary portion. Measles and Swarner stated their agreement. Bannock objected to that being said to ESI as the city had not passed such an ordinance at this time. Williams stated, council could direct Administration to prepare the ordinance and present it to council for introduction at the next meeting. Bannock agreed, but the city would determine whether the tax break would be offered and, in negotiations, could not offer the tax break if the ordinance had not yet passed. Williams agreed and stated, council could ask Administration to prepare the ordinance for council review and indicate in negotiations the ordinance would come to council for action. Bannock stated, what could not be said is that Administration could not say it would be offered. Ross agreed and added, they would state in negotiations the ordinance would be considered by council. He added, the dollar amounts were not significant. . No. 3 (Supplying water supply, etc.): Ross explained, assuming ESI's numbers were on line, he believed council could anticipate in the second year generation of $300000 a year in sales tax. Ross added, if council agreed to put in a non -potable well, the city would feed ESI off of the 20,000 tank of the ARFF facility. ESI is requesting the city provide the lines, hydrants, etc. Ross stated, Administration proposes the city would KENAI CITY COUNCIL WORK SESSION • JULY 16, 1997 PAGE 5 • • provide the lines to the border of their site and ESI takes care of the rest. The city would provide the sewer effluent from their site to the system. Anything on their site would be ESI's expense. Ross added, an issue they discussed, but not included in this information, was the city would provide hydrant maintenance and repair. The advantage to the city would be ESI offering fire training at no cost to the city. Bookey asked if the $20,000 was just to the site. Ross answered, it was an estimate and did not include the hydrants. He added, Administration was very comfortable with`this amount and would cover the supply line and the line to the sewer system, which was high. The amount to cover the cost from their property line to their site was not known. La Shot stated, at this time, they did not have enough specifics to develop that amount. Williams asked council if they were comfortable with Administration's proceeding with this item. Bannock stated he felt opposite on this item as to Item. No. 2; he stated he did not have a problem in paying for their infrastructure as it is paid for when it is done. He added, he would support Item No. 3. No other comments were offered. Item No. 4 (ESI site development): Williams noted this was self-explanatory and no objections were voiced. Item No. 5 (utility extensions to the site): Ross stated these were envisioned to be gas and electric. They would be placed to the property line. The gas situation is because natural gas can be used instead of propane. It may not be cost effective for them to use natural gas based on their volumes and what Enstar can provide through the present pipe. The alternative is for the city to run the propane line to the site and they would feed off the propane. It could be operationally cheaper over time to goto. natural gas from propane. Ross added, Administration did not have those costs. If there is a great expense in running natural gas to their site, it would not be an option for the city. If it's a 2" line as a way to feed ARFF also, it would not be a problem. Williams asked if the city should advise ESI that Enstar would not be the only potential supplier in regard to the common transportation system for gas through the lines. Ross stated he was not sure they would get into that discussion. Williams asked if the city would advise them of the potential to negotiate with other gas suppliers. Ross answered, if ESI ends up not using natural gas on the site, it would be as a result of negotiations with Enstar because they would be running a 2" line to the site and having a tank system to give them a reservoir to get their pressure. Before Enstar goes to that expense, they would have a negotiated agreement with ESI. Williams referred to the electricity service and asked if anyone had discussed electrical service to the entire site with HEA. Williams added, HEA was to put in a • KENAI CITY COUNCIL WORK SESSION JULY 16, 1997 PAGE 6 substation and when it was proposed, there was no development being discussed such as this project. Williams asked if HEA was aware of how much extra load would be needed. La Shot answered, HEA was aware of the project and they would be getting a full set of plans to review. He added, the substation had not yet been designed and would not be built for another two years. Bookey stated, there was a gas line to the site already. Ross agreed, but it was not the size required. Rose added, the two inch pipe would not give ESI the volume needed. La Shot added, the water system was a similar problem. ESI would need a storage tank. At this time there is two-inch gas pipe down Marathon Road that would give the volume ESI will need. Ross noted, ESI's engineering stated to him today, the two-inch pipe would not work. Bannock asked, in Item No. 5, the city would not be involved in the proposed storage tank. Ross answered, no. Bannock asked, if the city was responsible for getting the two-inch line to the site, it would be ESI's responsibility to create the storage tank to meet their needs. Williams answered, he thought they were asking the city to provide gas service to ESI which may require the storage tank or a larger line. La Shot answered, yes. Ross stated, his position would be the city would bring the two-inch • line to the site and the storage tank system would be ESI's responsibility to negotiate with Enstar as it would be cheaper for the city to bring in propane. However, ESI's operating costs on propane would increase. Ross stated, he would like ESI to come back to the city on this item, after they discussed their needs, etc. with Enstar. Williams stated, council would let Administration work on this item more. Item 6 (ESI paying domestic utility charges): Williams stated, he didn't think council had any problems with this item. There were no council comments. Ross added, ESI had already indicated they wouldn't have any domestic uses. Measles asked why ESI was concerned about domestic utility charges if there would not have any. Ross answered, ESI was very interested in providing management of the ARFF. If ESI would enter into a management agreement for the ARFF, they wouldn't be putting in toilets into their industrial/ structural facility site. Williams added, all they would have is a burn building and props. They would be using the classrooms in the ARFF building. Williams suggested holding this discussion until they get to the management agreement discussion. Item 7 (fire industrial/ structural training to city): Williams stated he didn't think council had any objections to the free training. Item 8 (performance standards in the lease): Williams stated these items would be • developed by the city attorney. • KENAI CITY COUNCIL WORK 3ESSION JULY 169 1997 PAGE 7 • Williams asked if there were any other comments in regard to the ESI proposal for the industrial/ structural school. Swarner stated she was concerned by the statements made during the last council meeting by one of the BP representatives regarding the current fire training school management. Ross stated the two were no related. He added, ESI would provide local management and was sure they would make that management satisfactory to industry. Swarner asked, at this time the University was managing the fire training. Ross answered, only at their own facility. Swarner added, there was nothing in these discussions that had to do with the University. Fire Chief Burnett stated, ESI had marketed with industry so they are aware of the concerns with the existing training facility. Williams added, they had extensive discussions in regard to the matter. Proposal for F�3I� ovide Management of the ARFF Facliitg►: Ross eicplained, Administration had investigated the option of proposing a lease of the facility and they found many problems and complications in trying to compute what a lease rate would be. They ended up discussing the matter with the Finance Director, Attorney, Fire Chief, Airport Manager and himself. They felt the cleanest way to do it was to have a management agreement. The city would hire ESI to manage the facility. Ross continued, they pulled the city's plan to determine how to structure a management agreement, on which the facility was developed. He requested Burnett to review the plan and revise it as propane costs had doubled and the student loading needed to be more conservative. Ross reminded council he had previously stated to them the city had potential of subsidizing the facility from between $50,000-$70,000 a year. The amounts Burnett generated were around $42,000. Ross added, they were. proposing a management agreement contract be developed between the city and ESI. The city would pay ESI $251,000 a year. ESI's variable, based on the other criteria in the plan, based on their business plan, Administration expects them to come back and state what their break-even point is in relation to the contract and at what point the city would get a percent return on tuition. If council agreed with that in concept, the reet of it would not be too hard to negotiate with ESI because as the city works on their points of negotiation (propane costs, domestic utilities, etc.), ESI would determine at what level of students the city receives a return. Ross added, instead of the city subsidizing, managing, and marketing the facility, the city pay a management contract amount and have an understanding what the city's returns would be. Returns would come from ESI renting classrooms for their courses, renting out the upper floor of the building, at a break-even point on student tuition, etc. Williams noted, the facility would then become a public/private partnership arrangement. Bookey stated, he thought this would be the best situation the city KENAI CITY COUNCIL WORK SESSION JULY 16, 1997 -PAGE 8 could be in. He added, he didn't want the city to try to run it and thought with ESI's caliber and the stature of their company, they would make a success of the building. And, the hotels, restaurants, rental cars, etc. would benefit. He added, he believed there was room for negotiation on both sides and that was good. Bannock stated he didn't have any objections to it as he thought it was a good way to handle the situation. He referred to Item I I, and asked, if ESI and the city would end their relationship, would this be something that someone other than ESI could do? Ross answered, they were not aware of another firm that would do this work. Williams noted, there would be 14 schools built by ESI and Symtron. However, there are large fire training schools in other parts of the country. It would not be beyond the possibility that some other school already in the business might offer a proposal if the city sent out an RFP. Ross noted, they researched what was going on in other programs like this one. ESI either is managing them, has proposals in to manage them, or they are being managed through the particular airport. ESI is also coming in to start a business and the city can negotiate the professional services contract with them. ESI won't come in if they have to compete with a tax dollar institution. He added, he didn't think going out for an RFP at this time was required or that it was appropriate based on the time lines in which to get the facility developed. Measles stated, that wasn't the question. Bannock agreed and added, he was just looking at a "what if situation. Williams stated, deciding to go out for an RFP would come in at the five-year period if there was a change in ESI management, etc. Measles stated, he would be more concerned if ESI would take the 180-day cancellation clause and walk away. He added, he did not want the facility sitting empty with no one to run it. The question is, within the 180 days, did the city think - there would be time to find someone else to come in and manage the facility and- keep it going. Ross asked if they would prefer a longer period that 180 days. Measles stated no, that was six months and thought that would not be a problem. Ross stated he wanted the six months and included that amount of time into the proposal. Williams asked if there were any objections to the items included in the proposal for ESI to provide management of the ARFF facility. Ross noted the city was committed for grounds maintenance; snow removal; and, structural, electrical, mechanical, plumbing systems of the building. ESI, as the manager, would be expected to take care of routine maintenance, janitorial, and grounds maintenance. Williams asked if the performance standards discussed was in regard to the training programs or, the use of the facilities or operation and marketing. Ross answered, the performance standards in regard to the training will be created by the board that is • KENAI CITY COUNCIL WORK SESSION JULY 16, 1997 PAGE 9 being set up. These are performance standards with regard to the management agreement, i.e. marketing, etc. Rose added, Ernst was obtaining other management agreements that ESI has with other facilities to review and possibly use. MOitiM81 Discnssioa: Semmens stated he reviewed the Borough tax exemption ordinance again. He thought the Assembly left the door open to make individual decisions as to bringing in competition. He added, council may want to word their ordinance so that it is more tightly controlled. Swarner and Bookey stated they wanted the ordinance was tightly controlled. Bookey added,'he didn't mind giving a tax exemption, but didn't want to give it to anybody who would be competing against a business already in the city. Measles suggested the ordinance state the specifics necessary for a business to be able to know immediately whether they qualify for the exemption or not before they come to council. Measles stated he would want the city's ordinance to exempt a business that is brand new, that is not competing with anything within the city - a new type of business. Not giving any unfair advantage. Measles added, the ordinance would drive the business to build their business on either city or Borough land. Semmens stated he would speak with the Borough Attorney and discuss the regulations they have in regard to the ordinance. Graves stated he wanted to know if they would pro -rate the ground from the building if the ground had been in private ownership. It was noted the state law refers to property which had not previously been taxed which would eliminate other properties. Semmens noted that if a new building was built, it would not have been previously taxed. Bannock stated his concem was that a company who wanted to build a business like another which had received the exemption, but ten years earlier, wouldn't be_ able to get the exemption. Williams stated the council could decide the business was different enough from the original business and could find them eligible for the exemption. Ross stated he would let ESI know council would take up consideration of an ordinance, but that the ordinance would be patterned after the Borough's and the maximum savings, with a $2 million investment would be $3,500. Williams added, it should be pointed out to ESI that the larger mill rate is the Borough's. Ross stated, they had alreadypointed out to ESI that it would be their responsibility to apply to the borough for the exemption. Measles added, this could be resolved through the proposal which the city is agreeing to do for ESI and the $3,500 exemption may not be an issue if the city drills a water well, runs utilities to the site, etc. 0 . KENAI CITY COUNCIL WORK SESSION JULY 161 1997 PAGE 10 • Ross stated, ESI had already taken those items as a given under their first proposal. He added, ESI had not agreed to what the city has in mind because they had not yet seen the information. However, the CEO had agreed with the concept. Williams stated he thought council should give Administration permission to proceed with the negotiations and the power to do what needs to be done. Bookey agreed and added, he didn't have objections to any of it as there was room for negotiations on both sides. He added, council wants the project to become a reality. Measles added, if it is to become a workable public/private partnership, both sides will have to give and take. If an agreement cannot be worked out now, it won't work in the future. B gUasts of Admiuistatioa: Swarner requested Administration to make a,sign stating "beach access" or "Kenai River mouth" to place along the Spur Highway going toward Spruce Street. She added, there were many people who don't know where the access is. The signs would help visitors to the community. Kornelis stated, the state would have to approve of the sign as it would be in the state right-of-way. Swarner referred to a request for donation to Kenai Peninsula Tourism and Marketing Council for a reception. Direction was given to the Clerk to again place the request in the August 6 packet for council to discuss at that time. ADJOVRNMENT� The work session ended at approximately 9:42 p.m. Wolf session notes transcribed by: Carol L. Freas, City Clerk nrMovw 111-0AL pAr! OY coutics. "421�0