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HomeMy WebLinkAboutBudget Advisory Commission - 04/12/2012 APPROVED MINUTES BUDGET ADVISORY COMMISSION MEETING THURSDAY,APRIL 12, 2012 6:00 P.M., CITY CENTER 8080 Mitchell Road EDEN PRAIRIE, MN COMMISSION MEMBERS: Chair Rick King; Vice-Chair Jon Muilenburg Commissioners: Annette Agner, Eapen Chacko, Dan Funk, Michael Morris, Chris Nylander STUDENT REPRESENTATIVE: Charles Adams CITY STAFF: Sue Kotchevar, Finance Manager; Tammy Wilson, Finance Supervisor; Steve Sinell, City Assessor; Dave Lindahl, Economic Development Manager; Jan Curielli, Recorder I. ROLL CALL/CALL THE MEETING TO ORDER Chair King called the meeting to order at 6:00 p.m. Nylander was absent. Morris arrived late. II. MINUTES A. BAC MEETING HELD THURSDAY, MARCH 1, 2012 MOTION: Muilenburg moved, seconded by Funk, to approve the minutes of the March 1, 2012 meeting as published. Motion carried 6-0. III. ECONOMICS OF CITY CENTER Kotchevar said she presented a brief introduction on the City Center at the last meeting. Steve Sinell and Dave Lindahl are here tonight to give an in depth presentation. Sinell gave a PowerPoint presentation on the economics of the City Center. He said several staff members have been working on this for awhile. The City had an inkling that C.H. Robinson plans to exit the building within the next year or two, and we want to have some options ready when that happens. He said the goal for the discussion would be to evaluate the positives and negatives of the various leasing/sale alternatives for City Center. He reviewed the history of the City's purchase of the building. He said debt was issued to finance the purchase in 1993. That was paid off in February of 2012. Budget Advisory Commission Minutes April 12, 2012 Page 2 Morris arrived at 6:07 PM. Sinell said the building was purchased for$5,700,000 in 1993, and renovations totaling $5,800,000 were made in 1994 before the City operations were moved in. Additional improvements totaling $3,900,000 have been made to date. He said the building has a total of 229,280 square feet, with 74,338 used by the City, 46,453 by the School District, and 67,333 by C.H. Robinson. The building is 30 years old and has been well maintained. Sinell said the School District lease runs to 2023,but they can leave earlier with notice. Their current base rent is zero and their current occupancy costs are $6.18 per square foot. The C.H. Robinson lease began in 1990, and they have an option to leave in March of 2014. Their current occupancy costs are $15.15 per square foot. He said for 2012 the City's occupancy costs are $0.45 per square foot. Sinell said we believe C.H. Robinson intends to leave in two years. School District 272 is reviewing their need for continued occupancy. He said we have the following possibilities for the building: lease the C.H. Robinson space to a new tenant; lease the C.H. Robinson and the School District space to a new tenant(s); sell the property to a real estate investor; or sell the property to a new occupant. He reviewed the following issues regarding leasing of the building: the timing of the new leases; the leasing commission; the capital investment needed to fund tenant improvement costs; the holding period; and the market reaction to the building and the space. Lindahl noted we have had some buyers who expressed interest. Sinell reviewed the cost impact of several scenarios including: no vacancy period where we have a new tenant on board when C.H. Robinson moves out; the C.H. Robinson space is vacant for one or two years; the C.H. Robinson and School District spaces are vacant for one or two years; the C.H. Robinson space is vacant indefinitely but the School District stays; the C.H. Robinson and the School District space are vacant indefinitely; or the C.H. Robinson, School District and City spaces are all vacant. Lindahl noted the School District space has been retrofitted for children's use and would have to be redone for adult use. Sinell listed the positives for the City being able to sell the building: it is well located and well maintained; it has adequate parking; and it is a flexible two-level office or industrial building. The negatives are: it is an unusual build-out; there would be $5-10,000,000 needed to convert it to new uses; and some timing concerns since it would need to be empty to renovate it. King asked if there would be a chance to sell the building and have a lease back of the City offices. Sinell said we could,but as the owner of the building we don't pay property tax and we would have to pay those if it were leased back to us. Morris asked about the key functional issues with the space. Sinell said the build-out is for nontraditional offices. Morris asked if the building does not work well for the City. Lindahl replied it works well for us because the location is great and the building is pretty Budget Advisory Commission Minutes April 12, 2012 Page 3 functional. He noted C.H. Robinson almost bought the building in 2004. Sinell said we looked at the possibility of building a parking deck at the time they were contemplating buying it. Lindahl noted we could use more parking spaces on the School District end. Funk asked if it is all black top on the back side. Sinell said there is not much space. We would have adequate parking for a traditional office use, but C.H. Robinson had intense brokerage operations and would have needed more parking. Lindahl said there are fewer options in the City for building a City Hall today. It is a unique situation for the City to have a building and be able to lease a portion of it. Sinell said there is not a lot of competition for a 67,000 square foot space. This large a space is unique; however, it probably doesn't lend itself to splitting the space into smaller units. It would attract users who need a big space. While C.H. Robinson is not perfect, the 20-year ride has been pretty easy for us. King asked if the Council wants an opinion or a study on this. Kotchevar thought there may be other factors to be considered such as getting into a more environmentally-friendly building or having a more cost efficient building to achieve the goals of the 20/40/15 program. King noted the building is paid for, and the projected costs don't get that bad for several years. King asked if it would be better if the School District goes out at the same time as C.H. Robinson. Lindahl said it probably would, but we don't know how we could encourage that. King asked if we know for sure the School District is leaving. Lindahl said staff met with the interim Superintendent and we believe they are waiting to see what the registration numbers are for the fall of 2012. King thought we might have to get them to renegotiate the length of their contract because we would need to know that if we lease the C.H. Robinson space. Lindahl said it does somewhat lend itself to a separate lease because it has a separate entrance. Sinell thought there are ways to do both. We might offer the right of first refusal on the space. C.H. Robinson had that on the School District space. King said he did not think now is a good time to bring the visual image of having a new building space. Lindahl said he didn't think that either. We tried a referendum for a new building in the City Center area sometime in the 1980's and that was defeated. We might consider a new space if this were not functional; however, this is the right time to have the discussion. Funk asked if the City is over or under spaced here. Lindahl said we are in pretty good shape. Funk asked if there are employees in other buildings around the City. Lindahl said there are some in the Community Center and at the Public Works building. Sinell said those are unique work spaces. Lindahl said the Police Department would like to have reconfigured space, but not more space. Kotchevar noted we have a lot of common area and open space. Budget Advisory Commission Minutes April 12, 2012 Page 4 King asked how the City Council wants us to present this. Kotchevar said the BAC should do a written report of what the positives and negatives would be for all the options. She asked if there are other things the Commission wants to look, at such as digging deeper into the numbers or what the costs would be for a new building. Chacko said it was hard for him to imagine a reasonable scenario for a new building. He said he would like to look through the numbers. He noted we do have quite a bit of time to work on this before we have to make a decision. Lindahl said we need to receive formal notice from C.H. Robinson that they are leaving. Agner asked if they would have any interest in vacating early. Lindahl said we would need to explore that with them. Chacko asked about Mr. Lindahl's comment that the School District's Spanish Immersion program is moving. Lindahl said they are seeing growth coming for the Early Childhood program that is housed in this building and that would require a reassessment. Lindahl said this building becomes even more attractive long term with the LRT coming near this location. That will help maintain the value of the property. Sinell said we are smarter now about accommodating the parking needs and estimating costs. Funk commented this is a very unique situation. Although it is an odd size to lease, it is a nice location and is set up for office space. Sinell noted when we moved here 20 years ago we had a lot of people coming through the building,but now everything is being done online. Lindahl said he has never heard any complaints from the public about the usability of the building. Many of the rooms get used by various community groups. Funk asked if we get much revenue from the Garden Room. Sinell said it is break even at best. Lindahl said C.H. Robinson wanted a food service. The Garden Room makes their money on weekend events. Sinell said it is available for the public to use for weddings and similar events. King said staff will get the spreadsheets to those who want them. He suggested someone make a grid presenting the options. We could do that before the next meeting and then finalize it at that time. Agner and Chacko said they would like to get the spreadsheets. Morris said it would be interesting to look at the building more from a revenue generator standpoint and see how we can maintain the revenue stream. He asked about marketing the Garden Room as an event center. Lindahl said over the years one of the complaints from the community has been there is no meeting space like a convention center. Recently the idea of a Convention and Visitors Bureau was suggested,but the reaction was why bother if there is no convention space. King noted the Garden Room has a weird configuration. Sinell said it is also hard to control the access though the building to the Garden Room. Funk asked what would be done with the space if we weren't required to have a food service. Sinell said it could be brought back into the mix and could be made into office space. Funk asked if the Garden Room and the atrium are dead space. Sinell said the Heritage Rooms on the lower level are heavily used and are part of the City space. Budget Advisory Commission Minutes April 12, 2012 Page 5 Chacko asked if the timing to replace C.H. Robinson would be two years. Sinell thought we could get a tenant now if we had a reasonable amount of rent. Chacko asked if it would be more marketable if the School District were not there. Lindahl said it would provide more opportunities. Funk said the School District space might be more important if a prospective tenant needed back office infrastructure. Lindahl said C.H. Robinson had a data center until they moved that out. He thought the School District space could potentially provide that sort of space. Sinell noted the building is very flexible, and there are a lot of options for the lower level. Agner suggested the lower level would work well for an on-site day care. Funk asked how many properties are on the market now that are this size. Lindahl said there are not a lot out there at the same size level. Sinell said one of the problems we have to lease this space is we are competing with everything from the airport to Ridgedale rather than just other Eden Prairie spaces. Lindahl said we will probably come to a decision pretty soon and we probably won't have the School District space resolved at that point. If we ended up with a prospect who wanted the School District space, that would change the picture. Morris asked about the total space for C.H. Robinson and the School District. Kotchevar said it is about 110-120,000 square feet. Morris thought it limits the options if we combine the two spaces. Sinell noted the lower level space is really a walk-out basement. Funk asked if it would be a comparable lease with CAM, such as C.H. Robinson has, given the market today. Sinell said it could get better as the economy improves. Funk commented it seems like a good deal considering what leases go for now. Sinell said it is a fair value. He noted the big difference in the various models is the time period with vacant space. Lindahl said everything is pretty negotiable. Funk suggested it would be an advantage to the City if the jobs from C.H. Robinson stay in town and we have a new business fill the space. He asked if there are any incentives to attract new business. Lindahl thought we would consider it and could factor that into the negotiations. He didn't know that we would go into it saying we want to subsidize it. King said it sounds like most of us want to keep the building and get the tenants at the best options. We can say that is our consensus even though we present the various options. We should try to figure out a way to put all the options on a grid that helps the Council see the picture at a glance. We already have a start to that but we should probably create a one- page chart that could be easily compared. We could add some commentary about each of the options. He thought the main options would be to sell or keep the building. He asked if the Commission wanted to wait to see the grid before adding the commentary now. Funk thought we could summarize some comments while we get the financial models. We could get a few thoughts together before the next meeting in order to move it along. Budget Advisory Commission Minutes April 12, 2012 Page 6 King asked staff to send out the PowerPoint presentation to Commission members. Muilenburg suggested we come to the next meeting with ideas and put it together then. King said we are not really on a deadline but he would like it to be completed by June. He asked Commission members to take the material and think about the options. We will combine our thoughts at the next meeting. Kotchevar suggested emailing comments to her and she could build the document. King suggested we also get detail about other properties that are vacant here in the City or in our metro area that are of similar size. Lindahl thought we could pull some of that together. Muilenburg said it would be helpful to have hard data on the current market rates. Sinell said we do have access to data that isn't public information for actual deals which can float a lot from the asking prices. He could give a sampling of the spread. King thought that would be useful. IV. MAYORAL AND COUNCIL PAY Kotchevar thanked Ms Agner for her draft report on the Mayor and Council pay. King thought the report was very easy to understand even though he was not at the last meeting. Chacko asked how the comparison cities were picked. Kotchevar said Lorene McWaters did an extensive survey of many cities, and the Commission decided last time they wanted to take cities with populations similar to ours. Agner said we wanted to get a common ground for comparison purposes. Kotchevar said she wanted to correct the information she gave last time regarding the technology stipend. The stipend is in recognition of costs incurred for equipment such as computers or cell phones necessary to conduct City business. Council Members can also request reimbursement for internet connection. They can also request reimbursement for mileage if they go outside the City limits. Muilenburg didn't think the mileage question was relevant because it is just an expense report item. Kotchevar said the technology stipend is added to their pay. Funk said whatever is included in their W-2's should be included. Agner said the third paragraph of her draft should probably be changed to reflect the new information about the technology stipend. After discussion, the third paragraph was changed to reflect the new information. King asked if they all take the internet reimbursement. Kotchevar said one of them takes a monthly reimbursement, and a couple of others take one periodically. King asked how Commission members felt about making a recommendation. Muilenburg said he thought we could put a recommendation together. For discussion purposes he put the chart together showing adjustments for inflation from the last rate adjustment in 2005. Agner was concerned we might just be continuing to build from a whim decision depending on how the pay was originally determined. King said he would like to see what Budget Advisory Commission Minutes April 12, 2012 Page 7 the group thinks. He thought we should make a statement if we think the pay should be raised and give them a little ammunition for an increase. Morris asked if we know when the rates were last adjusted for the comparable cities because it would be interesting to see if they are on the verge of doing increases. Kotchevar said she did not know that. Agner thought the first decision is to raise or not, and then decide how much to increase it. Morris said if we use those numbers it puts us in the middle,but he was concerned about how recently the other cities'pay rates were adjusted. Funk said it appears the special meeting pay makes the difference between the comparable cities. Kotchevar noted that council members in Eagan and Burnsville have the opportunity to have their health insurance paid for. Chacko noted a reference is made to health insurance on Page 4 of the memo. After discussion the Commission made changes to the paragraph that followed the 20-year average chart and to the paragraph on page 4 regarding health benefits. Chacko asked where the positive and negative points came from. Kotchevar said those were discussed at the last meeting. Agner said we were asked to also talk about other potential costs, although she did think it detracts from the report. Chacko said the method for the rest of the report involves considerations but this part seems different. King asked if the Commission thinks these are relevant measures for the elected officials. Morris said he didn't know of any place that has an incentive program for elected officials. Kotchevar said the Commission was asked to evaluate the positives and negatives of changing the Mayor's and Council Members'pay and to consider other things. Funk said to him the question is, at the end of the day do we want to compensate elected officials for their expense. If we do, are we truly providing enough to offset whatever expenses they incur. Agner said we don't know that and that is a criteria we have no information about. We do know that this is a contribution towards their expenses. Funk said he was coming at it from the standpoint that if our goal is cost recovery, we should provide a reasonable offset of expenses incurred. King said he believes we would like to make a suggestion that we increase the pay. He thought our pay rates are low for the responsibility levels that exist for cities of our size. We could move the rates up and still be in the middle range. The Commission then developed their recommendation to be included in the report before the positive and negative points on Page 4. Agner said she will send out the original. Kotchevar said she will put in the new version of the chart from Mr. Muilenburg. Morris suggested we make the changes and send it out to Commission members as a draft to review before the meeting. V. MONTHLY MEETING TIME Budget Advisory Commission Minutes April 12, 2012 Page 8 Kotchevar said four people voted for a 6:30 P.M. start time and one person for 6:00 P.M. Muilenburg asked if we need City Council approval to change to 6:30 P.M.. Kotchevar said she will check that out. VI. ADJOURNMENT Kotchevar said the next meeting is Thursday, May 3, at 6:30 P.M. MOTION: Morris moved, seconded by Chacko, to adjourn the meeting. Motion carried 6-0. Chair King adjourned the meeting at 8:29 PM.