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City Council - 08/18/2009 APPROVED MINUTES EDEN PRAIRIE CITY COUNCIL MEETING TUESDAY,AUGUST 18, 2009 7:00 PM, CITY CENTER Council Chamber 8080 Mitchell Road CITY COUNCIL: Mayor Phil Young, Council Members Brad Aho, Ron Case, Jon Duckstad and Kathy Nelson CITY STAFF: City Manager Scott Neal, Parks & Recreation Director Jay Lotthammer, Public Works Director Eugene Dietz, Community Development Director Janet Jeremiah, City Attorney Ric Rosow and Council Recorder Jan Curielli I. ROLL CALL/CALL THE MEETING TO ORDER Mayor Young called the meeting to order at 7:00 PM. All Council Members were present. II. COLOR GUARD/PLEDGE OF ALLEGIANCE III. OPEN PODIUM INVITATION IV. APPROVAL OF AGENDA AND OTHER ITEMS OF BUSINESS Case added Item XIV.A.1. Duckstad added Item XIV.A.2. Nelson added Item XIV.A.3. Neal added two items under Item XIV.B. MOTION: Nelson moved, seconded by Aho, to approve the agenda as amended. Motion carried 5-0. V. PROCLAMATIONS /PRESENTATIONS A. HENNEPIN TECHNICAL COLLEGE UPDATE Doctor Cecilia Cervantes, President of Hennepin Technical College (HTC), provided an update on the school's activities and reviewed the programs offered at the school. She noted HTC is the largest technical college in Minnesota with a total credited and non-credited enrollment of over 25,000 students. B. EDEN PRAIRIE BASEBALL ASSOCIATION CONTRIBUTION FOR BASEBALL FIELD UPGRADES Paul Thaden, Treasurer of the Eden Prairie Baseball Association, presented a check for$98,222.14 to Mayor Young as a contribution to fund upgrades at Forest Hills Park, Staring Lake Park and Nesbitt Park. Mr. Thaden thanked the City for their contributions to the association over the years, noting they recently built the new baseball stadium together with the City. CITY COUNCIL MINUTES August 18, 2009 Page 2 MOTION: Nelson moved, seconded by Aho, to accept the contribution from the Eden Prairie Baseball Association in the amount of$98,222.14 to assist with funding for outfield fencing at two fields at Forest Hills Park, irrigation and fencing at two fields at Staring Lake Park and fencing at two fields at Nesbitt Park. Motion carried 5-0. C. MILLER PARK BARRIER FREE PLAY AREA CONTRIBUTION Lotthammer said Mike Garvin and his family and friends in the community have been active in their fundraising efforts for the Miller Park Barrier Free Play Area. The City has received over$208,000 from them prior to this, and tonight they are contributing another$10,525 for the play area. MOTION: Case moved, seconded by Nelson, to accept the donation from the Tom and Kathy Miller Family Foundation in the amount of$10,525.00 to assist with funding for future development of the Miller Park Barrier Free Play Area. Motion carried 5-0. Mayor Young asked Mr. Lotthammer to extend the Council's thanks to the Garvin and Miller families for their contributions. VI. MINUTES A. COUNCIL WORKSHOP HELD TUESDAY,JULY 21, 2009 MOTION: Aho moved, seconded by Duckstad, to approve the minutes of the City Council Workshop held Tuesday, July 21, 2009, as published. Motion carried 5-0. B. CITY COUNCIL MEETING HELD TUESDAY,JULY 21, 2009 MOTION: Duckstad moved, seconded by Nelson, to approve the minutes of the City Council Meeting held Tuesday, July 21, 2009, as published. Motion carried 5-0. VII. REPORTS OF ADVISORY BOARDS & COMMISSIONS VIII. CONSENT CALENDAR A. MENARDS Second Reading of Ordinance No. 7-2009-PUD-1-2009 for Planned Unit Development District Review on 15.72 acres, Zoning District Amendment in the Commercial regional Service Zoning District on 15.72 acres, and Site Plan Review on 15.72. Location: 12600 Plaza Drive. (Ordinance No. 7-2009-PUD-1- 2009 for PUD District Review and Zoning District Amendment; Resolution No. 2009-47 for Site Plan Review) B. APPROVE SECOND READING OF ORDINANCE NO. 8-2009 AMENDING CITY CODE SECTION 11.51, RELATING TO STANDARDS FOR PROTECTION OF WETLANDS CITY COUNCIL MINUTES August 18, 2009 Page 3 C. ADOPT RESOLUTION NO. 2009-48 REQUESTING THE U.S. ARMY CORP OF ENGINEERS STUDY EROSION PROBLEMS ON THE MINNESOTA RIVER D. ADOPT RESOLUTION NO. 2009-49 APPROVING CLOSURE OF A SEGMENT OF RIVERVIEW ROAD TO PUBLIC USE E. APPROVE CHANGE ORDER NO. 1 FOR THE 2009 BITUMINOUS OVERLAY PROJECT F. APPROVE DRAINAGE AND UTILITY EASEMENT AGREEMENT FOR STABILIZATION OF TWO EROSION GULLIES IN THE LOWER MINNESOTA RIVER WATERSHED DISTRICT G. AWARD CONTRACT FOR REPLACEMENT OF TRAIL ON AMSDEN WAY TO CURBMASTERS INC. H. APPROVE CONTRACT WITH CERIDIAN CORPORATION AS HUMAN RESOURCES INFORMATION (HRIS) AND PAYROLL SERVICE PROVIDER I. ADOPT RESOLUTION NO. 2009-50 APPROVING GRANT AGREEMENT WITH THE MINNESOTA DEPT. OF PUBLIC SAFETY FOR THE SAFE AND SOBER COMMUNITIES PROJECT FOR 2009-2010 J. APPROVE AGREEMENT AUTHORIZING HENNEPIN COUNTY TO SUBMIT A GRANT APPLICATION TO U.S. DEPT. OF JUSTICE FOR AN EDWARD BYRNE MEMORIAL JUSTICE ASSISTANCE GRANT (JAG) K. APPROVE MUTUAL AID PACT WITH HENNEPIN COUNTY L. AWARD CONTRACT FOR CHAIN LINK FENCING AT VARIOUS PARK LOCATIONS TO PASS FENCE MOTION: Duckstad moved, seconded by Aho, to approve Items A-L on the Consent Calendar. Case asked if it was appropriate for him to vote on Item A. MENARDS since he did not vote on the first reading. Rosow said it was appropriate. Case asked if Items C and D have anything to do with the issues and concerns the MPCA has regarding the pond. Neal said it is all connected, and this is introducing a slightly new issue into that discussion. Case asked him to clarify the new issue. Dietz said there are three different erosion sites in the vicinity of the major wash out, and we are asking the Corps of Engineers to begin a study to determine what can be done to resolve the situation. Case asked who would be liable to pay for that. Neal said we hope it is the Corps of Engineers. Case asked if this is the area that is beneath the landfill. Dietz said the major erosion spot is southeast of the southeast corner of the landfill. CITY COUNCIL MINUTES August 18, 2009 Page 4 Case asked if that means there are no landfill implications. Dietz said he believes there are no implications in this case. VOTE ON THE MOTION: Motion carried 5-0. IX. PUBLIC HEARINGS /MEETINGS A. 2010 RECREATION FEES & CHARGES Neal said official notice of this public hearing was published in the August 6, 2009, Eden Prairie News. He noted this public hearing was something the City Council asked to institute into the budget-making process a couple of years ago. Staff is submitting the proposed fees and charges for inclusion in the 2010 budget. These fees and charges are part of the annual operating budget within the Parks and Recreation Department and help offset operating expenses. In 2008, $2,966,785.00 was raised through parks and recreation fees and charges. The official public notice was published in the Eden Prairie News on August 6, 2009. The fees and charges were reviewed by the Parks, Recreation and Natural Resources Commission at their August 3rd meeting. The Commission voted unanimously to recommend approval by the City Council. Some fees and charges are proposed to increase slightly to reflect increasing expenses and market changes. Neal said fees and charges are established for programs and services offered through the Parks and Recreation Department. In order to promote the programs and services that these fees and charges are associated with in a timely manner (approximately September), staff is requesting City Council approval. Ice time rates would go into effect September 1. All other fee adjustments would be made beginning January 1, 2010. Lotthammer said in most cases there is a very nominal increase in fees, primarily in recognition of increased operating costs. There were no comments from the audience. MOTION: Aho moved, seconded by Case, to close the public hearing and to approve the proposed Park and Recreation fees and charges for inclusion in the 2010 budget. Motion carried 5-0. B. AT & T CELLULAR TOWER-OLYMPIC HILLS by Buell Consulting, Inc. Request for Site Plan Review on 23.44 acres. Location: 12100 Pioneer Trail. (Resolution 2009-5 1) Neal said official notice of this public hearing was published in the August 6, 2009, Eden Prairie News and sent to 108 property owners. AT&T is proposing a new 100-foot cellular monopole and mechanical equipment building at the Pax Christi Catholic Community to provide improved cellular coverage for the surrounding area,particularly for the southeast portion of the City. The plan meets City requirements for setback and transition. CITY COUNCIL MINUTES August 18, 2009 Page 5 Neal said on June 18, 2009, the proponent held a meeting on the Pax Christi Catholic Community property to discuss a compromise for the relocation of the 100-foot cellular monopole on the church property. Representatives from AT&T Cellular, Pax Christi Church, the Senior Planner for Eden Prairie, and approximately fifteen neighborhood residents were in attendance. After significant discussion it was agreed that the monopole would be shifted approximately 170 feet south from its previous location, or approximately 30 feet farther south from the northwest corner of the building. This location provides additional screening of the monopole by the building itself and a stand of large trees just to the west. A monopole setback from residentially zoned property requires four feet of setback for each foot of tower. Based on the 100 foot tall monopole a setback of 400 feet is required. The proposed setbacks are 560 feet to the east, 600 feet to the south, 800 feet to the west, and 1,170 feet to the north which meets our code. Neal said the 120-day review period expires on September 17, 2009. The Planning Commission continued the review this project at its June 8 meeting so the proponent, church, and neighbors could meet on site and address the relocation of the tower from its original location adjacent to Purgatory Creek, as recommended in the Staff Report. The Commission voted 9-0 to recommend approval of the project at its July 13, 2009 meeting. There were no comments from the audience. MOTION: Nelson moved, seconded by Case, to close the public hearing and to adopt Resolution 2009-51 for site plan review on 23.44 acres. Aho said it looks like the height of the tower will be within the 150-foot level in reference to the airport and asked if that was correct. Jeremiah said she understood all the reviews have been completed at this point, and the tower has met the requirements. Neal noted Scott Kipp was involved in this project, and he is quite knowledgeable about the airport. Aho said it gives him comfort to know Mr. Kipp reviewed it. VOTE ON THE MOTION: Motion carried 5-0. C. PRAIRIE PHYSICIANS BUILDING by C.B. Richard Ellis. Request for Guide Plan Change from Office to Community Commercial on 1.24 acres; Zoning District Change from Office to Community Commercial on 1.24 acres. Location: 16570 W. 78'i' St. (Resolution 2009-52 for Guide Plan Change; Ordinance for Zoning District Change) Neal said official notice of this public hearing was published in the August 6, 2009, Eden Prairie News. The project requires a Comprehensive Guide Plan change from office to community commercial. Commercial guiding is appropriate for the following reasons: the site is adjacent to Highway 5; the site is adjacent to land guided commercial to the east; and site access is from the frontage road. No changes are being proposed to the existing building or site plan. The building and site conform to commercial zoning requirements. The 120-day review period CITY COUNCIL MINUTES August 18, 2009 Page 6 expires on October 2, 2009. The Planning Commission voted 9-0 to recommend approval of the project at the July 13, 2009 meeting. Jeremiah said that, while it states there are no changes to the building, there would be some minor exterior changes as well as substantial interior changes; however there is no building expansion or major exterior change. Peter Dugan, CB Richard Ellis, said he was available for questions. Kevin Brink, Welsh Companies representing Quello Clinic, distributed a letter from Quello Clinic, LTD, and said it is important the Council know the impact this will have on some of the Council's constituents. He said Quello was approached in 2007 about buying the building and they negotiated a one year extension of their lease in 2007 and a six month extension in 2008. He said in June they thought they had reached an agreement for a ten-year extension. At the end of July they got a 30- day notice to vacate the building, and they are here tonight to ask that the Council delay the actual change to January 1 in order to give them time to look for sites to relocate the clinic. He said they are not here to ask the Council to resolve the dispute, but they need more time in order to make an informed choice for their patients. Dan Grosskopf, Clinic Manager of Quello Clinic, said the clinic has been in the current location for 28 years and serves over 5000 families as a family practice and primary care facility. He said at this point they would have to relocate the staff to their Edina clinic because they do not have time to get another clinic location in play in Eden Prairie. MOTION: Aho moved, seconded by Nelson, to close the public hearing. Motion carried 5-0. Young said he understood the clinic's concern,but the Council is constrained in the grounds upon which we are entitled to make decisions. He asked Mr. Rosow to review the boundaries about timing and what the Council can consider. Rosow said the agenda item indicates that final action needs to be taken no later than October 2 when the review period under state law expires. If no action is taken by that date, the proposal would be automatically approved. The standard by which the Council is to evaluate development proposals is their compliance with the Comprehensive Plan and zoning requirements. The dislocation of a tenant and the disruption of business are not matters for the City Council under the purview of the zoning code and the Comprehensive Plan. If the Council was of the mind to delay action and gather more information, the Council could ask staff to bring back more information since you have until October 2 to make a decision without having a decision made for you. He said if the Council determined that any of the waivers that were part of the action were not appropriate, the Council could direct staff to develop findings of denial based on specific facts that say the waivers were not consistent with the Guide Plan and the zoning. In this case that would likely be a hard matter to draft because there aren't exterior changes to the building. He said the choices are to evaluate whether there is enough information with respect to the CITY COUNCIL MINUTES August 18, 2009 Page 7 proposal before the Council, and either take action tonight or direct staff to bring back more information. Regarding the parking requirements for the change from office to community commercial, Nelson said she would like more information on the number of trips in and out of the facility and the impact on the neighborhood housing adjacent to it. Jeremiah said this has been reviewed by all our departments including the Traffic Engineer. She said the changes from a traffic perspective are expected to be very minor. With regard to the residential area, the site does not immediately adjoin single family housing. The senior housing building is closest to the site. There is adequate parking and adequate access to the site. She said the notice for Comprehensive Guide Plan and zoning changes has been done. Nelson noted there are differences between community commercial and office and asked what kinds of things could go in there in the long term after the change is made to community commercial. Jeremiah said there could be retail and low- impact service uses. Nelson asked if there could be a gas station. Jeremiah said a gas station would require a different approval process. Nelson asked what kinds of things could be included if an entirely different building were constructed. Jeremiah said the site has a pretty limited size, so it would be service or retail uses such as a dry cleaner. Nelson asked how high a new building could go on this site. Jeremiah said we would not allow a substantial multi-story building because additional height would require additional parking. Rosow noted a site plan review would have to be completed and approved if any such changes were made in the future. Case said, in listening to the discussion, the reality of the impact is quite minimal, and he thought we seem to be getting into a landlord-tenant issue with the request from Quello. MOTION: Case moved, seconded by Aho, to adopt Resolution No. 2009-52 for Guide Plan change from office to community commercial on 1.2 acres and to approve 1 st reading of the ordinance for Planned Unit Development district review with waivers, and zoning district change from office to community commercial onl.2 acres. Young noted this is a difficult situation but we are constrained in what we can do and we can't simply put it off even though we may want to. We have to apply the same standards to every matter that comes before the Council;however, this does remain a small town in which relationships do matter, and he would encourage the owner and landlord to accommodate Quello as best they can. Duckstad said the Council does not have jurisdiction to resolve the issue presented, so his obligation on this is to address the motion. VOTE ON THE MOTION: Motion carried 5-0. X. PAYMENT OF CLAIMS CITY COUNCIL MINUTES August 18, 2009 Page 8 MOTION: Duckstad moved to approve the Payment of Claims as submitted. Neal said there were no Payment of Claims included with tonight's agenda because of a software problem. Nelson asked if the Payment of Claims will be available at the next meeting. Neal said it will be. Duckstad withdrew his motion. XI. ORDINANCES AND RESOLUTIONS XII. PETITIONS, REQUESTS AND COMMUNICATIONS XIII. APPOINTMENTS XIV. REPORTS A. REPORTS OF COUNCIL MEMBERS 1. Council Member Case Case said during the recent National Night to Unite event he was invited to come out and look at an outlot in a neighborhood. He said over the years we have had many issues with the ownership, maintenance and care of outlots. This particular outlot concern simply raises the larger question of do we need to have a classification system of outlots so they are not all treated the same. In this case the houses surround the outlot, and the neighborhood wants to have a field to play in. The neighbors are willing to mow it so the kids can use it. He said this clearly was a different situation than some other outlots such as those that are next to a City park. He would like to see this referred to the Parks and Recreation Department to review the possibility of a classification system for outlots. Young said he agreed we have had a variety of discussions about outlots over the years,but he didn't know how we would create the classification system. He thought certain decisions have to remain discretionary among staff, and his initial reaction is that it would be hard to have a finite number of outlot definitions. Case said he has seen enough of these situations that seem to be different to think there might be another way to view it. He thought a classification system might give staff more flexibility in dealing with these situations. Neal suggested Mr. Lotthammer and he talk about it and give a report back at the September 1 meeting about our current practices and the specific outlot in question. CITY COUNCIL MINUTES August 18, 2009 Page 9 2. Council Member Duckstad Duckstad said the Council is going to consider a report by Mr. Neal on the Prairieview liquor store lease later in the agenda. He said in the material Mr. Neal prepared he emphasized the importance of the revenue we need from the liquor stores. He said he understood the revenue will go into the CIP fund so he wanted to raise a request that Mr. Neal provide a list of the capital projects in the next two years which would be candidates to forego or postpone. Neal said he had that same discussion at the August 12 Budget Advisory Commission meeting, and he told them we would be taking a look at the list of projects in the CIP to see which additional ones can be postponed. He said he will compile a list and will share it with the Council. 3. Council Member Nelson Nelson said she is a member of the Southwest Light Rail Policy Board and they are sponsoring an open house tomorrow night from 6:30 to 8:00 PM at City Hall. She issued an invitation to anyone in the community interested in learning about the future of light rail in Eden Prairie to come to the open house. She said they will be making final decisions soon on where the stations and the light rail line are going in the community. B. REPORTS OF CITY MANAGER 1. November/December Meetin! Neal said we are no longer required to have a Truth-in-Taxation hearing but we are required to have a budget hearing. The Truth-in-Taxation hearing is usually scheduled on a particular day, and that date has been set for us by the state. This year we don't have to have it on Monday, November 30, as we scheduled,but rather can have it on a regular City Council meeting date which would be on Tuesday, December 1. If that is what the Council would like, we would need a formal motion to change the schedule since it is planned for Monday, November 30. Nelson said she would prefer to see it on a regular City Council night. She thought we get fewer people to come when it is on an off night. The rest of the Council Members agreed. 2. Xcel Transmission Poles Neal said Council Member Duckstad raised a concern about the condition of some of the Xcel transmission poles along Highway 5. Dave Lindahl, Mr. Dietz and he have been talking to representatives from Xcel for a couple of months to discuss what their plans were and what they can do to correct it. Xcel has told us there are about 63 poles with 38 of them in Eden CITY COUNCIL MINUTES August 18, 2009 Page 10 Prairie. It will cost about$23,000 per pole to paint the poles, and they are taking a look at that. They have agreed they want to get started on some of the painting work and will repaint four to eight poles this year. They will address the poles located in Eden Prairie first. 3. Prairieview Liquor Store Lease Neal said at the July 21 meeting the Council directed staff to do a couple of things. Staff has answered a lot of the questions and has had additional discussions with the mall ownership. There is a proposal included in tonight's packet along with additional information on the goldenrod paper. He said we started a couple of years ago to upgrade our three liquor stores. Staff is recommending we relocate the last store to be upgraded, Store#3, to the Snyder's location. It is our objective to create more revenue from our liquor system. He then presented graphics of the CIP revenue streams that showed liquor revenue at 20% of the total CIP revenue in 2007, 33% in 2008 and 47% in 2009. Because the market value homestead credit has been discontinued and interest income has drastically decreased, the revenue from liquor stores will have to increase to a little over 5 1% in 2011. Young said he didn't think anyone on the Council wants liquor revenue to go down, and he suggested Mr. Neal spend time justifying how the increase that might be achieved by moving would not also be realized if we remained in the current location. Neal said the scenario of keeping the store at the current location has some challenges. This particular store has its own submarket area. It has a larger market area than the other two,but we have less market capture in this area. We believe it is related to the size and location of the store and the diversity of the product we can offer there. The atmosphere and size of the store is impactful in reaching consumers, and we believe we have some good room to grow in this area. Young asked what year the City decided to reduce the size of this liquor store. Neal said it was probably 2003. Young said one of the pieces of information he asked for at the last meeting was additional information on sales at the different stores. He received that in two different formats for most years except for information for 2005. He said the information shows that the year we reduced the size of the store we had a 5.6% increase in gross sales. He asked if the data for the three stores in Table 6 is estimated or actual. Kotchevar said those are actual numbers. Young said at the last meeting the statement was made that Store 1 had a double digit increase following the move of that store, and he asked what period of time was captured in the data. Kotchevar said from July 2008 to July 2009 that store had a 14% increase. Young asked about the length of the current lease that is expiring. CITY COUNCIL MINUTES August 18, 2009 Page 11 Kotchevar said it is a one-year lease. The original lease was for five years and we renewed for one year to give us time to negotiate a different size space. Young then said the one year lease was at$16.50 per square foot and asked what it was at the end of the five year lease. Kotchevar said it was approximately $16.00. Young noted the ten year lease proposal is at$21.50 per square foot and asked if that is the current commercial market rate. Frank Sherwood said he is the agent for the City and would prefer not to answer questions that are in the purview of the landlord; however he would refer it to Mr. Sontag, the representative of the agent, who is present tonight. Neal asked Mr. Sherwood if, in his estimate, we find that number in the marketplace. Mr. Sherwood said people located in that strip mall are paying substantially higher rates than that,but all real estate locations are unique. Young said he would like to know if, in this environment in 2009, rents are going up by that magnitude. Duckstad said he would like to know the approximate rate we should expect to pay so we can compare the rates and see if this is in the ball park. Mr. Sherwood said we started the process back in June of 2008 and that resulted in the $10.00 net rate that the City was interested in. The $21.50 rate is not unreasonable for renewal on a shorter term or smaller space. Duckstad then asked if, under the terms of the lease for our present situation at this store, we have time to delay this matter long enough to make sure we can negotiate this at a competitive rate. Mr. Sherwood said the lease expires on September 30, so it would be up to the landlord to allow a holdover. Duckstad asked if we could get more time to make sure we are on the mark and doing a good job of negotiating the lease. Rosow said the lease terminates on September 30 so unless the landlord granted us more time we would be in default and they could take action to have us removed from the premises. Case said it feels like we are analyzing a great deal to death. Our City staff and the experts are saying we should go ahead. We have an opportunity to grow the liquor enterprise operation to the great benefit of the taxpayers. We have one of the most successful liquor operations in the state. He was finding it difficult to understand why we are questioning the experts that we hired and our City Manager. He thought we would be hurting our taxpayers if we miss this opportunity. Young said there was an increase over the previous year sales in every one of our stores for the past nine years. By and large the increases have been pretty modest and he asked staff how to tease out from the numbers the fact that either proximity or size will allow us to grow the way it is expected. He said we are proposing to double the size of a store that has lagged the others in sales. He was just asking for someone to make the case to him so he could understand from the numbers why we should double the size of a laggard store. CITY COUNCIL MINUTES August 18, 2009 Page 12 Nelson said for the last two years she has thought we should move to this location. The store seemed to be too small, and she has moved her business to the Den Road store. Store 3 is not doing what it should be doing, and we have a responsibility to put out a good product in municipal liquor. The new location is very visible, the parking is very easy, and it is close to the grocery store. Several people stopped her after the last meeting to comment on this issue and to say we need to do something about Store 3. She said she didn't raise any questions about doing the change at the Kowalski site because it seemed like it was necessary. She didn't feel like she should question the move for this one either because it is a site with better and easier parking and with better visibility. She was in favor of moving to this site and making the best use of the space we gain there. She thought it seems like a reasonable cost for a better operation. Aho said this store is closest to his home and he thought it was kind of a tight space. He could see some benefits of moving it closer to Rainbow,but he was very concerned about going to almost double the size. He was not sure we can generate enough increase in sales to offset the difference in cost of the lease and the cost to start up. He asked what the startup cost would be. Neal said it is about $400,000. Aho said he had a hard time seeing we will come out ahead on that if we spend almost$400,000 on top of the extra cost for the lease. He also questioned going into a ten year lease when the Minnesota legislature may potentially change the law to allow wine and beer sales in grocery stores. The proximity to the Rainbow store would not be advantageous if that change happens. We have one option where the rate per square foot is a good rate,but it is an inordinately large space in terms of what our needs are. He would like to ask staff to get a temporary lease in the current space if we can get a holdover and stay there temporarily until we can find an alternate solution. Duckstad said all three of our liquor stores are now generating close to $1,000,000 for our capital fund. We have to come up with $400,000 to retrofit the new space at a time when we have a money crunch. That puts a further crunch on our CIP fund, and he was not in favor of the change. Case said back in 2005 the McComb group did a market analysis of our liquor stores and came up with several recommendations, including a recommendation to relocate Store 3 in order to increase the size and improve the access and visibility. We have an opportunity here to actually fulfill the recommendation from the consulting firm we hired. Aho agreed that we need a bigger store and we do need a better location as well as an upgrade to the fixtures;however,he was not convinced we need to double the size. He thought we should look at it and find another location. He didn't think staying in the current location is a long-term solution. CITY COUNCIL MINUTES August 18, 2009 Page 13 Case said we have an operation that is running really well and we are getting recommendations from the experts. He thought we are ignoring all the advice we paid for and are going down our own path and that didn't make sense to him. Neal said the Council has asked some good questions about how liquor stores operate,how the new location might be better, what happens with the new location, and how it would provide increased revenue. We have been relying on this 2005 report from the McComb group and have found it to be a reliable analysis and a valuable tool. He noted the author of the report, Jim McComb, is here tonight and could answer some of the questions. Young said the obligation of the Council is to take the recommendations from staff and consultants and utilize them to make good judgments. We are faced with a situation with timing that is imperfect and were given the proposal two months before the lease ends with just two options. We are trying to exercise judgment based on the data about sales. He didn't understand why we sell more beer and liquor at Store 3 than at Store 1,but where we lag at Store 3 is in wine sales. He asked why all these defects matter for wine sales but not for the other sales. Neal said this is not a consultant driven process or decision and Mr. McComb has actually given us some good advice about not doubling the size of the store. Mr. McComb said when his group began the analysis most recently they went back to the previous report and looked at Table 7 in the memo included in the Council packet. When his group did that report they made a reasonable effort to make a reasonable projection of what the sales would be at the three stores going forward. They looked at and compared it to the actual numbers included in Table 6 and found that the stores were outperforming the estimates,but Store 3 was outperforming by less. In the retail business market share is the name of the game. They had projected Store 1 would have increasing market share in its old location, Store 2 would have slightly decreasing market share, and Store 3 would have stable but slightly decreasing market share. The challenge for Store 3 is that it is small and doesn't have the same selection as the other stores. It doesn't have the same pleasing environment of the other stores and customers notice that. The Snyder store space has more space than is needed so their recommendation to the City was to not merchandise the entire space and possibly use only about 8000 square feet or less, similar to the Den Road store. The three liquor stores are capturing about 40% of the market share so there is a nice base of business. Store 3 could do better if it had more display space and more merchandise. He thought$10.00 per square foot is a good deal and what staff is recommending makes sense. Nelson said Stores 1 and 3 are actually fairly close and having a third store has costs. She asked what would happen to our overall market share if we only had two stores. McComb replied the market share would go down. She asked if it would be worth getting rid of a less appealing store to get rid of CITY COUNCIL MINUTES August 18, 2009 Page 14 the expenses, or would we be better off to enlarge the store and turn it into something it really should be. McComb said the stores survive on the draw of the supermarkets. Cub has the largest trade area and the greatest draw so that store has the largest volume. Rainbow is a different market so it has its own customer base. The Rainbow customers would have to go somewhere else if you close Store 3, and they would not all transfer to one of the other two stores. Neal said we had that scenario analyzed in 2005 and at that time closing Store 3 would result in additional sales in the other two but not enough to compensate for the loss of business at Store 3. Neal noted Mayor Young had a question about the importance of wine and Mr. McComb indicated in a couple of places in his report the importance of shelf space devoted to wine. McComb said the one thing that defines the difference between liquor stores is the selection of wines they can offer. The linear space devoted to wine is what differentiates a store. Stores located in less affluent areas have less wine and more beer. In an affluent area it is good to have the ability to offer a full range of wines in a variety of price points. Duckstad said according to Table 7 Stores 1 and 2 have been enlarged, and he noted sales at Store 3 seem to have been competitive with Store 1. McComb said Store 3 has a slightly larger trade area but it sells less volume than Store 1. Duckstad said even though Store 1 was enlarged, Store 3 is competitive with it. McComb said it is close,but Store 3 has gaps in its performance and the difference is the wine. Mitch Dean, Liquor Operations Manager, said he took a look at some of the numbers regarding wine at Store 3. We have about 1/3 fewer varieties of wine because of the size of the store and what we can fit into it. It is a little less convenient for customers to shop there and a little more confusing. If we expand that store we would certainly be able to bring in many more types of wine like we have at the other locations. We would bring in more of those products and would have a better ability to sell wine. He noted our greatest markup is on wine. Young said we are all very happy and proud of the liquor store operations and the stores themselves. Neal said he regrets that staff has not been more convincing tonight because he thought this is the right thing to do. We can see from the numbers the store is profitable but it should be more profitable. He thought this strategy is a great way to get more in that market area. We have done the analysis over the years that three stores is the right number for the community and the stores should be located next to grocery stores. Matt Sontag, United Properties, said they very much appreciate the tenancy of the City and the liquor store in their shopping center. They very much want to reach an agreement that is good for both of us because they want the liquor store to succeed. CITY COUNCIL MINUTES August 18, 2009 Page 15 Aho said he spoke to Mr. Sontag earlier today, and he asked if there is any way to subdivide the space and not take the full 9400 square feet. Mr. Sontag's answer was there really isn't a way to do that because of the depth of the space. Young said the information we got today was helpful but he was frankly not happy with either of the two options before us. Nelson said looking at the amount of money we will pay for a new lease it seems to be about$350,000 more in rent. If we stay where we are we will do similar business to what we are doing now, so ultimately that comes out of our profits. That will mean about a 1% increase in taxes, and she didn't want to do that this year. She thought if it is a matter of either increasing business or raising taxes and she would go with increasing business. Case said he understood the reticence to expend taxpayer dollars on anything. He thought seeing where we are in this current space looks flat and stagnant as we project out the revenues. He would like it to have less space and be next to Rainbow; however nobody knows the future. The experts we surround ourselves with say it is a good thing to take a chance on. We are at a point where it is a matter of spending taxpayer money with one route,but if you don't do that you will not get the revenue and will have to tax more. He thought it is a very reasonable,rational step to take with assurance from the experts who say it is a good deal. Young said he understood both sides of the issue,but he thought we should be accurate with the numbers. The real question is will the growth trajectories be different at Store 3. Duckstad thought we did the right thing to fully discuss the matter but in the final analysis he was not persuaded to support the motion. Case said he didn't fully understand what our alternatives are if we don't support the motion. He agreed it was not the best to be in this position and it feels like we are being rushed. Young said we have a lease that is up in six weeks. He saw under the current ten year term proposed lease there is some tenant improvement and City contribution dollars included. Kotchevar said that is the projected cost to remodel the current space which she based on the costs for the new space. Duckstad asked why the space could not stay the same instead of upgrading it. Kotchevar said it could stay the same. Neal said the options are that you could approve the proposed lease to relocate, or you could direct staff to go back and finalize a lease to stay at the current location because we haven't completed the negotiations on that. The Council could also direct staff to find another location. He said there was a period of time when we were at odds with the owners of the mall and CITY COUNCIL MINUTES August 18, 2009 Page 16 were diligently looking for other locations but could not find another location that worked as well as this mall. The Council could also decline both lease proposals and ask us to close the store. He thought it would be wise to make that decision no later than September 1 in order to give notice to the owner and do something with the product and the store employees. Case asked about the annual net off this store. Kotchevar said it was $160,000 in 2008. Case said that means we would have to come up with 0.5% of new revenue to cover that. Young noted that revenue goes into the CIP, not general revenue. Aho said there are a lot of up front capital costs to expand the store plus there will be increased rent, and that store contributed roughly $200,000 of profit. It will hopefully have increased sales,but the question is whether that is enough to cover the increased cost. Neal said we would expect the new location would do $30,000,000 in sales in a ten year time period. Young was not convinced closing the third store is a good option. He would like to see head-to-head five-year proposals for the two spaces and some idea of whether a third location is a possibility. Aho said he would like to see an option for a seven year lease in the Snyder space and also would like to see a better negotiation of staying in the current space and a better idea of the cost to spruce it up a little to make it more in line with the other stores. He was not in favor of closing the store because we need three stores and this is a good location. Duckstad agreed and thought we should make one last concerted effort to do these things and get the additional information. Neal said staff will do that. Young asked if that would mean we would also postpone Item 4 to September 1. Neal said we would postpone that as well. He noted staff will need every day possible to work this up so the information may come out later than the regular packet. 4. Agreement with Scott W. Baker Associates Inc. C. REPORT OF THE COMMUNITY DEVELOPMENT DIRECTOR D. REPORT OF PARKS AND RECREATION DIRECTOR E. REPORT OF PUBLIC WORKS DIRECTOR F. REPORT OF POLICE CHIEF G. REPORT OF FIRE CHIEF CITY COUNCIL MINUTES August 18, 2009 Page 17 H. REPORT OF CITY ATTORNEY XV. OTHER BUSINESS XVI. ADJOURNMENT MOTION: Duckstad moved, seconded by Case, to adjourn the meeting. Motion carried 5-0. Mayor Young adjourned the meeting at 9:36 PM.