#3 Update and possible action on proposed business incubatorEconomic Development Department Memorandum
July 25, 2011
TO: City Council
FROM: Vic Grassman, Economic Development Director
SUBJECT: Update and Possible Action on Proposed Business Incubator
Executive Summary
On Sept. 13, 2010, the Janesville City Council formally approved the use of funds
from TIF 22 to meet the 25% match requirement for a U. S. Dept, of Commerce,
Economic Development Administration (EDA) grant to fund the construction of a
business incubator. The 25% match included the contribution of 4.17 acres of
land valued at $125.000 (located at the SE corner of Beloit Ave. and Venture Dr.)
and $275,000 in funding from TIF 22.
Since that time, the project has moved forward with the hiring of MSA
Professional Services as the architects and staff further refining the project from
a site development perspective. Recently, two significant new cost factors were
identified: (1) the construction costs for this facility were projected to be
significantly higher than estimated in the original application and (2) the proposed
site had some issues which increased site development cost. The cost estimate
for the project has increased from $1.6 million to $2.262 million.To reduce the
cost impact the size of the building was reduced from 24,000 s.f., to 22,000 s.f.
by removing one of the manufacturing bays. This saved approximately $100,000
and is permitted by the EDA.
The EDA will not increase their $1.2 million in grant funding for this project and
therefore the funding contribution from the City is estimated to increase from a
$400,000 contribution to $962,000 ($837,000 in cash and $125,000 in land).
This would be a cash increase of $562,000. Instead of having a 25% match in
this project the City would now be contributing 44%. These funds would be taken
from TIF 22.
On June 23, 2011, Eric Levitt and I met with the EDA in Chicago to discuss this
increased funding need and other options. The results were as follows:
The grant program used to fund the incubator was limited in term and has
since expired. Therefore the EDA would not consider any additional grant
funding.
Withdrawing the application would not have any negative effect on future
grant applications; however, the City has incurred costs from MSA of
approximately $17,000 in A/E fees and approximately $10,790.00 in
application development costs.
EDA pointed out that the funds used for Janesville Innovation Center grant
were unique in that they only required a 25% match. Traditional and
current funding programs require a 50% local match. This means that if
the City wanted to withdraw the current application and submit a new
application for a $2.2 million project, the maximum grant funding we could
receive is $1.1 million with a local match of $1.1 million. Even with the
unanticipated cost increases, the City’s contribution with the current grant
in is $962,000, or 44% of the project
TIF 22 currently has a negative balance, but cash flow is sufficient so that the
district will go positive in year 2017 (19th of 23 year life). The district is projected
to have a positive cash balance of $3,634,530 in 2021, the last year of its legal
existence.
Assistant City Manager’s Recommendation:
I concur with the recommendation of the Economic Development Director. Even
though the additional funding request is significant, if we were to reapply with a
revised budget of $2.2 million (the current project estimate) our local share would
be 50%, or $1.1 million. This is approximately $150,000 more that the local
share with the increase in requested funding.
Economic Development Director’s Recommendation:
I recommend that the City Council approve the additional funding of $562,000 for
the following reasons:
As noted above, this one-time funding grant had a much lower local match
(25%) than their normal funding programs (50%).
City staff has re-engineered the site plan and modified the building so that
additional site costs total $75,000 due to poor soils outlined in a recent
geotechnical report.
In the application, the City committed to creating 45 new jobs in nine years
from award approval. According to our discussion with the EDA, failure to
do so while showing good intent is not likely to result in a financial penalty
to the City.
Due to the poor soil conditions, it is unlikely that the current site is saleable
for future development.
TIF 22 has sufficient cash flow to support the additional investment.
Background
The Janesville City Council initially provided authorization for staff to apply for an
incubator grant in Sept. 2009. The grant application was written by Doug
Venable (former Janesville Economic Development Director) with assistance
from the Northwest Regional Planning Commission (NWRPC) located in
Spooner, WI. The completed application was sent to EDA on January 26, 2010
which included preliminary construction budgets and related quantitative data.
The City was contacted in early July 2010 by the EDA who indicated that the
application was being considered for funding. However, a significant level of
information would be needed for the application to be complete. This was
expected within a very short time frame. The funding source was to the
Community Trade Adjustment Assistance program which was part of American
Recovery and Reinvestment Act of 2009.
A critical provision here was that the preliminary construction and related budgets
submitted in the initial application could not be changed. The EDA was asked
several times if the budgets could be updated and each time this request was
denied.
Due to the short time frame given to the City to complete the application
(approximately 12 working days), assistance was requested from the NWRPC
and their partner, Halverson Engineering in Black River Falls to provide
construction related costs to support the existing overall budget. The expertise
was based on their experience of running about 9 incubators in northwest
Wisconsin. NWRPC provided a basic building template that they felt was the
most efficient way to construct an incubator as well as preliminary operating
budgets and a very basic site plan.
The EDA grant was awarded to the City of Janesville in September 2010. Under
the terms of the grant, the City must begin construction within two years which in
this case would be August 2012. Pending Council approval, the project would
still begin construction in spring 2012.
cc: Eric Levitt
Jacob Winzenz