HomeMy WebLinkAbout03-12-2008r _ _ ,
TO:
Members of Sebastian • ouncil
FROM:
Al Minner, City Manag
RE:
LOPRESTI ECONO IC , OPMENT INCENTIVE PROPOSAL
DATE:
Wednesday, March ,
Tonight marks the culmination of negotiations that started well over two years ago with the
LoPresti Corporation, when they originally sought Sebastian as a potential location for their
enterprise. Much has transpired since that time and to avoid inundating you with paper and data
before this evening; recently, Joe Griffin and I have done our very best to meet with each member
of Council to bring you "up to speed" on the important decision which we are asking you to
consider this evening. }
Over the last few days, however, the Office of the City Manager has received a few inquires of
concern regarding the LoPresti Economic Development Incentive Proposal. These concerns are
to be expected and have legitimacy if they are purely rooted in the vices of government economic
incentives and the use of public dollars for public purpose. As an example, we recently
experienced these arguments on a County level concerning Piper.
Nevertheless, and in the sprit of full disclosure, I have prepared this statement to publicly review
the history of the LoPresti transaction and address remaining public questions and concerns that
have come to my attention.
AIRPORT ADMINISTRATION FACILITIES HISTORY
Upon my appointment as Sebastian City Manager, the City had already begun construction on
the $2.2 million Airport Administrative Facility. With hindsight being 20/20, 1 was in a position to
see the flaws in the Airport Administrative building concept. Having said that, I cannot say I
would disagree in its vision catalyst; which was to spur development in the 512-Triangle. Instead,
in September 2006, 1 petitioned City Council to consider using that facility as an economic
development incubator.
When Council supported this plan, the Engineering Department was moved to City Hall, opening
one wing of the building. Efforts to market the wing began. Some negatively critiqued the actions
that transpired. However, what I learned from the experience is that market value of the Airport
Facility was not what I thought Market value was lower. In the end, two formal RFPs were
conducted to solicit rental of the facility. From the first RFP process, only one aviation and one
non -aviation corporation submitted proposals. Those proposals offered, at or just under $8.00
per square foot.
As efforts to market the wing transpired, so too did the City's negotiations with LoPresti.
Negotiations continued to such an extent that more effort was placed into what my office
determined a more attainable and win/win scenario. In other words, as time transpired, the
LoPresti option presented itself to be the best alternative because if .it came to fruition, the most
goals would be obtained. Hence, my direction to staff was to work to secure a proposed lease
with the LoPresti Corporation where the City could (1) boast job creation; (2) bring target industry
to Sebastian; (3) solve the Airport Administration Facility riddle; (4) positively use FDOT grant
money without increasing air traffic; and, (5) keep the City financially whole.
On November 27, 2007, 1 submitted to this Council a Hanger Performa that outlined several ways
to use FDOT grant money. The core message in that correspondence was to generate interest in
the concept of using FDOT money to construction a speculative building. This idea would
minimize the public Investment needed to create economic development incentives for the City.
Shortly thereafter, the spec -building concept was re -proposed to the LoPresti Corporation and
their interest became increasingly strong, leading to the lease and rebate question before you
tonight.
PUBLIC QUESTIONS
Succinctly and direct as possible,.that history brings Council to the question at hand. In getting to
this position, Joe Griffin and I have done everything we can to keep Council equally informed on
this matter, both in writing and verbally. On Tuesday, I provided a written correspondence that
summarized all one-on-one verbal communication with Council. Still on Tuesday, I was made
aware of a number of questions and concerns coming from the public which merit additional
clarification. In a question/answer format, I will respond to those concerns:
IS THE LOPRESTI CORPORATION EXPANDING OR DOWNSIZING?
The LoPresti Corporation is expanding. Currently, LoPresti employs 15 and operate in a
combination hanger/administrative facility that shows the sign of age and wear/tear. They seek a
location that will promote a new aviation image and Kurt LoPresti is here tonight to talk about their
decision making matrix and why they picked Sebastian.
So, as the LoPresti Corporation takes on more work — which is the fabrication of aircraft
modifications such as cowlings, they plan to expand by hiring 30 people, bringing their total
employment number to 45. Based on the proposed economic development rebate, their rent will
receive an annual $8,400 reduction for up to ten years, if they employ 45 people within 9 months
of the commencement of the proposed lease (lease start January 2009 — job creation deadline
September 2009). These jobs are not intended and should not relate to "increasing" air traffic at
the airport. Rather, these are aircraft fabrication jobs, which is a Florida target industry.
THE ARTICLE IN THE PRESS JOURNAL REPORTED COMMITMENTS WITH VERO BEACH
UNTIL 2021. WHO WILL HONOR THE TERMS OF THAT AGREEMENT AND WHO IS
RESPONSIBLE FOR DEFAULT? DOES THEIR PAST CORPORATE RECORD REFLECT ON
HOW THEY WILL PROCEED IN THE FUTURE?
Obviously if the LoPresti Corporation felt staying in Vero Beach was in their best interest they
would stay. This, in my opinion, does not reflect on LoPresti, nor does it reflect on the Airport and
City of Vero Beach. LoPresti is familiar with their obligations in Vero Beach and are bound
contractually to handle those responsibilities. They will also be bound to fulfill any obligations
they agree to in Sebastian; making it is reasonable to assume, that if LoPresti signs another
lease, they have their business risks covered.
HOW CAN THE CITY COME UP WITH $1.4 MILLION TO BUILD A HANGER AND WHY
WOULD THIS HANGER BE GIVEN TO LOPRESTI?
This proposal finances the construction project with two FDOT grants. These grants are 80/20 in
format. Meaning, that for every dollar received by the state, the city matches it with $0.20. To
date, the City Council has two approved FDOT facility grant agreements in the amounts of
$800,000 and $626,000. By combining these grants $1.425 million in funding is available,
requiring a local match of $285,000.
With the $1.425 million and assuming approval of the lease, staff will shortly be proposing the
construction,of a 15,000 square foot facility. Council action will be required on execution of
design and construction agreements. However, before we get to that step, the lease should be
approved so not to put the City in a poor financial position.
At the end of construction, scheduled for January 2009, LoPresti will lease the facilities. LoPresti
will not own the facilities. The facilities proposed are being rented. The price - the Airport Wing
at $8.00 per square foot and the hanger at $2.00 per square foot, totaling a new revenue stream
for the airport of $44,400. Based on incentive credits, the annual payment may be reduced to
$36,000 per year. There is also a CPI inflator in the lease.
As a side note, the LoPresti revenue may prove to be one of the largest contributors to the Airport
Fund. Currently, the Airport Fund generates approximately $300,000 in rental revenues. Of
these funds, nearly 60% comes from the golf course. Next the Philipson developments and
Sheltair T-Hangers generate a large sum of revenue. At $36,000 annually, the LoPresti revenue
is significant.
However, because of the financial position of the airport, making the FDOT grant match is
difficult To address that, a plan has been presented to borrow the funds using the new LoPresti
revenue as a cash vehicle. Also, as of late yesterday, a secondary plan was realized that may
bring immediate cash to the Airport, if some financial priorities are changed.
SUMMATION
In closing, the Office of the City Manager continues to support the recommendation' that Council
approve the Economic Development Rebate and Lease with LoPresti. However, in answering
additional direct questions, this proposal is rooted in two philosophical arguments. Should
Council opt not to approve the lease, your decision can reasonably be rooted in the following:
WHAT IS FAIR MARKET VALUE AND IS THE CITY GETTING A FAIR DEAL?
It can be interpreted that LoPresti is getting a deal below market value. Fair market value
analysis can be disputed. No matter the source, an appraisal on fair market value is an opinion
on market conditions. Real "fair market value" is what an entity can actually realize.
Market value was not easy to determine. For example, typical commercial or professional space
may pay more than $8.00 per foot, but those locations are in primarily commercial corridors such
as US 1 or Sebastian Boulevard. While the airport is attractive, experience has proven that non -
aviation business interest has been limited. If this proposal is rejected based on failure to achieve
a "perceived" market value, I would offer these counter arguments to concerns of "undercutting"
the City:
1. Through the RFP process conducted, as recently as last year, target industry did not
pursue leasing the Administrative Complex for an amount over $8.00 per Square Foot
2. Common Area Maintenance (CAM) costs already exist and are paid by the City in terms
of ground maintenance, building maintenance and utilities. This is a hidden cost that is
already paid by the City. Why not include it as a portion of the incentive value? Further,
the LoPresti lease does require a pro -ration of utility expenses. Understand, that utilities
and other maintenance costs will not dramatically increase when the building becomes
filled. Having said that, this proposal starts to reduce our current CAM expenses.
3. In preparing the LoPresti agreement, the basic concept was to use the tools available to
provide business incentive. Those tools were FDOT grant money and the Administrative
Wing. Therefore, the guiding force to hold harmless the City was to:
.A. Keep the City financially whole;
b. Keep the FDOT grant assurances safe; and,
c. Structure an incentive package that would entice target industry.
All of the premises in these points and sub -points have been met and fairly address concerns of
underrating market value. In my opinion, the City is financially ' and operationally protected.
Therefore, the suggestion is made that market concerns are fairly and reasonable addressed.
In
SHOULD THE CITY "STEAL" BUSINESS FROM A NEIGHBORING COMMUNITY IN THE
NAME OF ECONOMIC DEVELOPMENT?
In closing, it is reasonable to question government's role in business development. If its not fair
to steal industry from community to community, is it fair to "steal" it from state to state? Further,
one could argue that anyway you split the hair; economic development is really spending public
dollars. for private purpose. In my experience, the economic development game is cut throat and
pits community vs. community and state vs. state.
However, the overriding universal belief is that the concept of economic development aims at
targeting specific industry, providing incentive to encourage industrial expansion, retention or
relocation; thereby, employing people, creating development; and, stimulating the local economy.
On a local level, this process happens in selected incremental steps. Toward that endeavor,
Section 166 of Florida Statutes, under home rule powers, provides economic development
authority to municipal governing bodies. At the end of the day, these questions are before you
this evening in the context of the LoPresti Lease.
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