Tax-Exempt Review Committee

Boards, Commissions & Committees

Tax-Exempt Review Committee - August 22, 2017 Minutes

Regular Meeting Tuesday, December 19, 2017

The December meeting of the Tax Exempt Review Committee of the City of Fargo, North Dakota, was held in the City Commission Room at City Hall at 1:00 p.m., Tuesday, December 19, 2017.

The committee members present or absent are:
Present: Dave Piepkorn, Jim Buus, Jessica Ebeling, Kent Costin, Bruce Grubb, Mayor Tim Mahoney, Chuck Hoge, Mark Lemer, Robert Wilson, Ben Hushka, Erik Johnson, Mark Vaux.
Absent: Broc Leitz, Jim Gilmour

Commissioner Piepkorn called the meeting to order at 1:00 p.m.

A motion was made by Mayor Mahoney, seconded by Jim Buus to approve the minutes from the October 24th meeting and the November meeting held on December 5th. Motion carried.

Application for Five Year Property Tax Exemption Made by Solid Comfort
Rick Laliberte from Solid Comfort addressed the committee. Mr. Laliberte also introduced Jason Larkin, owner and president of Solid Comfort. Mr. Laliberte gave a presentation about the company and information about the expansion. He said that they were founded in 1981 at the current location. They manufacture wood case goods for the hospitality industry, including Marriott, Hilton, Best Western, and My Place. He stated from 2013-2017 they have expanded at a compounded rate of 16.5%. Rick said that 65% of their product is produced in Fargo and the rest by a manufacturer in Winnipeg. He said they employee 100 full time employees.

Mr. Laliberte said that their reasons for expansion are capacity constraints, business growth, and business risk. Considerations for their expansion included three options. They are the current location or greenfield spaces in either West Fargo or Horace. They are expecting growth in the immediate and near future. Expanding at their current location would include a 67,000 sq. ft. addition. Mr. Laliberte said that expanding at their current location would accommodate their expansion needs and would be in operation 12-18 months sooner than at a greenfield location and would not require any variances. He stated they are asking for a 5 year, 100% exemption for the expansion. He said that they are looking at 22 additional hires in the first two years and 49 within five years. Mr. Laliberte said that the new positions would be manufacturing support, engineering, factory laborers running CNC automated machinery, and warehouse material handling and average wage would be a little over $15/hour.

Commissioner Piepkorn asked what the incentive, if granted, would provide for them. Mr. Laliberte stated that the incentive makes it significantly easier to do the expansion. He said they look at it as an investment in people, facilities, and processes. In answer to a question from Mayor Mahoney about concerns of the hotel industry not growing as fast in the near future, Mr. Laliberte said that projections are that projects will be strong through 2021. He said they are experiencing order backlogs. Commissioner Piepkorn said that Solid Comfort has been in business in Fargo since 1981, they have seen a lot of ups and downs and we are happy to have manufacturing in Fargo. In answer to a question from Kent Costin about what technology they are utilizing, Mr. Laliberte stated that they are using CNC machines; nesting routers and other technology. Mr. Costin asked a question about the cost of that technology. Jason Larkin said that the routers are between $300,000-$400,000.

Mark Lemer asked about the warehousing component. Jim Buus said that when it is in a manufacturing context it is perfectly acceptable as opposed to warehousing already manufactured product. Mr. Buus also said that 37 years of this company in the community should be noted and that they have never asked for any incentives in the past.

Jim Buus made a motion to approve a 5 year, 100% exemption on the expansion. Jessica Ebeling seconded the motion. Motion was approved unanimously.

Discussion Regarding the Continued Review of the Downtown Apartment Incentive Policy
Commissioner Piepkorn said that discussion should be continued at the next regularly scheduled Tax Exempt Review Committee meeting. Mr. Hushka also said that the Home Builder’s Association usually inquire this time of year if discussion will be brought up about the New Residence Exemption. Mayor Mahoney said that the incentive is provided in Fargo, West Fargo, and Moorhead and that, if we drop it, we would be competitively disadvantaged. It was agreed that we would continue to monitor that exemption and bring it up in the future if there is a need and, that any change would have to come uniformly across the metro area.

Mayor Mahoney initiated discussion about affordable housing and what we are going to do as a city to incentivize it. He talked about coming up with definitions of affordable and some possibilities of keeping the current tax base in place on any projects that may get incentives for downtown apartment projects. Mayor Mahoney suggested that possibly incentives for downtown apartments should have to either be low income or affordable housing. It was suggested by Commissioner Piepkorn that we engage the Fargo Housing Authority and Beyond Shelter in this discussion.

The Planning Department provided some information about definitions of affordable as well as a breakdown of current units in the downtown by the varying rent levels. Mr. Hushka said that he will invite the Housing Authority and Beyond Shelter to the next meeting. It was also agreed that the Planning Department would put together some definitions of affordable housing for the next meeting. Kent Costin said that he also received some definitions of affordable and low income from their financial advisers.

Continued discussion among the committee included consensus that the incentives in the downtown have been working and producing growth and that, in developing policy, the committee must look at not only what is in front of us today but also the long term.
Bruce Grubb asked Mr. Hushka a question about some misconceptions out there about the effect of granting exemptions on the existing tax base and what gets reported to the County. Mr. Hushka said that some feel that granting an exemption is a direct, immediate cost that will be assessed to existing taxpayers. He said that an exemption granted for something to be built, not currently on the tax rolls, does not cost current taxpayers extra. It only defers the tax that will be received to a point in the future when the exemption expires. Hushka said that no value is reported to the County for exempt property, and no tax is collected and distributed to the remaining taxable properties as some have suggested. Mr. Hushka said that if an exemption is granted for a property that already exists, the tax that property is currently paying and would become exempt, could theoretically be redistributed to the existing taxable properties. For that to happen, Hushka said the budgets would have to stay the same as the previous year and there would have to be no growth in taxable value of the city. In that case, there would have to be an increase in mill levy to collect the same amount of budgeted dollars because the taxable value would be reduced by the amount of the exemption. History, however, has proven that there has always been taxable value growth from market appreciation, new property, and prior exemptions expiring. For that reason, Mr. Hushka said that the direct cost, if any, of an exemption is difficult, if even at all, possible to determine because of all of the components and forces at play.

Jim Buus said that there has been economic modeling and analysis done in the past of these things that involve not only property tax but all components and elements of job and value creation that trickle down into the economy. He said that legislatures and local elected officials have used that information and their wisdom to determine things like primary sector jobs being more valuable than service sector jobs. He said the creation of primary sector jobs funnels more money into the local economy by those workers’ spending habits and so forth. That results in contributing to the strength of the local economy and generation of more sales and property tax.

Chuck Hoge said that we just heard from the applicant today that they are not just sitting on that $250,000 investment the incentive provides. They are putting it into new jobs, training, new equipment, and lowering their cost structure to be more efficient and effective. Mr. Hoge said that he feels these incentives are working and the area growth is good evidence of that.

Jim Buus stated that, being in commercial real estate development in the local community, he promises that we would never have the kind of physical redevelopment that we have had without those programs. He said we would have had probably one-tenth of the activity.

The meeting adjourned at 1:35p.m., Tuesday, December 19, 2017.