Finance & Economic Development CommitteeCouncil Present:
September 27, 2010
12:00 – 1:20 p.m.
Chair, Andy Ryder, Mary Dean, Jason Hearn
Greg Cuoio, Troy Wood, Rick Walk, Scott Spence, Carol Litten
COUNCILMEMBER DEAN MOVED TO APPROVE THE AGENDA. COUNCILMEMBER HEARN SECONDED. MOTION CARRIED
Commercial/Industrial Vacancy Report
Renee Sunde, Marketing & Business Development Director, Economic Development Council, provided the Committee with a snapshot of the market and how it relates to commercial/industrial vacancy rates.
Lacey retail vacancy rates for 247 buildings are 6%, which is below Thurston and Pierce Counties. As Lacey relates to the overall market, it is doing well. When employment rebounds, vacancy rates will increase. The 6% rate is an average vacancy rate between 4%, which is very good, to 9% in Seattle.
Lacey retail rental rates for 247 buildings are 6% with 97 spaces available. Renee noted that businesses are leveraging their leases – instead of holding leases to one year, two years, or more, rates are fluctuating allowing renters to move around to secure the best rate.
Lacey office vacancy rates for 118 buildings are 15%, up from 10.4%, with 90 spaces vacant. The increase is partially due to state offices in Woodland Square Loop consolidating offices. Rick noted that the City continues to receive property tax whether the space is leased or not.
Lacey industrial vacancy rates for 48 buildings are 15% with 27 spaces vacant. Renee noted the City is primed for a good rate, but the lag behind unemployment is causing an increase in vacancies. Lacey industrial rental rates for 48 buildings are at 15%.
Renee reported on the Economic Vitality Index (EVI), which is a name for a series of economic indicators and indices including the following:
• Thurston Consumer Confidence Index (down)
• Thurston EDC CEO Index (down)
• Thurston Small Business Index (down)
• Thurston Leading Economic Indicators (up)
Renee remarked that the political and economic climate impact consumer confidence, which affects the EVI. She noted, however, that more positive responses were received than negative.
Councilmember Andy Ryder asked what the City can do to speed economic recovery. Renee said that Lacey has a reputation for being more business friendly and progressive than neighboring jurisdictions, and should continue in that direction. She encouraged the City to hold its long term vision as it relates to Gateway, and not concede to development. She also congratulated the Council for passing an ordinance that would allow warehouse sizes to increase to 500,000 square feet, which will attract more businesses.
Renee reported that during business retention interviews, it has been noted that the City’s sign ordinance has caused a challenge to one business on Lacey Boulevard. Due to restrictions on sign location, customers cannot find the building.
Andy suggested reviewing the City’s sign ordinance to consider expanding the size of monument signs. Councilmember Mary Dean said the sign ordinance was adopted after much discussion to balance aesthetics with business needs, and she would not be in favor of changing it. However, she is open to discussion that would improve the visibility of street addresses.
The Committee thanked the EDC for the presentation. Recommendation to Refund UTGO Bonds
Troy Woo, Finance Director, presented the Committee with a request to refund its outstanding bonds at a lower interest rate. Rates are currently at a point where the interest savings will offset bond issuance costs and result in a significant level of savings.
The 2002 Unlimited Tax General Obligation (UTGO) Bonds were issued in 2002 in the amount of $5,999,000 for fire safety improvements. The bonds are repaid through a voter approved excess property tax levy. The interest rates range from 3.0 percent to 5.0 percent. The 2010 interest rate is 4.0 percent and will increase until the rate peaks at 5.0 percent in 2020.
The 2010 outstanding balance is $4,225,000 and the remaining interest equals $1,426,136. It is estimated that the bond refunding will result in a savings of $359,675 for Lacey property owners.
Troy noted if the targeted savings rate falls below the established level and doesn’t return within six months, the $7,000 bond rating will need to be re-established. This risk can be minimized. Current federal tax rules state that the proposed refunded bonds can only be advance refunded once. If rates fall below the refunding bond rates in the future, the City cannot take advantage of the savings. This risk is also minimal.
Troy requested direction from the Committee to set a minimum targeted level of savings for the refunding. If the savings rate falls below this target, the bond refunding would be postponed. Staff recommends following the 5.0 percent targeted savings level. Committee members agreed to the 5.0 percent level. COUNCILMEMBER HEARN MOVED TO FORWARD A RECOMMENDATION TO FULL COUNCIL TO REFUND UTGO BONDS AT A LOWER INTEREST RATE. COUNCILMEMBER DEAN SECONDED. MOTION CARRIED. Foreign Trade Zone
Rick Walk, Community Development Director, presented the Committee with a request to support Foreign Trade Zone #216 and its application to U.S. Customs to operate FTZ #216 under the Alternative Site Framework.
In 1997, the City partnered with eight other jurisdictions within South Puget Sound to establish Foreign Trade Zone #216. The zone was created to provide special custom procedures to U.S. companies engaged in international trade-related activities. Duty-free treatment is applied to goods that are processed in FTZ’s and then re-exported. The FTZ helps domestic industries compete with foreign trade.
FTZ #216 consists of 13 non-contiguous zone sites, totaling 3.428 acres. All sites are within a 50 mile radius of Olympia. Currently there are three activated sites. Businesses outside the zones have expressed an interest in taking advantage of FTZ opportunities. However, a zone boundary adjustment is necessary before companies located outside of the zone can participate.
Boundary modifications are subject to approval by the Department of Commerce Foreign Trade Zone Board and U.S. Customs. The application is extensive, lengthy and expensive. The Department of Commerce recently authorized a new program called Alternative Site Framework (ASF). This designation allows each zone to have at least one magnet site in each county in the zone. Sites outside the magnet zone can access the zone by applying usage-drive site. As long as the site is within 60 miles or 90 driving minutes, the site will have designation within 30 days; the simplified boundary modification can be used.
FTZ #216 is currently seeking approval for Alternative Site Framework modification. The intent is to provide greater opportunity for businesses located in South Puget Sound to access the benefits of the Foreign Trade Zone designation. The application will demonstrate that each partner will maintain a magnet site within their respective jurisdiction. COUNCILMEMBER HEARN MOVED TO FORWARD A RECOMMENDATION TO FULL COUNCIL TO SUPPORT FTZ #216 AND ITS APPLICATION TO U.S. CUSTOMS TO OPERATE UNDER THE ALTERNATIVE SITE FRAMEWORK. COUNCILMEMBER DEAN SECONDED. MOTION CARRIED.