Economic development plan updated

SANDPOINT -- A need to attract more year-round employers to the area is the impetus behind some recent changes in Sandpoint's Economic Development policy, according to verbiage in a draft proposal the City Council approved at Wednesday's meeting.

"Economic development incentives to support job creation and retention are necessary due to the inherent competition between cities, states and even other countries. By combining efforts with other agencies at the local and state level, incentives can make the difference as to whether a given employer stays, expands or relocates to Sandpoint," according to the proposal.

The city's newly negotiated lease with Biomedical Innovations, formerly Lead-Lok Inc., is the product of this reasoning. It also illustrates the possible pitfalls of offering economic incentives at the city's expense.

City officials struggled to keep the firm in Sandpoint from the start.

"The only way Sandpoint could stop Graphic Controls from moving Lead-Lok was to evict the rest of the center's tenants ... giving Lead-Lok room to expand," according to a September 2014 article in The Inlander.

"Sandpoint and the state of Idaho threw every incentive they had at keeping Lead-Lok," the article said. "The state used its new Tax Reimbursement Incentive program, enabling Lead-Lok to get back 15 percent of payroll, sales and income taxes for seven years. (Former city official) Jeremy Grimm obtained a grant paying for $50,000 of improvements to Lead-Lok's facilities, and worked out a deal, worth $225,000 over three years, allowing Lead-Lok to funnel part of their lease payments into certain building improvements."

However, the plan fell apart. BI/Lead-Lok lost its state funding because it could not fulfill its part of the agreement -- adding 30 new jobs to its workforce. That funding was earmarked for expanding and upgrading the former business incubator facility now occupied by the firm.

However, the firm retained a $325,000 grant from the Sandpoint Urban Renewal Agency on the condition that the company signs a new tenancy contract.

Meanwhile, Aaron Qualls, director of the city's Planning and Economic Development department, has been working with BI/Lead-Lok officials to hammer out a lease agreement that would tie the medical equipment manufacturer to Sandpoint for the next five years, with renewal options extending that period to 14 years. The new lease, he said, is significantly more favorable to the city than the original agreement expiring Dec. 31.

"The current lease was negotiated at a time when our largest employer, Coldwater Creek, went bankrupt. Lead-Lok made a commitment to retain 62 jobs," said Qualls.

The newly negotiated contract reflects a rent based on $.52 to $.54 cents per square foot, which represents a significant income increase for the city, he said.

"It is essentially a much better, longer-term deal for the folks out at Lead-Lok, who really do want to stay in town," said Qualls.

Additionally, the new lease contains a proviso that the firm must retain a minimum of 75 full-time employees. If the workforce falls below that threshold, the firm's rental payment will reflect a 10 percent penalty.

“Does office space run a higher rate than manufacturing space?" asked Councilman Stephen Snedden, referring to mixed usage of the BI/Lead-Lok facility.

"Not necessarily," replied Qualls. "In this area, that’s what office space goes for.”

In fact, a quick look through the office space available on Sandpointrentals.com reveals a price range on commercial rentals from $.44 to $12 per square foot per month, depending on the location and condition of the space on offer.

"When you factor in the money that SURA’s putting in, we’re not getting a market value lease rate," said Snedden. "Did we have any discussions with Lead-Lok about purchasing this building?"

Qualls indicated that the company was not currently interested in buying the property.

“When is the best time to go ahead and discuss the sale of this building? It seems to me we’ve graduated from running a business incubator to becoming a landlord," said Snedden.

"I think that having a tenant in the building is not a bad thing. In a sale, it goes to the highest bidder. We can’t just do a direct sale to Lead-Lok,” said Scot Campbell, city attorney. “It’s incumbent on us right now to make the lease."

“The investment SURA has made into the building is a reason to not sell it for a year or two down the road," said Jennifer Stapleton, city administrator.

“Potentially, do we realize that investment at the end of a 14-year lease?” said Snedden.

“I think we’re making it into a higher-class, more saleable building than it was before,” said Campbell.

He may have been referring to a clause in the new contract the city added at the 11th hour, indicating officials remain open to making additional building upgrades in the future in exchange for rent credits. In effect, the improvements would be at the city's expense.

“They had asked us to commit to further upgrades to the facility. We came back and said we can’t commit to anything at this time, but we can renegotiate later and offer more rent credits if it’s in the city’s interests," Qualls said, adding that some of the needed improvements at the facility include HVAC and plumbing upgrades.

“Given the advanced manufacturing that Lead-Lok is engaged in, it’s the kind of company the city wants to retain. Maintaining that ecosystem of innovation is an important part of this consideration," he said.

The City Council majority voted to approve the new lease agreement, with councilmen Snedden and Bill Aitken voting no.