Council revisits Lead-Lok lease

SANDPOINT — Councilman Stephen Snedden had second thoughts about a new lease agreement with the former Lead-Lok Inc., now Biomedical Innovations, a Graphic Controls company. At the June 1 council meeting, members had voted four to two to accept the new agreement, with Snedden and Councilman Bill Aitken opposed.

On Wednesday evening at the council's second regularly scheduled meeting of the month, Councilman Bob Camp asked that the council reconsider its decision, clearing the way for a new discussion.

“We have notified Lead-Lok that this item is on the agenda,” said Jennifer Stapleton, city administrator. "If the council moves forward with an amended lease, Graphic Controls will probably like to make changes of its own."

Snedden opened the council discussion by presenting his case.

"The current lease, negotiated in 2014, is just barely below market rate at $.48 per square foot. Not only is the lease below the current market rate, but we also evicted the other tenants and invested (money) in making improvements. The (proposed) lease asks us to invest $325,000 more in this company … I don’t think the city should play the role of investor," he said.

He suggested putting the building up for sale next June.

"I think we are competing with other landlords using tax money, and I don’t think this is fair. I propose we get out of this lease when it ends in 2017," Snedden said. "The (new) lease is really not good for the city."

He calculated that the corporation was only paying $.26 per square foot in monthly rent when taking into account the $325,000 in grant money from SURA. 

Councilwoman Shannon Williamson pointed out that Lead-Lok was under obligation to retain 65 jobs, per the existing lease agreement, which is good for the city's economy. Stapleton added that the firm actually employed 82 people, more than they promised.

However, council members did not know whether the salary range of the employees was aligned with the national average. They asked for clarification from Chris Healy, Lead-Lok vice president and son of the firm's founder.

"We have 40 employees at the production level, in the $20,000 to $24,000 salary range," Healy said. "We have approximately 40 people at the next level, who receive $35,000 to $45,000 per year. The rest are management."

"Our staff figured the median wage as about $34,000," said Mayor Shelby Rognstad. "Does that sound right?"

"No, that's on the low side," said Healy.

The average annual wage for production workers in the U.S. was $25,000 to $30,000, according to the Bureau of Labor Statistics. More highly skilled workers, such as inspectors, testers and purchasing agents made between $36,000 and $60,000 per year on average.

When asked whether Graphic Controls would be interested in purchasing the buildings occupied by Lead-Lok, Healy said no.

"We are not in a position to buy the building. We are in a period of aggressive acquisition. We would like to keep our cash in place for various acquisitions and future growth," he said.

"The city is getting $175,000 in rent per year for buildings it built with a grant," said Healy. "I don't feel like it's costing the city ... You're not making payments on the buildings ... Vermont put up $500,000 to retain (60) employees (at its Graphic Controls plant)."

"It's probably a lot easier for a state to come up with those funds than a small municipality," said Councilwoman Deb Ruehle.

Healy warned council members that if they did not make a decision to go forward with the lease as negotiated, there was a good chance the firm would leave. 

"If we have to start looking for other buildings in June, that would be problematic. No one will want to move into that building," Healy said. "If it was vacated, it would be pretty hard to fill."

However, the council was not convinced this would be the case. According to Stapleton, the city had received five inquiries over the previous two weeks from firms seeking to relocate to Sandpoint.

"One of those companies was a medical manufacturer supply company that would match the facilities," she said.

Williamson suggested a compromise between accepting the new lease as written and throwing it out.

"I think it would be reasonable to extend the lease for three years (instead of five) because the economic landscape in that time could change dramatically," she said, also suggesting the renewal option, allowing Graphic Controls to potentially renew under the same terms for 14 years, be removed.

"I would feel more comfortable with ... a three-year window," said Ruehle. "I have a lot of trouble with the amount of money that would be coming from SURA because that's tax money ... I think the company should (make renovations) at its own expense."

"I would rather go ahead with the lease and secure the economic benefits they bring to the community, and then start looking for a buyer," said Councilman Thomas Eddy.

“I think we all recognize the value that Lead-Lok brings to the community ... the question is, do you feel secure that we will be able to retain this employer or an employer like this? I certainly would love to see Lead-Lok stay here. I think we run a serious risk by not having an interest in the building. It’s very important that we consider the economic impact," said Rognstad.

Councilman Camp made a motion to put off any decision regarding the lease until the following council meeting, scheduled for July 6. In the meantime, he suggested that city staff investigate the pros and cons of selling the buildings. The motion passed.