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HomeMy WebLinkAbout02/24/1988 Donald K. Ratty, Chair James H. Childs Kevin McDermott Staff: John Stinson AGENDA BUDGET AND FINANCE COMMITTEE February 24, 1988, Wednesday 12:00 Noon City Manager's Conference Room ITEM #1 REFUSE CONTRACT ITEM #2 RETIREE MEDICAL ITEM #3 FIRST INTERSTATE BOND ISSUE ITEM #4 BUILDING DEMOLITION ITEM #5 GOLDEN EMPIRE SPORTS COMPLEX ITEM #6 MIDSTATE DEVELOPMENT CORPORATION - INCUBATOR PROJECT ITEM #7 VOUCHERS *Meetings will be limited to one hour. MID 'STATE DEVELOPMENT CORPORATION December 31, 1987 " " ' '.:. $1STruxtunAvenue Bakersfield, CA 93301 i805} 326-3765 Honorable Mayor and Members of the City Council 1501 Truxtun Avenue Bakersfield, CA 93301 SUBJECT: Establishment of Bakersfield's First Small Business Incubator Dear Mayor Payne and Members of the City Council: For the better part of two years there has been discussion and study of the concept of' developing a small business incubator program within the City of Bakersfield. At the suggestion of City staff, Mid State Development Corporation personnel have conducted feasibility studies and completed preliminary planning excercises that validate the premise that small business incubators do, in fact, clearly assist in the creation of new jobs within a community. By increasing the survival rate and growth of fledgling businesses, a recognizable enlargement and diversification of the local tax base takes place, and the general economy benefits. By means of this letter, Mid State Development Corporation makes recommendation to the City Council and City management that we now move forward on this project. Suggested preliminary .steps to begin taking the incubator program from concept to reality are outlined, and general support information is included. Additionally, personal briefings for Council members on the incubator project are offered by Mid State personnel. PROPOSED STEP ONE. Specific site recommendation: For the site of Bakersfield's first small business incubator, Mid State .._. recommends the former City Corporation Yard property, located on the east side of "S" Street, between Truxtun Avenue on the north and the railroad tracks on the south. Use of this site has been abandoned by the City since the relocation of the Corporation Yard to the Truxtun Avenue Extension. 1 of 3' The old unoccupied buildings that are located at this site, while presently unattractive and in disrepair, do appear to be readily modifiable into appropriate spaces to accomodate 'and support small business tenants. In addition~ to the economic benefits that will result from establishment of the incubator, the security and aesthetics of the neighborhood will be enhanced, part- icularly when considering the view afforded visitors to the new Beale Library and the upcoming convention hotel. Also, the incubator will provide a clear example of the' City's pro-small business development posture, while taking the positive ~step of assigning this unused and unsightly property to its highest and best use until such time as the site might be required for some major City development. PROPOSED STEP TWO. Proposed Lease Arrangements: Mid State Development Corporation proposes to lease this property from the City of Bakersfield at a nominal annual rent for a period of five years, with the lease to then be extended on an annual basis predicated on the City's projected utilization of the property. Als©, Mid State will wish to determine the City's requir- ements as to upgrading the buildings to code and any assistance the City might provide Mid State in this regard. The degree of participation by the City as to required public liability insurance will also be an important item to be covered. PROPOSED STEP THREE. Development of the Incubator Business Plan: Immediately upon indication from the City that the site is available for this project, under satisfactory financial arrangments, Mid State will, (1) obtain rehabilitation/ construction estimates, (2) assess the market for small business tenants expected to locate in the facility, (3) determine the sources of the project's funding, and then, (4) finalize the incubator's business plan for review by the City. 2 of 3 The Directors and management of' Mid State Development Corporation are pleased to have been selected to manage the development of Bakersfield's small business incubator program, and are eager to move forward with the project. We also wish to extend our gratitude to the dedicated and talented City Economic Development/Redevelopment Division staff members who have been so very cooperative and helpful in advancing the concept of Bakersfield's proposed development of this small business incubator. We respectfully request the earliest possible consideration of this request. Thank you. Sincerely, MID STATE DEVELOPMENT CORPORATION Brent M. De'zember President BMD/ed 3 of q STATE DEVELOPMENT CORPORATION 515 Truxtun Avenue Bakersfield, CA 93301 THE SMALL BUSINESS INCUBATOR t805) 326-3765 What Is It? The type of "incubator" that most of us may be familiar with is probably associated with newborn infants in a hospital, or perhaps one that is designed to create a protective and supportive environment for domestic animals, providing them with warmth and sustenance' until they gain the size and state of health that will increase their like- lihood of survival in the outside world. In very much the same manner, a small business incubator takes in and nurtures fledgling businessess into more healthy and self-sufficient enterprises, better able to successfully fend for themselves in the difficult world of small business competition, creating new jobs in the process. NOTE: In the U.S., approximately 80% of the annual increase in new jobs comes from the small business sector. The large, "Fortune 500" companies have, in aggregate, posted a net loss of jobs in each of the past few years. The Public or Not-For Profit Incubator. This type of incubator is sponsored and developed by a partnership of a governmental entity and a non-profit organization. Approximately 51% of the more than 200 small business incubators presently in operation in 39 states are of this type. Other types of incubators include; Private incubators: operated often by for-profit investment groups primarily oriented toward high technology. ~ Academic: organized by, or affiliated with colleges and universities, often oriented toward research. Public/Private: created through a partnership between government, a non-profit agency and a private developer. 1 of 3 Goals of Public/Not-For-Profit Incubators. 1. To create jobs; thereby positively Impacting the .community's economic diversification, tax base, building rehabilitation and reuse and employment. 2. To generate sufficient income to maintain the present facility in good condition without infusion of public monies and to accumulate funds adequate to develop additional incubators should the need be demonstrated. A basic definition of the most recognized type of small business incubator. A facility or structure, often an unused industrial building, that is easily divisible into smaller units that are then rented to small business concerns. The rental contracts are for a specified period of time, and are at less than current market rates. The management of the incubator facility provides the economic benefit of shared services for the tenants, allowing limited working capital to be expended for the purposes of hiring, ie, job creation. Three characteristics are common to all small business incubators. 1. Co-location. To benefit from each other's knowledge and experience, entrepreneurs are located physically near each other. 2. Shared services. Included may be centralized administrative and clerical services, telephone answering, word processing and computer facilities, conference and meeting rooms, shipping and receiving and sometimes bulk purchasing programs. These shared services greatly reduce the working capital needs of the start-up or young business. 2 of 3 3. Management assistance. Incubator tenants are provided a variety of counseling and advisory services such as help in developing business plans, securing financing, product or service marketing, human resource counseling and other meetings, seminars and one-to-one counseling, that deal with the various forces that impact on the small business. 4. Tenant Selection and Graduation. Potential incubator tenants are carefully screened in order to select those most likely to achieve successful operation by means of this. assistance. At the end of the agreed upon rental term, the small business tenant "graduates" to other local market-rate quarters and a new incubator tenant is selected for the vacated space. Increasingly, within the U.S. small business incubators are being established by forward thinking communities to be at the cutting edge .of new programs designed to help make the difference between success and failure for the areas' small businesses. As a result, these facilities have increased five-fold in just the past two years. According to the Small Business Administration, 9 of 11 new firms go out of business during the first five years. By contrast, 80% (or 8 of 10) businesses nurtured in incubators succeed. STATE DEVELOPMENT CORPORATION MID STATE DEVELOPMENT CORPORATION 51$ Truxtun ^venue Bakersfield CA 93301 i805t 326-3765 A Corporate Profile Mid State Development Corporation was founded in 1981, as the Greater Bakersfield Local Development Corporation. It is a non-profit, public benefit company. Accredited by the U.S. Small Business Administration as a Certified Development Company, Mid State's primary activity is serving locally as an administrator/lender for the SBA 504 small business loan program. The 504 program is designed to provide funds for small business expansion that will, in turn, create or retain jobs. Working with local lenders and local governments, (cities and County), Mid State arranges long-term, fixed-rate asset financing on land, buildings and capital equipment. The. combination of local lender and Mid State/SBA can provide up to 90% financing for the owner-user, with loan terms of 10 or 20 years. Since 1981, Mid State has managed the placement of more than $10,000,000 in local small business financing, causing the creation or retention of an estimated 700+ jobs locally. Mid State' s primary source of revenue is from loan origination and servicing fees. As a non-profit corporation under IRS 501c4 regulation, Mid State may enter into other business activities as long as any excess of revenue over expense is invested in projects or programs that will serve to benefit the local economy. Approximately sixty local business, professional civic and educational leaders serve as corporate "Members" of Mid State corporation. There are no "stockholders" as in the for-profit corporations, and no Member or other person may gain or hold a beneficial interest in the Company. Nine Members serve as Directors of the Corporation, with three elected each year to three-year terms. The following Members presently comprise the Board of Directors; 1 of 2 Brent M. Dezember, president Troy A. Grant, Vice President Bank of America Micki J. Shepherd, Secretary Union Bank Bruce Jacobson, Treasurer Bruce Jacobson Truck Parts Stephen J. Ermigarat, Director California Republic Bank Richard Foster, Director Foster and Associates Lana J. Hanson, Director American National Bank Leonard J. Schroeder AIA, Director Architect (One seat is presently vacant.) The Parker Consulting Group serves as Managing Consultant, with David G. Parker acting as Executive Director. Mid State's Board of Directors is eager to seek out and evaluate projects or programs that will allow the Company to apply energy and expertise to the benefit of our community's economic base, specifically through the creation or retention of jobs. Managing the development and operation of Bakersfield's small business incubator program aptly fits this role. ? MID STATE - CITY - INCUBATOR PROGRAM 515'rruxtur, Avenue Bakersfield~ CA 93301 i8051 326-3765 General Activites To-Date: - Various briefing meetings, Mid Stat'e personnel and staff members of City Economic Development/ Re- development Division, ie, David Kennon, Director, Paul Shillcock, Principal Planner, and David Lyman, Associate Planner. - Lyman attended various meetings and seminars on the subject of small business incubators. - Mid State commissioned Economic Research Associates, Los Angeles, to do a feasibility study on the Bakersfield project. - Discussions and briefings on the incubator concept with senior members of City management. - Discussions and briefings with individual members of the City Council. - Mid State reviewed other incubators being developed or in operation, primarily Lancaster, and Santa Ana. - Mid State became a member of the National Business Incubator Association. This is the primary source of information, training and case studies on small business incubator development and operation and provides the national directory of incubators. 1 r~F ? - Mid State recently formed a local Small Business Incubator Advisory Steering Committee. The organizational meeting was held December 10th. The members are; Manual G. Lerma, Chairman Project Director, Bakersfield/Kern County NEDA David G. Parker, Coordinator Executive Director/Managing Consultant Mid State Development Corporation J. David Kennon Director, Economic Development/Redevelopment Div. City of Bakersfield Gil Koda Management Analyst/Incubator Experience, NEDA Fresno Dr. Martin Marsh Director, Small Business Institute California State University/Bakersfield William J. Mungary Director, Community Development Program Dept. County of Kern Dr. Archie Sherman Director, Multi-Cultural Advancement Program Bakersfield College Douglas Yavanian Executive Vice President Greater Bakersfield Chamber of Commerce Glen Mark Director, Service Corps Of Retired Executives Small Business Administration, Kern County David Lyman Associate Planner, Economic. Development/Re- development Division City of Bakersfield 2 of 2 MEM.ORANDUM February 73~ 1988 TO Paul Dow, Community Services Manager FROM Jim Ledoux, Recreation Super.intend~n!~' SUBJECT Sports Complex - Lease Aqreement ' At the last meeting of the Budget and Finance Committee, discussion took place regarding the acquisition of the Empire Sports Complex, either by purchase or lease. As I understand, staff was directed to attempt to lock in a purchase price for the facility based on a:formal, appraisal and also to have put in the agreement that the purchase price would be reduced by the cost of improvements put in by the City. I have discussed the language to be used in the agreement with one of the co-owners of the property on Several occasions, and he has agreed to all of the terms placed ~i.n the contract with exception of Section 24, "Option to PurChase''. Mr. Collins will grant the City an option to purchase but at his original asking price of $1,250,000, and he will agree not to increase that asking price for a period of five (5) years. As a further concession, he will agree not to sell the property other than to the City for a period of five (5) years, unless the City decides to terminate the agreement. Since it is apparent that the purchase price is the major obstacle in securing an agreement at this time, I would suggest that it be recommended to the Budget and Finance Committee that the City enter a lease only agreement at this time and possibly, in the future if it becomes feasible, consider purchasing the property. Whatever is decided, a decision should be made as soon as possible. It is rapidly approaching the point when field mainte- nance should commence if these diamonds are to be used during the coming softball season. More pressing, however, is the upcoming Police Olympics, which takes place in June and which is. relying on the softball complex for the Conduction of their softball competition. Attached is the language.proposed for Section 24 of the lease agreement dealing with an option to purchase. Exhibit A is the language acceptable to the owner; Exhibit B is that which was proposed but deemed unacceptable. JL:cr Attachments EXHIBIT A 24. OPTION TO PURCHASE Lessor hereby grants to Lessee an option to purchase the real property leased herein. Should the Lessee decide to exercise said option, Lessor agrees asking price to remain fixed at $1,250,000, no increase or decrease, for period of five (5) years. Lessor also agrees not to sell property other than to Lessee for a period of five (5) years, unless agreement ter- minated by Lessee. This option shall be effective immediately upon the execution of this agreement and shall expire at midnight, five (5) years from the date of the commencement of this agreement as set forth in Clause 2. Lessee may exercise this option by delivering a written notice thereof to Lessor before the time set herein for expiration. Any such notice, if sent by registered mail, shall be considered delivered when deposited in the United States mail. EXHIBIT B 24. OPTION TO PURCHASE Lessor hereby grants to Lessee an option to purchase the real property leased herein. Should the Lessee decide to exercise said option, the fair market price shall be established by appraisal; said appraisal to be accomplished by an appraiser chosen by mutual agreement of the parties, the joint appraisal to be paid for by lessor. However, in no event shall the price be more than $1,250,000. Said purchase price shall be reduced by the actual cost of all improvements initiated by the Lessee. Lessor also agrees not to sell said property other than to Lessee for a period of five (5) years. Closing costs and fees shall be paid by Lessee in the event this option is exercised. This option shall be effective immediately upon the execution of this agreement and shall expire at midnight, five (5) years from the date of the commencement of this agreement as set forth in Clause 2. Lessee may exercise this option by delivering a written notice thereof to Lessor before the time set herein for expiration. Any such notice, if sent by registered mail, shall be considered delivered when deposited in the United States mail. /~ID STATE DEVELOPMENT CORPORATION 515 Truxtun Avenue Bakersfield, CA 93301 18051 326-3765 February 4, 1988 City of Bakersfield Council Budget and Finance Committee Councilman Doanld K. Ratty, Chairman Councilman Kevin McDermott Councilman James H. Childs Subject: The Proposed Bakersfield Small Business Incubator In an effort to be of assistance to your committee in it's review and evaluation of the proposed Bakersfield Small Business Incubator, we respectfully submit this short-list of factors we believe to be in favor of the project. Perhaps it might be appropriate to start with the reminder that Mid State Development Corporation is a non-profit public benefit company that was organized and is committed to improving the local economic base by assisting small businesses grow and prosper. Mid State has agreed to develop and operate this small business incubator project as a public service endeavor. The following facts ,seem worthy of note: + The proposed incubator will accomodate approximately 35 small businesses. Useage could include office rental, service companies, small contractors, automotive repair, landscappers, light industrial and assembly, virtually the full spectrum of small business companies. + Recognizing the likelihood of a more permanent and sUb-. stantial use for this property in the future, the jobs- increasing and economically positive benefits of this interim useage seems a remarkably practical and beneficial application of this particular City asset. + Depending on the agreement that may be reached between the City. and Mid State Development, the project expense to the City could.range from zero to minimal. + The increased sales, solvency and hiring of.and by the incubator's tenant firms will clearly impact the City's tax base. + Esthetically, the proposed improvements to the presently abandoned CorPoration Yard will make the property more compatible with the new Beale Library and the proposed multi-story convention hotel than at present, + Considering security, the property's proximity to both the railroad tracks and Union Avenue may be conducive to increasing security problems and liability if the property remains unoccupied. + The proposed facility would improve 'and utilize the existing structures, with no major construction planned. + The property is vacant except for a small amount of space,. perhaps 10%, that is used by the City for storage. This storage need could easily be accomodated during at least the early stages of the incubator's life. + The incubator development and management experience that will be gained by both Mid State and the City will be in- valuable considering the probability of additional incubator projects in the area, such as one that will ultimately be considered for the Enterprise Zone. + As one of only approximately 210 small business incubators in the United States, this could be a showcase project for the City. Executive Director