HomeMy WebLinkAbout09/29/2003 B A K E R S F I E L D
A. ia~t Tandy ~:~'ty'l~l~l~ler' Harold Hanson
Staff: Darnell W. Haynes Mark Salvaggio
AGENDA SUMMARY REPORT
BUDGET AND FINANCE COMMrl-rEE MEETING
Monday, September 29, 2003 · 4:00 p.m.
City Manager's Conference Room - City Hall
1. ROLL CALL
Called to Order at 4:06 p.m.
Present: Councilmembers Mike Maggard, Chair; and Harold Hanson
Absent: Councilmember MarkSalvaggio
2. ADOPT AUGUST 18, 2003 AGENDA SUMMARY REPORT
Adopted as submitted.
3. PUBLIC STATEMENTS
4. DEFERRED BUSINESS
A. Staff report, review and Committee recommendation regarding request
from Kern-Tech, Inc. to provide discounted payoff of the City's
Economic Development loan from available sale proceeds
Economic Development Director Donna Kunz reported due to a variety of
unfortunate events, Mike Miller of Kern-Tech, Inc. has indicated the company
cannot pay the outstanding balance on its loan. The company was doing well with
work in the commercial aircraft business until 9-11, when that type of work stopped
completely. Their current contracts in defense work are not as profitable as the
commercial business.
The City has a lien on two pieces of equipment. One piece has a resale value
(found on the Internet) of $43,500 and the other no longer has resale value;
however, the City would have to take the equipment and try to sell it in an
uncertain market.
AGENDA SUMMARY REPORT
BUDGET AND FINANCE COMMITTEE MEETING
Monday, September 29, 2003
Page - 2 -
Kern Tech, Inc. has an opportunity to sell the company. The purchase agreement
is for $350,000 to be paid to Kern-Tech. After paying all other secured debt and
rent, $32,235 remains, which the City could claim. The buyer has agreed to keep
the employees and continue work on existing contracts. However, the buyer will
not go forward if the City's loan remains in place and will need the equipment the
City is holding for collateral. The federal block grant loan approved in March 1997
was for $169,797 and there is a loan balance of a little more than $154,000.
Staff recommended honoring Kern Tech's request for the City to declare Kern-
Tech, Inc. in default on the loan, release the liens on the equipment to allow the
purchase of the business to proceed and, in return, make a claim on the remaining
funds, $32,235, from the purchase agreement (escrow).
Committee Member Hanson expressed if there were more money involved and it
would not cause the sale to fall through due to a lengthy process, he would
recommend asking the banks to discount their loans, the same as the City is being
asked to do.
It was discussed there has been value received from the loan over the last five
years, as Kern Tech has exceeded its hiring goals of Iow and moderate-income
individuals. Since the loan was approved in 1997, Kern Tech has employed about
60 workers and currently employs 18. One of HUD's main goals is job creation in
depressed areas and that has been accomplished.
Mike Miller, President of Kern Tech, Inc., spoke regarding the sale and the fact he
may need to declare personal bankruptcy because he personally guaranteed many
of Kern Tech's obligations and will have $200,000 in debts. He expressed it would
have been better for him to file bankruptcy for the business without the sale, but
the sale will save the business and allow the employees to keep their jobs.
Committee Chair Maggard stated he would accept staff's recommendation due to
the opportunity for the sale and it seems to be the best alternative. However, for
future loans with payment difficulties, he would like staff to see if it might be
possible to help the debtor do an offer and compromise with the government to
reduce payroll and sales tax obligations.
Finance Director Gregory Klimko explained the IRS and Franchise Tax Board can
take up to 18 months to make a decision, and in this case Mr. Miller had time
constraints.
Committee Member Hanson made a motion to approve staff's recommendation to
declare Kern-Tech in default, release the lien on the equipment to allow the sale to
proceed, and file a claim for $32,235 on the remaining proceeds from the sale.
The motion was unanimously approved (Committee Member Salvaggio absent).
Staff was requested to forward an administrative report to the City Council for the
meeting on October 8th.
AGENDA SUMMARY REPORT
BUDGET AND FINANCE COMMITTEE MEETING
Monday, September 29, 2003
Page - 3 -
5. NEW BUSINESS
6. COMMITTEE COMMENTS
7. ADJOURNMENT
The meeting adjourned at 4:25 p.m.
Attendance: City Manager Alan Tandy; Assistant City Manager John W. Stinson; City
Attorney Bart Thiltgen; Finance Director Gregory Klimko; Assistant to the City Manager
Darnell Haynes; Economic Development Director Donna Kunz; Principal Planner David
Lyman, Economic Development.
Others: Mike Miller, Kern Tech, Inc.
cc: Honorable Mayor and City Council
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