The announcement that Electrolux would be closing its Webster City technical center next year has raised questions and rumors concerning the city's involvement in the 2010 lease agreement to help keep the 80 jobs in the community.
David Toyer, the city's economic developer, presented a PowerPoint explanation at Monday's City Council meeting, meant to dispel the myths about the deal and show just how the community benefited from the agreement with Electrolux.
"First of all, I think there's been a myth going around the community that the city really wasted a lot of tax dollars," Toyer said. The city actually paid $1 for the 109,000-square-foot building.
"That building now could be classified as a research facility with the type of infrastructure that Electrolux put into that building for the purposes of engineering and the testing that they do," he said.
The city controls that building, which Toyer said is important looking to the future for the purposes of recruiting and marketing for new companies and job creation.
"Additionally, city did contribute about $150,000 towards what you typically see in commercial transactions, what we call a tenant allowance," he said. "That's basically utilized by the tenant for some of the construction costs associated with changing the facility to meet their needs."
Toyer also pointed out that the city's $150,000 contribution was about 3.75 percent of the $4 million in improvements made to the facility by Electrolux. He added that the improvements increased the assessed value of the building by 92 percent.
When the lease agreement was established, Electrolux asked for a 10 year agreement, but according to Toyer, the city leaders estimated the company would likely only stay for three to five years. The city put a penalty clause into the lease to recover part of the tenant allowance if they left before the end of five years. As a result, Electrolux will be responsible for reimbursing $50,000 to the city, Toyer said. Another clause would have charged the manufacturer $100,000 per year in rent if they retained less than 50 full-time employees after five years.
Toyer also said what the city got out of the deal was a 109,000-square-foot building valued at $2.4 million, approximately $67,000 in city property taxes, more than $313,000 in utility payments and a $4 million investment made locally in the facility. Taking all of those figures into consideration, Toyer said $150,001 on the lease agreement and the community benefitted to the tune of $6,833,000.
Toyer also compared the tech center building to the Kenco building, located just west of the main Electrolux plant on Des Moines Street.
"The building has now been vacant for around 18 months and it was listed for sale in September 2011 for $4.2 million," he said. The asking price on the warehouse building has been reduced now to $3.6 million. In addition, the property value has dropped 30 percent, which has reduced tax revenues. Toyer also said he felt the building was overpriced at $13.21 per square foot compared to the market range of $4 to $10 per square foot.
With the Kenco building, the city has no input on the price, sale, next owner or the jobs to be created by the next owner, Toyer said.
Toyer also gave the council a look at what might have happened if the tech center building had simply been vacated like the Kenco facility. He estimated that there would have been a 30 percent reduction in assessed value, decreasing the value from $2.4 million to less than $1 million and taxes collected would have been $39,000 instead of almost $67,000.
"We've kept that property value from going down, which is the case in the other Electrolux facilities, and at the same time have secured what is a large utility user during this time period," he said. "The benefit to the community is that by them being here and spending as much as they do on water, sewer and electric utilities, they're putting the city in a better position where we didn't have to borrow as much for water improvements we are doing."
The company also pays a sizable electric rate which Toyer said goes a long way to defer some of the hard costs for maintaining the system.
"That's less costs we've had to spread to other customers in the community, both businesses and residences," he said.
Toyer said that a paper copy of the PowerPoint presentation is available at city hall for anyone who might be interested in viewing it.
The council unanimously approved the first reading of a 6 to 7 percent increase to the energy rates charged to city electric customers. The rate hike would come just a month after a 20-percent increase to the base rate charged to customers.
Ed Sadler, city manager, explained that the increase from its wholesaler was less than anticipated.
"We are getting an increase in energy demand and energy charges," according to Sadler, city manager. "For industrial, we are passing along those increases in energy charges and demand. When you are looking at residential and commercial with blended rates, we do our best guess and that is the 6 to 7 percent."
Residential and commercial customers will see the increases reflected in the kilowatt per hour charges, Sadler said.
The matter will have two more readings before the rate increase would go into effect. Sadler said, if approved, the new rates would appear on the utility bills received in February.
Monday's meeting is the only regular session meeting for the council in December. A work session is scheduled for Wednesday at 5 p.m. in the council chambers.