15.C.
City Council Meeting - FINAL
- Meeting Date:
- 01/20/2015
- Co-Submitter:
- Gail Jackson, Econ. Dev. Sales & Marketing Specialist
- From:
- Stacey Brechler-Knaggs, Grants Manager
Information
TITLE:
Consideration and Approval of Agreement(s): Amending the Service Provider Agreement and Business Incubator Master Lease, and approving the Business Accelerator Master Lease
RECOMMENDED ACTION:
-
Authorize the City to enter into the Service Provider Agreement and both of the Master Lease Agreements for the use and operation of City-owned facilities on McMillian Mesa.
Policy Decision or Reason for Action:
Subsidiary Decisions Points: Acceptance of the Service Provider Agreement, Business Incubator Master Lease, and Business Accelerator Master Lease will allow Northern Arizona Center for Entrepreneurship and Technology (NACET) to continue providing assistance to small business startups, Tier 2 companies, and entrepreneurs in connection with the development of new and innovative businesses within northern Arizona.
Financial Impact:
The City of Flagstaff was received funding through the Economic Development Administration (EDA), Arizona Corporation Commission (ACA) and Northern Arizona University (NAU) for the design and construction of the Business Incubator and Accelerator. In addition, the City will issue bonds which will be repaid through lease proceeds.
Per each Master Lease, the financial obligation of the City of Flagstaff to NACETfor the Business Incubator remains the same for services performed and costs incurred not to exceed $220,000 per fiscal year. For the Business Accelerator, the financial obligation of the City of Flagstaff is to compensate NACET for personnel costs in the amount of $45,000 (year 1) and increases annually $5,000 per year until year 4. These costs as well as the additional operational costs are anticipated to be fully supported through lease revenues by year five. These financial commitments are budgeted in the Economic Development Fund in FY 2015.
Per each Master Lease, the financial obligation of the City of Flagstaff to NACETfor the Business Incubator remains the same for services performed and costs incurred not to exceed $220,000 per fiscal year. For the Business Accelerator, the financial obligation of the City of Flagstaff is to compensate NACET for personnel costs in the amount of $45,000 (year 1) and increases annually $5,000 per year until year 4. These costs as well as the additional operational costs are anticipated to be fully supported through lease revenues by year five. These financial commitments are budgeted in the Economic Development Fund in FY 2015.
Connection to Council Goal and/or Regional Plan:
COUNCIL GOALS:
Retain, expand, and diversify economic base.
Effective governance.
REGIONAL PLAN:
ED.3. Regional economic development partners support the start-up, retention, and expansion of existing, business enterprises.
ED.4 Support efforts to recruit diverse new businesses and industries compatible with the region.
ED.7 Continue to promote and enhance Flagstaff's unique sense of place as an economic development driver.
Retain, expand, and diversify economic base.
Effective governance.
REGIONAL PLAN:
ED.3. Regional economic development partners support the start-up, retention, and expansion of existing, business enterprises.
ED.4 Support efforts to recruit diverse new businesses and industries compatible with the region.
ED.7 Continue to promote and enhance Flagstaff's unique sense of place as an economic development driver.
Has There Been Previous Council Decision on This:
Yes, in September of 2008, as well as subsequent amendments, all were approved by City Council authorizing the Service Agreement and Master Lease for the Business Incubator. In addition, City Council has approved the EDA grant application, grant award, and the design and construction contracts for the Business Accelerator over the last two years.
Options and Alternatives:
1. Approve Service Agreement and both Master Leases to continue existing operational services with NACET.
2. Don't approve the Service Agreement and both Master Leases with NACET, and seek another service provider for both the Incubator and Accelerator. This action may jeopardize the funding from EDA, community partnerships such as Northern Arizona University, Northern Arizona Council of Governments, and Arizona Commerce Authority, and the sublease agreements between NACET and the clients within the facility.
3. Amend Service Agreement and/or both Master Lease documents.
2. Don't approve the Service Agreement and both Master Leases with NACET, and seek another service provider for both the Incubator and Accelerator. This action may jeopardize the funding from EDA, community partnerships such as Northern Arizona University, Northern Arizona Council of Governments, and Arizona Commerce Authority, and the sublease agreements between NACET and the clients within the facility.
3. Amend Service Agreement and/or both Master Lease documents.
Background/History:
The Science and Technology Park was conceived in 2003, and during the 2004 election, bonds in the amount of $61.2 million were approved by the voters to advance the project. The debt is to be paid with lease revenues and not secondary property taxes. McMillan Mesa was chosen as an ideal site due to the existing, nearby USGS Campus. Through investigation, a critical part of the science park would be the establishment of a business incubator for entrepreneurs and business start-ups. An overall science park master plan was developed around 2005.
The master plan included a remodeled USGS Campus, a 10,000 square foot business incubator, and a science park on nine acres of adjacent land. The business incubator (Phase 1) was constructed in 2008 through a U.S. Department of Commerce Economic Development Administration (EDA) grant and is currently operated by Northern Arizona Center for Entrepreneurship and Technology (NACET), a separate private non-profit.Northern Arizona University was the original recipient of a grant from the Economic Development Administration to construct an Incubator facility. Construction was completed and a Certificate of Occupancy for the building was issued in November 2008.
City staff began to investigate the merits of a Public-Private Partnership (P3) to continue progress on the project (now known as Innovation Mesa - Phase 2). In the fall of 2011, the City along with several partners including EDA, ACA, NAU, NACET, Economic Collaborative of Northern Arizona (ECoNA), and NACOG, began discussions to advance the Innovation Mesa - Phase 2 project. Innovation Mesa - Phase 2 is intended to be the first of three buildings located adjacent to the USGS Campus and the business incubator (Phase 1), and will include a 28,000 square foot building featuring wet and dry labs/office space (89%) and light manufacturing space (11%), a conference room/alternate secondary EOC, and server facilities. The primary purpose of Phase 2 is to provide space for Tier 2 companies and graduates of NACET, as well as grow business startups and advance entrepreneurship and economic gardening programs within the region, and to retain and expand existing businesses through the creation of 300 jobs. As noted above, the building will feature a secondary or alternate EOC (as part of the conference room) should disaster related circumstances arise and warrant the need by either City and/or County personnel. Given the intent and purpose of this facility, the Business Accelerator was funded in part by EDA, and is currently under construction to be completed July 2015.
The master plan included a remodeled USGS Campus, a 10,000 square foot business incubator, and a science park on nine acres of adjacent land. The business incubator (Phase 1) was constructed in 2008 through a U.S. Department of Commerce Economic Development Administration (EDA) grant and is currently operated by Northern Arizona Center for Entrepreneurship and Technology (NACET), a separate private non-profit.Northern Arizona University was the original recipient of a grant from the Economic Development Administration to construct an Incubator facility. Construction was completed and a Certificate of Occupancy for the building was issued in November 2008.
City staff began to investigate the merits of a Public-Private Partnership (P3) to continue progress on the project (now known as Innovation Mesa - Phase 2). In the fall of 2011, the City along with several partners including EDA, ACA, NAU, NACET, Economic Collaborative of Northern Arizona (ECoNA), and NACOG, began discussions to advance the Innovation Mesa - Phase 2 project. Innovation Mesa - Phase 2 is intended to be the first of three buildings located adjacent to the USGS Campus and the business incubator (Phase 1), and will include a 28,000 square foot building featuring wet and dry labs/office space (89%) and light manufacturing space (11%), a conference room/alternate secondary EOC, and server facilities. The primary purpose of Phase 2 is to provide space for Tier 2 companies and graduates of NACET, as well as grow business startups and advance entrepreneurship and economic gardening programs within the region, and to retain and expand existing businesses through the creation of 300 jobs. As noted above, the building will feature a secondary or alternate EOC (as part of the conference room) should disaster related circumstances arise and warrant the need by either City and/or County personnel. Given the intent and purpose of this facility, the Business Accelerator was funded in part by EDA, and is currently under construction to be completed July 2015.
Key Considerations:
NACET currently has a Service Agreement and a Master Lease with the City that funds the Business incubator general operations, and has now been revised to include the Business Accelerator. The Service Agreement reflects the operations for both facilities. Each Master Lease will allow NACET to sublease the facilities to tenants that are start-up science and technology companies and are from the NACOG region.
More specifically, the Service Agreement outlines monitoring and oversight of both facilities, as well as obligations of the City and Provider (NACET). The Master Leases outline the terms and conditions for both facilities, including financial obligations and also reflects the sublease agreement between NACET and the tenants.
The operation of both the Incubator and Accelerator requires a long-term City commitment for both monitoring and financial operations. The City has the responsibility to ensure to the EDA that the facilities are being used for economic development purposes in line with both EDA grants, or the City could face recapture of the funding.
More specifically, the Service Agreement outlines monitoring and oversight of both facilities, as well as obligations of the City and Provider (NACET). The Master Leases outline the terms and conditions for both facilities, including financial obligations and also reflects the sublease agreement between NACET and the tenants.
The operation of both the Incubator and Accelerator requires a long-term City commitment for both monitoring and financial operations. The City has the responsibility to ensure to the EDA that the facilities are being used for economic development purposes in line with both EDA grants, or the City could face recapture of the funding.
Expanded Financial Considerations:
In addition to the above-mentioned financial obligations of the City, NACET pays all staffing and utility charges for the Business Incubator and the City pays for maintenance and the debt service. For the Business Accelerator, the City will pay all operational and debt expenses including the site management oversight. These Accelerator is anticipated to fully recover these costs at an average 80% occupancy on an annual basis.
Community Benefits and Considerations:
Given the success of the Business Incubator, the intent of the Business Accelerator is to provide the next stage of business support, and as such the Business Accelerator will provide "soft landing" space for Tier 2 companies and graduates exiting NACET’s incubation program, and allow new companies wishing to enter the program to have space in Phase 1 (Incubator). The Accelerator is intended to create over 300 jobs and $20 million in private investment within the first three years of operation. The addition of wet and dry laboratories in this next phase is critical to expand and grow existing companies in the region as there is no known existing lab space for them to locate to. This project also allows our community to retain local businesses that may have otherwise left the region to seek these types of services and facilities.
Specifically, this project will benefit four groups:
- High technology and bioscience startups will result from technology transfer and commercialization of research conducted by NAU faculty and students.
- Local entrepreneurs will become more competitive in the global market through the technical and business advice from NACET staff and their statewide mentors group.
- Existing firms and new firms will locate facilities in Northern Arizona to take advantage of the Innovation Mesa’s facilities and to be near growing industry clusters. However, this facility is unlikely to compete with existing commercial facilities due to small lease areas, non-traditional finance terms, and filling a lack of lab space.
- Native American culturally specific businesses will be encouraged to expand their service areas through guidance from and access to NACET staff and business leaders serving on NACET's Advisory Committee.
Lastly, the purpose of the EDA grant is twofold: It will enable the City of Flagstaff to create an environment within a secondary facility for incubator graduates to expand and grow their businesses. Secondly, it provides the City and other agencies an alternate/secondary emergency operations center for first responders to efficiently deliver vital services to communities and tribal nations during emergency disasters. Overall, the facility helps build economic resiliency through long term economic stability in the community.
Community Involvement:
Collaborate
Expanded Options and Alternatives:
1. Approve Service Agreement and both Master Leases to continue existing operational services with NACET.
2. Don't approve the Service Agreement and both Master Leases with NACET, and seek another service provider for both the Incubator and Accelerator. This action would potentially jeopardize the funding from EDA, community partnerships such as NAU, NACOG, and ACA, and the sublease agreements between NACET and the clients within the facility.
3. Amend Service Agreement and/or both Master Lease documents.
2. Don't approve the Service Agreement and both Master Leases with NACET, and seek another service provider for both the Incubator and Accelerator. This action would potentially jeopardize the funding from EDA, community partnerships such as NAU, NACOG, and ACA, and the sublease agreements between NACET and the clients within the facility.
3. Amend Service Agreement and/or both Master Lease documents.
Attachments
- Agreement for Services for the Business Incubator and Accelerator
- Business Incubator Master Lease
- Business Accelerator Master Lease