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4A Wichita Falls Economic Development Minutes - 01/03/2005MINUTES OF THE WICHITA FALLS ECONOMIC DEVELOPMENT CORPORATION January 3, 2005 Present: Members: Gary Shores, President Bo Stahler, Vice - President Jim Berzina, Secretary- Treasurer Lou Rodriguez, Member Bill Altman, Mayor City Staff: Matt Benoit, Assistant City Manager Linda Merrill, Recording Secretary BCI: Tim Chase, President Kevin Pearson Kay Yeager Guests: Ron Lane, Vetrotex Liz Martin, Plant Manager, Vetrotex Steve Barnes, Human Resources Director, Vetrotex I. Call To Order. President Gary Shores called the meeting to order at 4:03 p.m. II. Approval of Minutes — October 12, 2004. Vice - President Bo Stahler called for clarification on page 9, second paragraph from the bottom, regarding the announcement by a manufacturer of its intention to locate its facility in Ennis, Texas. With that correction, Mr. Stahler moved that the minutes be approved. Lou Rodriguez seconded the motion, and the motion carried. III. Consider a Presentation and Possible Action on a Proposal from Vetrotex. Ron Lane began by expressing his appreciation for the opportunity to address the Corporation. Vetrotex is split into Vetrotex Americas, and the rest of the world. He spoke about the Wichita Falls plant, and the new process they would like to bring here. Mr. Lane continued, stating that for the first time in approximately 25 years, Vetrotex experienced operating profit losses in 2004. Prices are weak, he asserts, due Wichita Falls Economic Development Corporation January 3, 2005 Meeting Minutes Page 2 mainly to competition from China. The company is looking at rationalizing some of their products and processes to secure this facility's future. He pointed to the automation of Tank 5 as an example of such rationalization. Vetrotex has spent a great deal of money to automate that tank in order to remain competitive in the world market. The company's goal is to strengthen the Wichita Falls plant through new processes and productivity. To that end, they are trying very hard to obtain a new process, Unifilo, here in Wichita Falls. Unifilo is a roll -form product made by Vetrotex only at its facilities in Italy. It consists of continuous filaments of glass strands that are chemically bound. There is no Asian import in this market. This product can be used in beams, in oil field products (where corrosion - resistant products are necessary), in the large truck and trailer market, and certain applications in windmill blades, to name a few. Mr. Lane laid out the scenarios he envisions regarding the success or failure of acquisition of this process. If the Wichita Falls plant is successful in obtaining the Unifilo process, it will serve to broaden the plant's product base, and strengthen Wichita Falls' opportunity for future applications of this product. In addition, 34 jobs that would otherwise be lost will be retained. Other advantages would include an increased capital base for Vetrotex Wichita Falls, as well as improved customer service. If Vetrotex Wichita Falls is not successful in acquiring the Unifilo process, the product base will continue to deteriorate. There will be loss of jobs due to the lack of sufficient growth opportunities. Without Unifilo, a further decrease of its capital base will occur; if this process were to locate here, it would be installed in a location currently occupied by an old, operating tank. By putting it at that location, Mr. Lane continued, some capital will be saved. At this point, Vetrotex Wichita Falls has submitted its permit application to the State, as it takes some time to get approval, and nothing can be done without such permit. The local plant has spent some money to put the permit before the State. A request for funding to the Corporation will be made in early February. It is anticipated that production of this line could begin in January 2006. Mr. Lane estimates Vetrotex Wichita Falls needs $4 million more in capital compared to the other countries with which they are in competition for this process (Brazil, Spain, Mexico, and Italy). He told the 4A Corporation members that Vetrotex Wichita Falls needs it help. When he last spoke to the Corporation, in 1999 -2000, there was discussion regarding Tank 6. That tank had Unifilo and the conventional rolling line with it. However, Unifilo could be processed more economically in Italy than here, so the Wichita Falls facility lost that process. That left the tank with just the conventional rolling line, which eventually ended up in Mexico. . Wichita Falls Economic Development Corporation January 3, 2005 Meeting Minutes Page 3 Mr. Shores asked for confirmation that Vetrotex had a plant in China. Mr. Lane replied affirmatively, but stated only Italy is producing Unifilo at this point in time. He asserted it would be hard for the Chinese to come into this market quickly, due to Unifilo's high tech production process. Mr. Lane added that there is a developed market for this product in the United States. Thus, it will not be necessary for Vetrotex Wichita Falls to install the process, and also develop a market for the product. Mr. Stahler questioned the $4 million shortfall here versus putting the Unifilo process somewhere else. He asked if this deficit is just on the initial capital investment, and not related to labor costs. Mr. Lane stated this venture has an initial cost of $18.3 million of capital investment. It cost approximately $14.7 million to install this process in Italy. Mr. Stahler replied that that capital investment would have no bearing on what the labor costs would be in Wichita Falls compared to any other potential location. Mr. Shores asked why the capital cost would be higher in Wichita Falls than in Mexico, for example, assuming the machinery, etc., would cost the same. Mr. Lane replied that the people in Mexico hired to install the process are paid less than those in the United States. In addition, the transportation costs must be included. The only way to compete, Mr. Lane added, is to have a process that cannot be duplicated, or automate it in such a way that you make up that difference of manufacturing and assembling products. Mr. Berzina asked why the Chinese would not be able to do this process. Mr. Lane stated it is conceivable they can develop the technology. The market for this product exists here and in Europe. Due to its construction, when the product is shipped, a lot of air is shipped with it, as well. Normally, a certain amount of weight is loaded onto a truck; with Unifilo, the shipment will fill up the truck before that certain weight load is reached. So, for economic reasons, it is essential to be fairly close to one's customers. Mr. Shores asked if Wichita Falls would have a "leg up" on future expansions if this process is installed here. Mr. Lane believed so; he opined a deciding factor at the time the local plant originally lost Unifilo to Italy was the fact that Italy already had the process. Mr. Shores then asked if the jobs would be newly created ones, or would they be transfers of existing jobs. Mr. Lane stated they would certainly be new jobs. He agreed with Mr. Shores that there would be a phase -out of existing products, and a shift of some of those workers to this new process. Mayor Altman asked the timeline on a decision regarding the location of this process. Mr. Lane replied the decision would be handed down within a two to three week timeframe after February. Mr. Berzina asked where Mr. Lane thought the process Wichita Falls Economic Development Corporation January 3, 2005 Meeting Minutes Page 4 might be put, if not in Wichita Falls. Mr. Lane opined that it would probably be placed in Italy. He stated, however, that a positive for Wichita Falls is that the market is here in the United States. Customers need varying sizes of the product, and due to Wichita Falls' proximity to those customers, the local plant can do a better job of satisfying the customer. Mr. Chase noted that Vetrotex had already invested million to automate a tank. Liz Martin stated they had invested $16.2 million to automate Tank 5. Mr. Chase asked if they had plans to automate Tanks 1, 3 and 4, if they are successful in this venture. Mr. Lane replied that they would, if the funds are approved to do so. Mr. Stahler stated that he understood that the jobs will be new, in the sense that they will be lost, otherwise; but he questioned if the 34 jobs will actually be created from people who would otherwise be losing their jobs. Mr. Lane replied that current workers would go to Italy to learn the process. Mr. Rodriguez asked what the wages would be for these jobs. Steve Barnes replied around $16 per hour. Mr. Chase stated he had information that a good portion of the jobs being retained will earn more than the average wage. Mr. Shores stated it was his understanding that about ten of the jobs being created would pay $50,000 or more. Mr. Chase explained to Mr. Lane that if this project is recommended for approval by the Corporation to the City Council, a Memorandum of Understanding will be prepared, which will lay out how this is to be paid out. Mr. Lane stated he believes this project is important to Vetrotex and to Wichita Falls. Mr. Shores asked if the letter that Mr. Chase had prepared is acceptable to Vetrotex. Mr. Lane replied that it puts them on a level playing field. He and Mr. Barnes and Ms. Martin thanked the Corporation for its time, and left the meeting. Mr. Rodriguez questioned how the economic impact was estimated. Mr. Chase replied very conservatively; using about a 1.3 or 1.5 multiplier. Mr. Rodriguez clarified that he was speaking of the $18.2 million. Mr. Chase replied that is the capital investment for the Unifilo. He noted that Vetrotex has already spent nearly $17 million to automate Tank 5 in order to not have as high a labor cost, thus allowing for better competition with the Asian market. Mr. Stahler noted that labor costs in other countries will still be cheaper than in the U.S., so he is not sure, by his understanding of how the international market works, that Vetrotex Wichita Falls would ever be on a level playing field, unless costs can recouped by way of transportation. Mr. Berzina stated he thought Mr. Lane was talking in terms of construction labor costs. But once the plant is up and running, those labor costs will put the Wichita Falls facility back behind the eight ball. Now matter how technically advanced the process, other markets pay less for labor. Mr. Stahler agreed, stating that Unifilo could be manufactured more economically somewhere else, Wichita Falls Economic Development Corporation January 3, 2005 Meeting Minutes Page 5 because of the high cost of labor in America. Mr. Chase stated that is partially correct, but they are also proposing a higher level of automation here than would be offered elsewhere. Mr. Shores urged clarification of the nature of the Corporation's 5% commitment of capital costs. Mr. Chase replied that is strictly brick and mortar, a taxable investment. He noted that might need to be clarified in the Memorandum of Understanding. Mr. Rodriguez noted it is impossible to measure this request for the long haul. He doesn't know how to put a number on this. Mayor Altman noted it is the best chance for Vetrotex to maintain the viability of the Wichita Falls plant. If they don't continue to automate, they'll continue to get behind. Mr. Shores noted that $6,000 per job, for a $16 per hour job, is considerably in excess of what the Corporation has been offering to other companies. Mr. Chase concurred, stating that $5,000 is the highest they've yet to work with, in the $14 to $15 range, so this is $1,000 more. Mr. Shores noted if Vetrotex Wichita Falls is successful in this venture, the City will not gain any new jobs, because Vetrotex will transfer people out of existing positions. Mr. Chase replied that, if this is not done, 204 jobs will be lost. There is potential, as well, that there could be a second or third phase of this project, which might result in new hires from the labor pool that had been terminated. Mr. Chase stated he asked Mr. Lane if there would be a series of terminations, or would Vetrotex allow for attrition. Mr. Lane said it would be a combination of the two, done over a three - year period. Mr. Chase noted that Vetrotex would lose $1.6 million when they close Tank 2. That will come off the tax rolls. Mr. Shores asked if that is not under a tax abatement agreement. Mr. Chase replied that Tank 2 is on the tax rolls today; it has been depreciated out. That will go to zero, and there will be a net loss of 204 jobs, which will mean $6 million in payroll. If Unifilo is made here, they will have a capital investment of $18.2 million. Mr. Stahler stated that will not be on the tax rolls, due to abatement agreements. Mr. Chase stated there will most likely be a non - annexation agreement that provides for an agreement in lieu of taxes of 25% for the first five years; 40% for the next five years after that. Mr. Shores calculated that would put $4.5 million on the tax rolls. Mr. Chase added that the county and city tax abatement agreements start at 100 %, and drop 10% each year. By the end of the 10 -year abatement period, the taxing entities would receive 55% of their normal income. Mr. Stahler noted in order to get to $229,000, that is $6,000 x 34 jobs, assuming 10 jobs. Mr. Chase stated it's an actual, assuming there will be 10 jobs. Mr. Stahler said right, it could be higher; it could be 10 to 15 jobs. Mr. Stahler noted the cost would actually be $204,000 for jobs, and then an additional 5% for every job over $50,000. So that $229,000 figure could actually change. • Wichita Falls Economic Development Corporation January 3, 2005 Meeting Minutes Page 6 Mr. Chase stated there is a cap on the capital investment, but noted that at least one -third of the jobs will be the higher paying jobs. Mr. Shores asked for clarification that 5% of the actual capital investment would be paid after proof of the investment by Vetrotex. Mr. Chase stated they could ask for a presentation from Vetrotex, requesting evidence that investment has been made. Mr. Benoit stated that works fine; companies usually don't have a problem with that request. Mr. Berzina stated the question might arise before the Board at some point, are they just basically making loans to keep existing businesses here. Mr. Chase stated what triggers his desire to do this is the fact that they are going to cease to exist as we know them in a short period of time, otherwise. The next step, they could cease to be here at all. And the Board has the ability to help change that course. He believes such steps should be taken cautiously. If other companies come and say they're in dire straights, and state publicly they are losing money for the first time in 25 years, that is a red flag that needs reaction. If a company is unwilling to announce publicly, then you shouldn't feel obligated to commit 4A funds. Mr. Altman felt the difference is that they have already started the process of investing $16 million, and they didn't come to the Board for that. We're looking at a new product, not just to maintain the company in Wichita Falls. Mr. Shores agreed, stating it seemed similar to the PPG request. Mr. Berzina stated that the nature of his question points out the importance to consciously realize we're taking steps toward a time when a company will come to us and say they are not adding anything, but they need money to operate. Mr. Rodriguez stated the Corporation will cross that bridge when it gets there. Mr. Stahler stated this is a new product line, a new capital investment. Mr. Chase stated that, if the Corporation denies a request, and the end result will be a plant that will shut down and real loss is demonstrated, there is justification for the Corporation to grant such a request. Mr. Stahler stated that if there are 20 jobs at $50,000, the dollar amount will be $269,000. He asked if that figure included benefits. Mr. Benoit stated the agreement usually includes the phrase, "benefit eligible." Mr. Chase noted that he will make that correction. Mr. Stahler moved, seconded by Mr. Rodriguez, that the proposal from Vetrotex be approved. The motion unanimously carried. Wichita Falls Economic Development Corporation January 3, 2005 Meeting Minutes Page 7 IV. Consider a Presentation and Possible Action on a Consulting Services Contract with Trinity Works Mr. Chase stated this item concerns Isaac Manning's continued operation for one more year. Because the level of involvement will be less than the first year, his costs have dropped by $1,000 per month. He will continue to work in the following areas: (1) ensure all amenities to make this a high quality business park are put in place; (2) work with investors toward vertical development; and (3) look for end -users for the business park. Mr. Rodriguez noted that this is now the key, to find users for the park. Mr. Shores noted that this is in effect an extension of the existing contract with Trinity Works. Mr. Stahler pointed out, however, that if Trinity Works finds an equity investor, the costs to the Corporation will change. Mr. Chase asked Mr. Manning to be more performance -based in his thinking for this agreement. At some point, the Corporation will no longer need his consulting expertise and the park will be built. He asks if the Corporation wants to figure out a way to continue to engage his services. Mr. Stahler stated he is fine with that, but asks if there will be another bill if he finds a potential tenant, and it moves beyond a simple inquiry. Mr. Shores asked if that extra fee comes into play only if we enter into some type of agreement with Trinity Works Capital for the financing of a facility. Mr. Chase stated it is specific to Trinity Works Capital. This is Mr. Manning's attempt to find speculative vertical development opportunities. Mr. Stahler asked for clarification, if Mr. Manning finds someone who wants to build a spec building in the park, will the Corporation owe Mr. Manning additional money, or would this be included in his fee. Mr. Chase replied that simply bringing someone to the table does not require additional money. If Trinity Works Capital finances it, there will be a separate agreement concerning how that company would be paid. Mr. Shores requested that the language be tightened up for clarification purposes. Mr. Berzina stated that, as part of the $5,000 a month that Mr. Manning would receive from the Corporation, if he brings a potential tenant in who wants to build his own spec building and does not want to use Trinity Works Capital, he feels Mr. Manning has already been paid. Mr. Stahler agreed, stating he does not want the Corporation to get "double dipped." Mr. Shores noted that the $5,000 a month paid to Mr. Manning is for marketing; if he comes up with a potential tenant, that is part of the reason the Corporation has retained him. Mr. Chase stated he would talk with Mr. Manning to more clearly understand his intentions. In the meantime, he would suggest that the Board ask the Council to amend the budget by $65,000 for the extension of the existing contract. He noted that Mr. Manning has never submitted a bill for travel or any other expenses. Mr. Berzina asked Mr. Chase what he envisioned Mr. Manning's role to be in the future regarding the park. Mr. Chase stated a scenario might be that if a company buys some business park land, and Mr. Manning is involved in bringing them here and building a facility, he would take a piece of that transaction, similar to a real estate Wichita Falls Economic Development Corporation January 3, 2005 Meeting Minutes Page 8 transaction. There are questions, however, on what the level of his involvement would have to be in order to trigger that financial transaction. He believes Mr. Manning should come before the Board to explain what he thinks is a viable solution. Mr. Berzina stated after this year, the Board may look to hire someone who is actually going to be in the business of promoting. Mr. Shores noted the proposal before the Board today is to approve recommending to the City Council to amend the budget by $65,000 for marketing assistance at the Wichita Falls Business Park from Trinity Works, subject to clarification of the financing terms. Mr. Rodriguez so moved, seconded by Mr. Stahler, and the motion carried. V. Consider a Presentation and Possible Action on a Funding Proposal from the Texas Manufacturing Assistance Center Mr. Chase reminded the Corporation that TMAC is a group from Texas Tech. (It is a federally- funded organization that operates in all states. Its purpose is to give insights into operational issues to small to mid -size manufacturers that do not have the financial ability to hire consultants.) When this issue was discussed during the Corporation's August 30, 2004 meeting, the Corporation requested TMAC come back to the Corporation with a more definitive process. Mr. Chase scheduled it for this meeting, but due to the holidays, TMAC is not prepared to make a presentation at this time. Mr. Shores noted this item is tabled. VI. Other Business. Mr. Stahler brought up some information that Mr. Chase had forwarded by mail to the Corporation. He noted in the last set of minutes, the discussion was indicated that Wichita Clutch might be willing to bear the cost of the trees on Production and Fisher. He questioned whether that is still an option. Mr. Chase replied the trees along Fisher are not part of the Wichita Clutch project. However, the company does want to have a drive up to their front door. Mr. Chase continued, stating it was his early intention to pay them a certain amount for the land purchase (right -of -way along Fisher Road and south of their parking lot), and Wichita Clutch in turn could use that money to improve their driveway and small parking lot. The new owners say they do not have the money to do that. Mr. Chase suspects that the improvements they wish to make will cost more than the amount of money they will receive from the sale of the land, particularly since the City is tied to purchasing land at the fair market value only. The improvements that Wichita Clutch wants to make would serve to provide a better - looking entrance to the business park. He is meeting with the company this Wednesday, and they will review the engineer's drawings. He hopes to get the company to sign on to the covenants and restrictions of the business park, although that is not a requirement. Since Wichita Wichita Falls Economic Development Corporation January 3, 2005 Meeting Minutes Page 9 Clutch is grandfathered in, any expansion they desire would not have to coordinate with the rest of the appearance of the park. Mr. Berzina questioned what land is being purchased. Mr. Chase indicated by drawing. He noted the property, if purchased, would make Parcel #1 that much deeper. It is currently full of mesquite and fencing. Wichita Clutch states they do not need that land. Mr. Berzina asked how much acreage is contemplated being purchased. Mr. Chase stated they will know that on Wednesday, as Wichita Clutch is still in the process of measuring that out. It will be in the neighborhood of five to ten acres, in addition to the area to widen the right -of -way for Fisher Road. Mr. Berzina stated he would just as soon have an arm's length transaction on this matter, and simply buy the right -of -way that is needed. Mr. Chase stated that process is underway at the present time. VII. Adjourn. The meeting adjourned at 5:15 p.m. Linda Merrill, Recording Secretary 'Oe -Z Gary ores, President