Council takes look at economic development

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February 5, 2016 - 12:00 AM

Iola City Council members spent more than two hours Thursday discussing long-range plans the city should consider.
And while the discussion touched on several topics — everything from beefing up the city’s utility infrastructure to a possible archery range at Elks Lake — much of the talk focused on how the city should tackle economic incentives for new or existing businesses.
City Administrator Carl Slaugh noted the city brings in a shade more than $30,000 annually for economic development, through a one-mill property tax levy. The fund has about $190,000 in the bank.
“There are cases when we want to offer incentives,” Slaugh said. “But those incentives often have a cost. We need to understand where the funding comes from.”
Any incentives in excess of $190,000 would  come from reserve funds, or elsewhere, through fees, sales or property tax increases, or utility rate hikes, Slaugh said.
“If the Council says, we want to have an incentive, we need to know what’s in the incentive, and what’s in the return,” he said.
The declaration drew a variety of responses.
“I don’t know how comfortable I am statutorily tying our hands,” Councilman Jon Wells said. “We don’t know necessarily what projects may come up, what industries we may need. I wouldn’t want to be the person who doesn’t give the industries what they need.”

IOLA banker and Iola Industries member Jim Gilpin stressed the importance of remaining flexible in economic development.
One of Iola’s blessings its that it owns its own utilities, which provides a substantial advantage for economic development, Gilpin said. That blessing, however, brings challenges because of Iola’s dual customer base — citizens and industries.
“In some ways, you’re wearing two hats,” he said. “One of those hats is as a marketing business for utilities to your main business customers. Half your money in budget comes from utility transfers. You have to be a good, well-run business that provides good services to your customers, and you’re responsive to them.
“We’re keenly aware on the economic development side that Iola has two major customers, Gates and Russell Stover Candies, who provide a huge source of not only property taxes but are also a huge consumer of your utilities,” he continued. “If you don’t have someone dedicated to checking with them every week to see how things are going, I might suggest it. Fifty percent of your budget is dependent upon being a good salesman, and a good provider of utilities.
“To tie your hands and your ability to be responsive to your customers, would be a major change from a historical position for the city,” Gilpin concluded. “It’s always been flexible and responsive to its major customers; sensitive all the time that it also has to serve its citizens. For 100 years, Iola has been an industrial community, and it’s tried very hard to keep that role, because it’s been a great source of jobs.”
Council member Austin Sigg agreed — to a point.
The city can continue to offer incentives, he said. “We just need to figure out how we’re going to budget it.”

TALK eventually turned to the city’s recent upgrades to an electrical substation in Bassett, to accommodate a massive expansion at Gates Corporation. Iola spent more than $200,000.
However, the depressed oil economy led Gates to shelve the proposed expansion indefinitely. As a result, Iola spent about $200,000 with little return on investment, Slaugh noted.
With such projects, the city should enter into an incentive contract with the beneficiaries of an economic development incentive, Slaugh said “We should have some kind of ‘clawback’ provisions, to have some kind of ability to recover our investment.”
David Toland, Thrive Allen County executive director, said it would be unfair to pin the “lost” investment on Gates.
“There should be an incentive agreement every time the city offers incentives,” Toland said. “The city has done two such projects in the last three years; one with Catalyst, the other with Gates. “With Catalyst, there was an incentive agreement with the city, county and Iola Industries. Everybody’s responsibilities were known, including Catalyst’s.
“For whatever, that was not done on the Gates project,” Toland continued. “I don’t understand why it didn’t occur, but it’s water under the bridge.”
Slaugh again turned the focus back on whether the city should have a structured economic incentive policy.
“Would you as a council entertain a policy that every time you offer to pay for something, you have a statement to agree where the funds will come from, or if it’s going to require a mill levy increase, sales tax increase or utility rate increase?” he asked.
The question struck a nerve with Wells.
“Not all of these (incentives) cost money, and not all of them require rate increases,” he said. “We’re talking rate increases now because we haven’t done it for so many years. We’re talking utility rate increases because we haven’t been doing the things we need to put away” for future expansion of Iola’s generating capacity.
It’s foolhardy for the city to say it will set aside $1 million annually in electric revenues, “but we’re never going to raise rates,” Wells continued. “Gates is not the reason we’re raising utility rates. Don’t sit here and feed me this line.”
The city must raise its electric rates, Wells said, because he anticipates the EPA eventually requiring the city to shut down its diesel generators. Those generators must be replaced, but such a replacement generator likely would cost about $10 million, he noted. Thus, the city needs to set back substantial reserves.
“The reason we’re going to raise utility rates is because the EPA, period,” Wells said.

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