Winsted-Lester Prairie Journal, April 26, 1999

Winsted council splits on industrial lot sale

By Luis Puga

Ultimately, the Winsted City Council approved a purchase agreement between Winsted and RAM Buildings, Inc. for an industrial lot Tuesday.

But prior to the arrival of the two owners, the council hashed the issue of how much is too much to give to a prospective industry.

Details of the agreement included a purchase price of the land for $1. The site was moved from its original northwest corner to two plots on the southwest corner which are more accessible to sewer and water hook-ups.

Along with hook-ups, the city has agreed to pay site preparation including the grading of the lot as well as other infrastructure costs such as a 20-foot road.

Other highlights of the agreement included proof that the new business will hire five full-time employees and that it must open within 24 months after the closing date.

The building and land must be valued at $100,000 or more, the business forfeits the right to contest future assessments, and if the market value of the property becomes more than $400,000, the city will forgive the business' outstanding debt.

In the event the owners are not able to open within 24 months or do not have five full-time employees, they must pay the city back the site preparation costs and half of the utility and road construction costs.

The total cost of site preparation and infrastructure construction is $176,000. While the city will be doing site preparation and grading, City Administrator Aaron Reeves explained that the city won't be spreading gravel on the entire the two lots, but just on areas used in initial construction.

The plan is that the business will start with one building and eventually take up more of the lot as it grows.

The site preparation alone will cost $85,000 which RAM will pay. The remaining portion of about $90,000 will be paid by the city.

As for the $85,000, the city will pay that initially with RAM paying the city back in over 10 years in installments of $8,575 each year. That cost will be split between two payments per year.

Another feature of the deal is that if the venture were to fail, the land does not automatically revert back to the city. In order for RAM to get financing, the land must be used as collateral. Reeves said that the land would still be taxed even if the venture went under.

Initially, a five-year extension was examined, making the installments $17,000 a year. However, Reeves said that RAM felt the cost was too high for just starting out.

The five-year extension was one that Council Member Gary Lenz argued that the last council said was the minimum time frame that the city would wait to get back its monies.

Overall, it was Lenz who took issue with the purchase agreement, particularly forgiving the debt if the market value increases by $400,000 and the amount of time it would take for the city to get back money put into the development. Lenz argued that in a worst case scenario, the city could wait up to 20 years to see any return on the deal.

He said, "Someone is going to come up to me and say, 'Where's the payback?'"

He also said that since there is no policy on purchase agreements, it leaves open the opportunity for future businesses to come in and ask for more from the city. He also felt that the city had no guarantees in the case that the business goes bankrupt.

Reeves said that the city's share of taxes, if the site reaches $400,000 would be about $7,000 per year. City Clerk Betty Zachmann argued that each case of industrial development will and should be handled differently.

Moreover, council members argued that it was very important to get the first business into the industrial park as a selling point to other prospective buyers.

It was noted that the industrial park has laid dormant for six years and the council has been trying to sell lots for three years.

Council Member Jeff Albers characterized the park as "a monkey on your back," insisting that renting the land to farmers currently is a waste of resources.

Zachmann also noted that the city is paying taxes on the rented land, which would end when the city converts it to an industrial lot.

Mayor Floyd Sneer said that the city need business development so that new people will come and possibly purchase homes in the city. He said, "Don't we have to take a chance on something like this once in awhile?"

Discussion continued, with references to home construction and Bill Gates used to illustrate arguments.

When the RAM owners arrived, neither side had convinced the other and even Sneer, who typically doesn't vote, voted for approving the purchase agreement.

The new owners, Gregg Machemehl and Rawelin Radtke, will be moving a used building onto the land after preparation. City Attorney Fran Eggert will review the agreement for final legal adjustments and the new owners will have an opportunity to ask questions at the city's next regular meeting, Tuesday May 4.

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