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HomeMy WebLinkAboutEDA Packet 06.20.17AGENDA CITY OF HUGO ECONOMIC DEVELOPMENT AUTHORITY Tuesday, June 20, 2017 5:00 PM 5:00 pm 1. Call to Order 5:01 pm 2. Roll Call (Denaway, Gallivan, Houle, Klein, Petty, Puleo, Weidt) 5:02 pm 3. Approval of Minutes • EDA Meeting of March 21, 2017 • EDA Meeting of May 16, 2017 — ULI Workshop 5:03 pm 4. Discussion on Urban Land Institute (ULI) Workshop 5:45 pm 5. Update on Rail Line 6:00 pm 6. Update on Washington County Economic Development 6:15 pm 7. Update on Downtown Redevelopment 6:30 pm 8. Adjournment BACKGROUND MEMO FOR THE EDA MEETING OF TUESDAY, JUNE 20, 2017 3. APPROVAL OF MINUTES Staff recommends approval of the minutes from the March 21, 2017, EDA meeting as presented. Staff recommends approval of the minutes from the May 16, 2017, EDA meeting as presented. 4. DISCUSSION ON URBAN LAND INSTITUTE (ULI) WORKSHOP On May 16, 2017, representatives from ULI conducted a workshop called Navigating Your Competitive Future. Gordon Hughes and Cathy Bennett from ULI provided background on Hugo in regards to demographics and provided facts on regional trends. After the presentation, four panelists were asked to provide insights and answer questions about Hugo in regard to economic development. Attached is the summary of the meeting. Staff would like to discuss the summary of the key observations from the workshop with the EDA. Staff recommends that the EDA review the summary prior to the meeting. 5. UPDATE ON RAIL LINE The legislature allocated $1.5 million in bonding money to the rail line in Hugo. Staff will provide background and an update on the rail line at the meeting. Attached is an article from Twin Cities Business magazine on the short rail line in Hugo. 6. UPDATE ON WASHINGTON COUNTY ECONOMIC DEVELOPMENT Staff will provide an update on Washington County economic development. In its August 2017 issue, Twin Cities Business magazine will be including an article on Washington County on why it's a great place to locate and grow a business. Attached is an advertising opportunity available within the August issue of the magazine. 7. UPDATE ON DOWNTOWN REDEVELOPMENT Staff will provide an update on downtown redevelopment at the meeting. MINUTES FOR THE EDA MEETING OF MARCH 21, 2017 Klein called the meeting to order at 5:00 pm. PRESENT: Denaway, Houle, Klein, Petty, Puleo. ABSENT: Gallivan, Weidt. STAFF: Bryan Bear, City Administrator Rachel Juba, Planner Rachel Leitz, Community Development Assistant APPROVAL OF MINUTES FOR THE EDA MEETING OF JANUARY 17, 2017 Puleo made a motion, Petty seconded, to approve minutes for the EDA meeting of January 17, 2017. All Ayes. Motion carried. STATE FARM INSURANCE — TY SCHRUPP Mr. Schrupp was unable to attend the EDA meeting. Staff will work with him to reschedule. DISCUSSION ON WASHINGTON COUNTY ECONOMIC DEVELOPMENT STRATEGIC PLAN Juba talked about the work group of economic development staff throughout Washington County that have been meeting through Chris Eng, Economic Development Director at Washington County. She stated that this group has been working on prioritizing possible economic development efforts for the County and has hosted a variety of speakers to present at these meetings. Juba stated that Washington County has a draft of their Economic Development Plan that provides action steps and deliverables for how the County will be active in economic development. The sections include marketing, partnerships, financial assistance, community assistance, workforce development, and infrastructure. Juba stated that it is in staff's opinion that Washington County has done a good job in outlining the action steps within their plan. Staff recommends the EDA review the plan and adopt the resolution to support the Economic Development Plan for Washington County. Klein made a motion, seconded by Houle to approve Resolution 17-001. All ayes. Motion carried. UPDATE ON DOWNTOWN REDEVELOPMENT Staff provided an update to the EDA on downtown redevelopment. ADJOURNMENT Houle made a motion, seconded by Petty, to adjourn at 5:54 pm. All ayes. Motion carried. MINUTES FOR THE HUGO EDA 2040 COMPREHENSIVE — ULI WORKSHOP TUESDAY, MAY 16, 2017 CITY HALL ONEKA ROOM PRESENT: Denaway, Gallivan, Houle, Klein, Petty, Puleo, and Weidt. ABSENT: None ALSO PRESENT: Landform Planner Kendra Lindahl, Landform Planner Mary Matze, City Administrator Bryan Bear, Planner Rachel Juba, Community Development Assistant Rachel Leitz. The meeting was called to order at 5:05 pm by Mayor Weidt. The workshop was held jointly with members of the Planning Commission, EDA, and Parks Commission for the purpose of attending a Navigating Your Competitive Future workshop held by ULI Minnesota. The Commissions listened to a presentation provided by ULI staff on demographic trends, market preferences, and future growth patterns with the realities of the market place. After the presentation, four panelists were asked to answer questions about Hugo in regard to economic development. The panelists included, Eden Spencer, Greater Metropolitan Housing Corporation, Chris Eng, Washington County HRA, Sara Joy Proppe, Schafer Richardson, and Keith Ulstad, United Properties. The meeting adjourned at approximately 7:00 pm. Respectfully Submitted, Rachel Juba Planner ULI Minnesota Regional Council of Mayors MEMORANDUM TO: Bryan Bear, City Administrator Rachel Juba, Planner FROM: Gordon Hughes and Cathy Bennett, ULI Minnesota DATE: May 30, 2017 SUBJECT: ULI Minnesota Navigating Your Competitive Future Workshop On behalf of ULI Minnesota, thank you for the opportunity to meet with the City's elected and appointed officials and staff on May 16, 2017. Our ULI MN workshop team enjoyed the dialogue and appreciated your hospitality. We also appreciated the time that you spent with us preparing for this workshop. As a follow up to the workshop, we would like to take a moment to summarize some of the key observations expressed during our panel discussion and dialogue. • Data on demographics, employment and jobs in Hugo, presented at the workshop, offered a point of reference for trends that will affect the City in coming years. Please feel free to contact us if you have any follow up questions on the data presented at the workshop or any of the materials which we provided. • Economic development is about what a community has rather than what it lacks. Hugo's strength is "an urban environment in a rural setting." A good economic development strategy would include a thoughtful inventory of Hugo's assets with an eye towards preserving the community's character and sense of place. • Hugo is on the periphery of the metro area industrial and retail market and development opportunities in other areas may need to be absorbed first. Hugo, like most cities in the metro area, is well -retailed, i.e. a broad range of goods and services are available to members of the community even if those goods and services may not be located in Hugo. They may be just across community lines or on the dominant routes that take residents to and from work or around town. Retailers tend to pay less attention to community boundaries than to circulation patterns and shopping habits. • Hugo has done a great job of not forcing development before the market is ready. Cities which have done this sometimes end up with less than ideal developments on a long-term basis. Retail growth will follow rooftops, but will be largely comprised of services and convenience goods for Hugo residents and employees. Dining will follow rooftops and a more significant daytime population which is now lacking in Hugo. Panelists pointed out that the U.S. is overly retailed — there's about 25 square feet of retail floor area per capita in the U.S. while Europe has about two square feet per capita. • The number of medical/dental uses is impressive and provides a foundation for other related uses. Panelists were surprised that a pharmacy was lacking and predicted that one or more will be coming soon. • Data centers may be an economic development opportunity for the City. Although they may provide relatively few jobs, they contribute favorably to the tax base. • Small manufacturing startups are typically looking for existing buildings rather than development opportunities. As they grow, development or expansion opportunities become more important. It is essential for the City to "know its inventory" for industrial and manufacturing sites that can be marketed to potential users. • The economics of housing often make new market rate rental projects difficult in many settings. In these places, the market simply cannot bear the rents needed to induce the construction of new rental housing. A city's willingness to explore public/private initiatives, such as low income housing tax credits and tax increment financing or consider fee waivers when appropriate, may be necessary to spur the development of new housing options. Cities that do upfront research, market analysis and take other steps to streamline the development approval process tend to be more successful in attracting development investment for new rental housing. • Mixed use development, with housing as an integral part, may be a desirable use in the downtown area. In order for mixed use to be successful, all elements - housing, retail and commercial — must work from a market perspective. In all likelihood, this will be a horizontal project. Vertical mixed use, especially in a setting like Hugo, is very difficult to accomplish from an economic standpoint. • Ownership forms of multifamily housing are still difficult to accomplish. While there may be a demand for common interest community attached housing products, current laws regarding ongoing liability for construction defects has effectively chilled this market. Changes to State law are needed and in the works which may increase opportunities for this type of development in the future. • Opportunities for more affordable small lot single family or bungalow type developments require public participation to be feasible. The new single family and one level ownership living offered in the City are not affordable to young families and the New Generation. This type of housing may require financial support from the City or funding from other public sources available at Metropolitan Council, Washington County or Minnesota Housing. Focusing on existing home renovation programs could help provide more affordable options for young families as homes become available as well. 2 • Senior housing is a development opportunity for the City and will likely not become overly saturated in the near term. Senior housing is more about 85 year olds than 65 year olds. Therefore, the peak of Baby Boomer senior housing demand may still be 20 years away. Senior cooperatives are a workable model in Minnesota and could be an opportunity for Hugo which typically attracts the younger independent senior population. The success of coops often depends on the ability of buyers to sell their existing homes which are usually in relatively close proximity to a new development. • Trails and sidewalks are important. Especially those that connect important places along safe and interesting routes. • Plan around Hugo's assets. Sometimes cities attempt to promote development that doesn't fit with who they are. Focus on Hugo's wonderful assets and how they play into the long-term development potential of the City. (Re)development is a relationship business. Hugo has a great story to tell and should be shared proactively with the development community and as opportunities arise. • The Great Recession seriously affected the development community. Qualified developers who remain in business are selective about the communities in which they work and are looking for predictability and flexibility. Cities which embrace collaborative approaches to solving problems, identify and pursue partnerships, manage development risks, improve decision making skills and develop clear expectations will be attractive locations for great (re)development. Developers are much more reluctant to invest their limited "pursuit capital" in cities which have not invested the time and energy needed to achieve a commonly held vision. • It's OK to say no. Sometimes it is necessary to say no and demand a better development product. However, it is critically important to provide a clear understanding to the development community about what is expected and achievable. A fast "no" is better than a slow "maybe" from a developer's standpoint — time adds costs to a project and can kill deals. • Successful communities develop a clear vision, react appropriately to opportunities, create innovative financial tools and leverage their key assets. Leadership and "consistency of vision" are keys to successful communities, especially the alignment of policy direction between elected officials, appointed officials and staff. Developers' greatest enemies are uncertainty and risk. Both developers and lenders are even more risk averse now, so communities that can be very clear about their expectations and have policies and procedures that expedite approvals for projects that are consistent with their vision will prevail. 3 • Involve the Next Generation in decision making. This generation is willing to contribute their opinions and expertise in making their community a better place. Cities which find new innovative ways to engage the Next Generation will benefit greatly from their contributions, especially during the comprehensive planning process. • The City's involvement in (re)development can take many forms. It could be financial assistance, it could be marketing initiatives and it could be property assemblage. Whatever the approach, it is important for the City to align available resources and communicate them effectively to the (re)development community. The policies and practices outlined in the ULI MN (RODevelopment-Ready Guide will assist Hugo in establishing (re)development policies and practices that use scarce public dollars to attract private investment, grow jobs, and build tax base for the well-being of your city. • Final thoughts of the panel. The panel concluded the workshop with these final thoughts: o Think outside the box on housing to provide housing opportunities at a more affordable price point. Eden Spencer, Greater Metropolitan Housing Corporation o Not all communities need to or should look the same. Work to preserve Hugo's character and amenities. Chris Eng, Washington County HRA o Capitalize on Hugo's assets as a brand — "an urban environment in a rural setting." Sara Joy Proppe, Schafer Richardson o Hugo has and should continue to manage its growth in a disciplined way. All good retail grows "organically" and is not forced prematurely. Keith Ulstad, United Properties On behalf of ULI MN, thank you again for hosting this workshop. 4 Twin Cities Business - Short Lines, Big Problems http://tcbmag.com/news/articles/2017/June/short-lines,-big-problems HOME (/) / NEWS (/NEWS) / JUNE (/NEWS/ARTICLES/2017/JUNE) / SHORT LINES, BIG PROBLEMS News TRANSPORTATION + LOGISTICS (HTTP://TCBMAG.COM /TRANSPORTATION --- LOGISTICS) Short Lines, Big Problems Minnesota's small railroads are in a perilous state, putting the businesses and small towns that rely on them in jeopardy. MAY 31, 2017 ADAM PLATT EDITOR'S NOTE: The conclusion of the 2017 legislative session had a material impact on the railroads in this story. The legislature allocated $1.5 million in bonding money to repair Minnesota Commercial's Hugo Line. It also forgave the Minnesota Valley Railroad Authority's remaining debt for a loan to upgrade the eastern portion of the Minnesota Prairie Line. Finally, the Legislature took the Governor's recommendation and began a short -line improvement fund seeded with a modest $1 million. Morton, Minnesota, is a railroad town. It has been since 1884, when the Minneapolis & St. Louis Railway crossed the Minnesota River on a mile -long timber trestle on its way to South Dakota. Morton was founded because of the railroad, and has thrived and struggled alongside it for well over a century. Morton was a railroad town in 1960, when the Chicago & North Western swallowed up the M&StL, and it was still a railroad town—moving corn and soybeans from area farms—when the North Western discarded the line in 1983, part of a wave of abandonments of Midwestern agricultural lines as more and more commerce was taken up by the rapid expansion of the nation's over -the -road trucking industry. A succession of owners followed, and the line's condition became so bad the trains stopped in 2000. Morton exists because the railroad stopped there and the line's decline both mirrored and accelerated Morton's, which has lost half its populatiTl84�je the COW left town. Because small towns rely on agriculture, and ag needs rail to ship profitably, letting the line die was not an acceptable solution. In 2002, the rural southern Minnesota counties that were home to the line came together to buy it and start it up again as the Minnesota Prairie Line. 1 of 9 6/16/17, 11:35 AM Twin Cities Business - Short Lines, Big Problems Much of the track remains in tough shape. http://tcbmag. com/news/articles/2017/j une/short-lines,-big-problems On a sunny spring day in Morton, dozens of garter snakes sun themselves on the rails. There will be no train this day, but if there were, the snakes would have plenty of warning: The top speed is 7 miles per hour because of the line's condition. Some of the rails have inch -long gaps; all are stamped 1912 or 1913, the year they were forged in Midwestern steel mills. And every year when the state inspects that mile -long timber trestle across the Minnesota at Morton, county and railroad officials hold their breath. They fear the day is coming when Morton ceases to be a railroad town for good. Tipping point While Morton may be far from the minds of most Minnesotans, the potential loss of rail freight is a concern faced by dozens of communities and hundreds of businesses throughout the state. It's a mode of transportation vital to their economies, but in some places it's fighting for its life. To put Minnesota's short lines in a state of adequate repair, they are asking for $62 million from taxpayers, with an additional $55 million over the next half -decade, according to Merrill Busch, government relations advisor to the Minnesota Commercial Railway. A failure to invest, the railroads insist, puts jobs and communities at risk. On the Minnesota Commercial's Hugo branch line between White Bear Lake and Hugo, the ties are so rotted that the railbed is uneven, and trains are in danger of literally tipping over, says owner John Gohmann. Without a fix this year, a host of businesses in Hugo and White Bear, representing hundreds of jobs, are at risk. On the Prairie Line between Winthrop and Hanley Falls, hundred -year-old rails are so brittle they will snap if freight cars operate with standard loads. The total investment needed for new rails and bridges comes to $60 million. The alternative is a gradual atrophying as shippers give up hope of better service, says Mark Wegner—president/CEO of the Twin Cities & Western Railroad, which operates the Prairie Line for its county owners. Short Line Railroad Statewide Economic Impact Direct short line spending: $41.26 MILLION Direct short line jobs: 277 Direct short line wages: $18.6 MILLION 2013-14 estimates, from MVRRA/TC&W Economic Impact Studies Indirect economic activity: $4.7o billion Indirect jobs reliant on short line rail: 11,403 Indirect wages reliant on short line rail: $553 MILLION 2014 estimates, MVRRA/TC&W studies "It's not a pretty picture when a rural town loses its railroad," explains Michael Beard, manager of government affairs for the Minnesota Valley Regional Rail Authority (MVRRA), the consortium of counties that own the Prairie Line. "Fulda, Seaforth, Vesta—the story is the same. The elevator closes. The farmer does his banking, shopping and eating out where the elevator is. So Main Street dries up. The school closes because families move away because jobs are gone. With the elevator gone, the tax base is spread over a dwindling number of homeowners, and the town can't afford to repair the sewer plant...." Deferred Maintenance [Close] When people think of a railroad, most think of the BNSF or Union Pacific, national behemoths, speeding 125 -car trains on smooth welded rails to or from coastal ports, conveying grain to Asia or consumer goods to Amazon or 2 of 9 6/16/17, 11:35 AM Twin Cities Business - Short Lines, Big Problems Target. http://tcbmag. com/news/articles/2017/j une/short-lines,-big-problems After World War II, "the rise of the interstate highway system and heavy federal regulation caused railroads to lose money," explains Wegner. "Their response was to prioritize investment. Maintenance was focused on main lines." But the main lines are only part of the story. Since deregulation in 1980, America's railroads have been on a rigorous, some would say ruthless, pruning to shed the remnants of earlier economic eras, when they delivered boxcar -loads of seed or road salt or lumber to small towns and businesses. It was a slow-moving, low -margin, labor- intensive business. As lines were pruned, their railroads were obligated to offer them to anyone willing to operate them, by lease or sale. These small, newly emancipated "short line" railroads were freed by regulators to operate with two-man train crews (rather than five); they leased used engines and turned off expensive signaling systems in favor of two-way radios. Most are very small businesses, albeit using very heavy equipment. Short Line Railroads Minnesota has 13 short line railroads. They operate 1,016 miles of track. $117 MILLION is needed to upgrade rails to adequate repair (railroad estimate). $551.7 MILLION is needed to upgrade rails to federal Class II standard (MnDOT estimate). Source: 2010 state rail plan As a consequence of their frugality, many short lines found themselves able to create positive cash flow on lines that Burlington Northern and the Rock Island could not. But the terms that formed the lines were less than ideal. "They were `as is' transactions," explains Gohmann, "with no provision for upkeep" Most lines had received little maintenance for decades, as the railroads that built them struggled against their unfavorable economics. "The Milwaukee Road and Rock Island went bankrupt trying to keep up with the maintenance on these lines," explains Richard Kedzior, the freight railroad program manager for Wisconsin DOT. Tracks and ties and bridges, mostly built before 1920, showed their age. Traditional debt financing was out of the question. "Banks will not lend because the growth curve is too long," explains Dave Fellon, owner and president of Progressive Rail Inc., a short line with operations in six states. So the short lines muddled along. Some thrived, some failed, but what they had in common was an inability to generate the capital to return their lines to a state of good repair. "The revenue we generate pays our operating costs," says the Prairie Line's Beard, "but it can't pay our capital costs." The Minnesota Commercial's endangered line from St. Paul to Hugo is typical (see "Tied Up in Hugo." page 21). According to Gohmann, last year the line generated barely $10,500 in income for the Minnesota Commercial on revenue of $779,000, a paltry 1.3 percent return. Were it to take advantage of a 10 -year no -interest loan from the state of Minnesota, borrowing $1.3 million to bring the line to a state of good repair would require annual payments of $130,000. The economics don't pencil out. So at the Capitol this spring, thtlsohsoer# lines are engineer's cap in hand, saying their physical plant is worn out and they are nearing the end of the line. JJ One track 3 of 9 6/16/17, 11:35 AM Twin Cities Business - Short Lines, Big Problems http://tcbmag.com/news/articles/2017/June/short-lines,-big-problems The obvious question is why the state should consider a taxpayer investment in railroad infrastructure when other shipping modes exist. The simple answer is certain types of businesses can only ship by rail—and adjacent states are making investments to preserve their rail network and woo businesses (see bottom). "Businesses don't ship by rail because they like it," says Wegner. "They do it because it's the only economical alternative" Most of the industries served by short line rails use skilled labor and pay generous wages with good benefits. "We can have better jobs with rail," says Fellon. "These are not service industry salaries" Extrapolating data from economic impact studies of the Minnesota Prairie Line and TC&W conducted in 2013-14, short line railroads provide essential transportation for businesses that generate $4.70 billion in annual state commerce -11,403 jobs and $553 million in wages. The railroads' direct economic impact comes to $41.26 million annually; they employ roughly 275 people and pay annual wages of roughly $19 million. Still—despite this economic motivation and an absence of opposition—there has been little action. Individual short -line railroads and communities have been petitioning the legislature for decades, and a consortium of short lines has showed up at the Capitol for the last three legislative sessions, but no program or fund has been established. "Minnesota is fairly anti -rail in my opinion," says Fellon. "I look at their actions, not their words, and don't see the activity or the interest" State of indifference Though one-time bonding funds and occasional federal tax -credit programs have given short lines and shippers help, the state's primary assistance vehicle is the Minnesota Rail Service Improvement program (MRSI), which dates to 1976 and provides low- or no- interest loans for shippers and railroads. The program has been little used, railroads say, because of a variety of strictures that railroads, shippers or communities cannot meet. MVRRA's Julie Rath is dismissive, noting MRSI's capital improvement fund's limits are comically low. "Today, all $200,000 buys you is a switch" Mark Wegner says using tax credits would require 28 years to get the TC&W mainline to a good state of repair. Wegner's line needs $17 million over the next five years to replace 60 -year-old tracks. "I probably can't borrow $17 million," Wegner notes, "but if I did, what if then there are two or three drought years? My revenues crater and I can't cover my debt service." The state's willingness to fund the more urgent needs of the Prairie Line and Hugo Line will be a harbinger of TC&W's chances of state assistance. Minnesota has a rail plan defining the rail network and identifying needs and goals to meet the state's economic interest. It speaks covetously of a dedicated funding source for rail improvement. Neighboring states have put their money where their policy is. Wisconsin, Iowa and South Dakota were devastated by railroad abandonments in the late 1970s and early '80s. The situation was so dire that they took ownership of hundreds of miles of track and funded the renewal of hundreds more. Since 1980 Wisconsin has acquired 977 miles of railway, issued $275 million in grants and $130 million in loans. The state currently funds $10 million to $15 million annually in rail investments, and the program has been self-sustaining since 2007. ThgGteto goal is to get 95 percent of state railroad track to Class II status, meaning 25 mph track. "The original grant program was $2 million per year, but by the late 1980s we realized that it was putting Band-Aids 4 of 9 6/16/17, 11:35 AM Twin Cities Business - Short Lines, Big Problems http://tcbmag.com/news/articles/2017/June/short-lines,-big-problems on," says Wisconsin's freight railroad program manager Richard Kedzior. "We had to experience many years of failures to learn we needed to put real money into it. "I wish Minnesota had Wisconsin's vision back when the Milwaukee Road started talking about abandoning all its lines in southern Minnesota," says MVRRA's Beard, who at the time was in the Minnesota Legislature. Iowa began funding short -line rail in 1974, fueling $140 million in improvements via $41 million in appropriations and loan repayments, while retaining or creating 2,000 jobs. Iowa's annual appropriations average $2 million a year and allow for low-interest loans or grants, which require job creation/retention and have to meet wage thresholds. The program receives some funding from gambling revenues. (Lottery revenues in Minnesota are solely dedicated to environmental causes in the state.) Minnesota short lines have proposed that the state fund a program of annual grants like Wisconsin's and Iowa's to preserve rail infrastructure and the jobs that come with it. An initial proposal from Rep. Matt Dean (R-Dellwood), whose district includes the Hugo line, was for $4 million per biennium. "From a policy standpoint, the economic viability of rural Minnesota is a big deal," says Dean. "It's not a great deal of cost to maintain rails already in place." "There is a public-private interest," agrees Sen. Roger Chamberlain (R -Lino Lakes), who also represents Hugo. "We should try to fix it. The difficulty is finding a way to finance." Despite this, and the apparent bipartisan support for the goal, attempts to create funding streams like Iowa's or Wisconsin's have repeatedly been caught up in legislative politics and gridlock. A contributing factor may be Gov. Mark Dayton's level of interest. His office has mostly prioritized grade crossing and oil train safety measures and is currently only proposing a one-time $2 million short line allocation, even though MnDOT's state rail plan estimates the cost to bring state short lines to modern standards is over half a billion dollars. The railroads themselves are asking for far less than that, and say only some of the funds are urgent. "Understand, though," says Wegner, "what we're asking for would not bring the [Minnesota Prairie Line] to a good state of repair, just closer." That the need is in mostly GOP districts would seem to enhance the short lines' chances this session, but it also runs into the inherent conservatism of the GOP caucus. "Anything that is new spending is a big deal," notes Dean, who has announced his candidacy for Governor in 2018. "If we're going to decide to do it, it's because we believe there is no private sector solution" Public or private good? Rail advocates are quick to point out that the state and feds subsidize other modes. "We pay to maintain our trackage and pay property taxes on it," says Gohmann. "But who maintains the roads [for trucks] and waterways [for barges]? Taxpayers do." Even supporters are skeptics, though. "Railroads are still private businesses," says Chamberlain, "and they are looking for the cheapest way out, just like the state" As a result, the issue risks getting muddled into the larger debate about infrastructure and who will pay. "Freight levels are set to doubI[Cld§@jirding to the GAO," says Progressive Rail's Fellon. "If we can't resolve this now, how will we ever handle it?" 5 of 9 6/16/17, 11:35 AM Twin Cities Business - Short Lines, Big Problems http://tcbmag.com/news/articles/2017/June/short-lines,-big-problems Tied Up in Hugo ROTTING TIES COULD DRIVE MAJOR EMPLOYERS TO RELOCATE OUT OF TOWN. The Minnesota Commercial is what's known as a "terminal short -line," providing connections between railroads in a major metro area. Its line from St. Paul to Hugo is a remnant of the Northern Pacific's old main line to Duluth, now a bike trail north of Hugo. According to owner John Gohmann, the bridges and abutments on the line are 100 years old, while the ties predate his railroad's lease of the line in 1990 and are beyond their usable life. Unlike the Minnesota Prairie Line [see "A Railroad Town,"], which owns its track, Gohmann leases the Hugo line from BNSF, which does not believe it can economically operate it. The Commercial is forbidden by lease to borrow against the line, says Gohmann. This means state or federal loan/tax credit programs are no help. Because Gohmann is eager to be transparent in his quest for public funding, he explains the Hugo Line generated barely $10,500 in income for the Commercial last year on revenue of $779,000, a paltry 1.3 percent return. Even if the railroad could borrow against the line, it's not clear that any bank would make the million -plus loan, or that the railroad could pay it back out of income, he says. "This is our last year of operations to Hugo unless these ties are replaced," says railroad COO Wayne Hall. Yet the line serves an industrial park there whose tenants were attracted with an inducement of rail access, according to city manager Bryan Bear. Bad ties south of Hugo along the MN Commercial "We are in agreement," says Bear, "that trains could tip over due to the state of the railbed. I'm actually surprised their `ask' is as modest as it is. A million is doing this very economically." Conversely, loss of the line will have devastating effects for employers along it, they say: IN OAKDALE, POLAR PLASTICS INC. produces plastic sheeting and wrap from pellets shipped in from the Gulf Coast. It pays employees more than $15 an hour, has 30 employees with more than 25 years of seniority, provides health insurance and paid vacation. Owner Andy Ave'Lallemant lacks a direct rail spur and has to truck plastic pellets a mile or so through the suburbs from the Commercial. If the Hugo Line went away and Polar had to truck its pellets from a distant railhead, it would be unprofitable. "Raw materials are 73 percent of my overhead," Ave'Lallemant explains. "I take 6 to 8 cents a pound penalty shipping by truck. That shipping penalty is my margin." He sees few options. "I can't relocate locally. It's too costly." IN HUGO, JL SCHWIETERS BUILDING SUPPLY INC. sells and engineers building materials for large construction projects. It is one of the 10 largK1b?p1ployers in the county, employs 500 workers, pays north of $15 an hour and some senior factory employees earn more than $60,000 a year. It brings its raw materials into Hugo by rail and came to its industrial park in 1999. 6 of 9 6/16/17, 11:35 AM Twin Cities Business - Short Lines, Big Problems http://tcbmag.com/news/articles/2017/June/short-lines,-big-problems "If we lose rail we incur a million extra per year in shipping cost," explains owner John Schwieters. "It is hard to find locations on rail. We went all the way to Rochester looking for viable sites before we came here." LOADMASTER LUBRICANTS LLC manufactures specialty lubricants that are shipped all over the world. It employs 30 in Hugo, and is growing by double-digit percentages. Owner Rick Stewart anticipates 24/7 shifts of 75 to 100 employees with current growth plans. The blunt Alabaman notes he has paid "millions in local taxes" over the past decade. Stewart says he is "waiting to add onto our building until rail issue is settled.... We can do this anywhere. We're here because of rail access. Without it freight costs increase by a factor of five. Freight is [already] a double-digit percentage of overhead." Without rail, "we would relocate the business wherever it best suited us." He scoffs at the suggestion of a state loan program that requires him to contribute to the railroad's repairs. "Why would I invest in something I don't own or control?" he asks. Gohmann fears a loss of rail service would send some of the Hugo Line's shippers into St. Croix County, Wisconsin, where the Union Pacific is soliciting business. The salient contrast with rural short lines is that most of the Hugo line's shippers are located for logistical convenience. It's a marriage that is easily disrupted. "If they were to relocate they might go to Hudson," notes state Rep. Matt Dean (R-Dellwood). "They can move. But a grain elevator in Rock County can't move" As for Hugo, it watches and waits. "We don't fully understand the consequences of abandonment," says Bear, "but we know it entails the risk of business relocation. We've verified the need. The uncomfortable question is public policy." A Railroad Town MORTON, MINNESOTA'S ECONOMY SITS IN SUSPENDED ANIMATION, AWAITING ITS RAILROAD'S FATE. Morton sits on a vein of rock, and the town is adorned with an abundance of granite signage, while older buildings boast outsized granite architectural details and trim. Today Morton is home to several small industrial businesses, a bar, and a couple retail and service businesses. Its downtown feels forlorn, its beautiful art moderne school abandoned and vandalized. In the 1970s, when the Chicago & North Western was still operating its line going to the Twin Cities, Morton had 800 residents. "We had a hotel, Main Street was full," says city clerk/administrator Shirley Dove. "Since then we've seen the schools consolidate, farms consolidate—the county has probably lost half its farms" Morton has lost half its population. Morton was lucky to retain its grain elevator, which stopped shipping by rail when the track fell into disuse between 2000 and 2002. Though the trains have returned in the form of the county -owned Minnesota PrairGl2ii%, the elevator must be A disused elevator in North Redwood Falls redesigned to use them, and owner Harvest Land Co-op will not make the investment until the railroad's future is stabilized. 7 of 9 6/16/17, 11:35 AM Twin Cities Business - Short Lines, Big Problems http://tcbmag.com/news/articles/2017/June/short-lines,-big-problems Though the railroad was upgraded east of roughly its midpoint at Winthrop, the western portion remains in dire shape. "The bridge [at Morton] was built in 1912. It needs a $15 million rebuild. It's so expensive because it's a mile long," says Julie Rath, administrator for the Minnesota Valley Regional Railway Authority. "It can't take [conventional] 286,000 -pound railcars, so we are shipping cars not full," Rath continues. "We ship at night because it's less likely the rails will have expanded." There is a bill before the Legislature to forgive over $4 million in state loans dating to the counties' takeover of the railroad in 2002, because it cannot generate sufficient revenue to pay them back. "Revenue streams were hoped to be sufficient to pay back loans in 15 years," says Mark Wegner, president/CEO of the Twin Cities & Western Railroad, which operates the Prairie Line under contract to the county rail authority, "but they are not." The state has been its own worst enemy. Last year the Legislature, at the behest of utility companies, changed a law that required utilities to pay rent to railroads for crossing their The start of the mile -long Morton trestle track. The rent was replaced by a one-time $1,200 payment. "$1,200 used to be our application fee," Rath notes. She says the rail authority received $160,000 in annual rent from utilities. "It's our operating budget." So a difficult situation on the railroad is now acute, which is why the Legislature is considering forgiving its loan, says Rep. Paul Thorkelson (R-Hanska), who represents Morton and chairs the House transportation finance committee. SMALL BUSINESSES, CRITICAL MASS The University of Minnesota has been following the Minnesota Prairie Line since it was purchased by the counties. Its most recent economic impact study covers 2014. It suggests that though Morton is home to a limited number of jobs and employers, when the entire line is factored in, the railroad is a robust economic engine, generating $448 million in annual activity, including 960 jobs and $65 million in wages. The railroad itself created $3.4 million in economic activity, including 25 jobs and $1.4 million in salaries. And the investment the state made in upgrading the line to 25 mph welded rail from Winthrop to Norwood has paid off. "There's been investment in business along the line," Wegner says. "[Heartland Corn's] ethanol plant in Winthrop tripled in size," while Dairy Farmers of America has substantially increased its frozen butter business. Harvest Land Co-op in Morton could make a similar investment, it says, should the western portion of the line be stabilized. Harvest Land's Morton elevator serves 300 farms. It employs 150 total, three in Morton. [Close] "We took over the elevator in the early 1980s and it got to the The Morton elevator complex point we couldn't operate because the tracks weren't good enough," says grain operations manager Roger Vaske. 8 of 9 6/16/17, 11:35 AM Twin Cities Business - Short Lines, Big Problems http://tcbmag.com/news/articles/2017/June/short-lines,-big-problems "So we had to convert to truck. For us to make an investment in Morton we need to know this track will be improved. We're trying to stop an exodus of grain going by our door. This elevator is extremely important to this community." On a given afternoon, there are more people gathered at Morton's elevator than any place in town. It is the economic hub of the community, even though the trains don't load there. As Vaske explains the economics, any grain shipment over 60 miles should be by rail for the farmer to maximize return. That is why Harvest Land trucks crops 24 miles from Morton to the Canadian Pacific at Springfield rather than trucking to its destination. "When a farmer puts an acre of corn in and he's paying more to transport it to a shipper, it can cost 10 cents a bushel," explains MVRRA lobbyist Michael Beard. "That's $20 an acre that doesn't stay in Morton. That's $20,000 per farm family that leaves" The common wisdom is one agricultural railcar takes three to four trucks off the road. Morton's biggest employer that uses rail is Step -Saver Inc., which is relocating operations from Redwood Falls to take advantage of rail access and available commercial space. Step -Saver delivers salt to regional businesses via a customized system that moves it from truck directly to water softener. It imports salt by rail from Utah. From Morton, Step -Saver serves an area from South Dakota to Iowa to Alexandria, with a diverse customer base that includes Jennie -0, Target, Thompson Reuters and Michael Foods. Co-owner Chuck Steffl says good rail service is essential to his viability; trucking it in would create a cost penalty that would render his business uncompetitive. "If I had to truck my salt in, we wouldn't be here," he says. "Theoretically I don't have to be in Minnesota. I could be in South Dakota or Iowa." The risk to Morton is obvious. Failure to improve the western end of the railroad will result in either a catastrophic derailment, regulatory embargo or merely a decision by Wegner that his railroad can't generate a long-term return operating half -full cars at 7 mph. Without prospect of rehabilitation, the elevator's continued presence is in jeopardy and Steffl moves out. "Morton will suffer and continue to decline if we lose the railroad," says Rath. And each year the repairs cost more. "In 2003 all the work was estimated at $25 million," says Rath. "Today we've spent $30 million and need another $60 million. Inflation kills you" BACK TO ARTICLES [Close] 9 of 9 6/16/17, 11:35 AM WasWongtm =.�County I Regional Profile in the August Issue of Twin Cities Business Twin Cities Sitsincss shines alight on Washington County and shares with its statewide readership why this region's energy, economic development initiatives, qualified workforco, housing options, hospilality and recreational amanitia5 make it a perfect location to start or grow a business, Washington County Community Development Agency and city leaders endorse this project and are serving as sources to Turin Cities Sasiness'editorial team as they tell Washington County's story. We have seen the power and benefits derived when communities and businesses work together to promote a region through Twin Cities Business and know the same will be true of this campaign. 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