CarteGraph Systems Job Creation Status ReportTHE CITY QF ~
DUB ~ E
M~asterpieee ~trr the Mississippi
MEMORANDUM
July 12, 2007
TO: The Honorable Mayor and City Council Members
FROM: Michael C. Van Milligen, City Manager
SUBJECT: Status Report on Job Creation Goals/CarteGraph Systems, Inc.
Recommended Action
Economic Development Director Dave Heiar is recommending that the City close out
the development agreement with CarteGraph Systems, Inc. and determine that no
penalties are due the City under the agreement.
CarteGraph had an obligation under the development agreement to retain 61 positions
and add 80 positions with a minimum wage of $9.34 per hour, for a total of 141 jobs.
The City agreed to count the jobs created by another tenant in the building, InteGreat.
Currently CarteGraph has 62 jobs and InteGreat has 42 jobs, for a total of 105 jobs, or
37 short of the goal.
CarteGraph Systems, Inc. President and Chief Executive Officer Scott Taylor wrote in a
July 11, 2007 letter:
"The business strategy for CarteGraph has changed significantly from the
beginning of the project due to market factors. The shift from a telesales
phone-based distribution model to asolutions-oriented, face-to-face
distribution model allowed CarteGraph to survive and establish financial
stability during adverse market conditions facing technology companies in
2000-2004. While the total number of employees required under the
revised business model is fewer than in the original business model, the
individual compensation is significantly greater.
The current CarteGraph wage for employees greatly exceeds the $9.34
per hour minimum and the $15.75 per hour average required in the project
agreement. For 2007, the average hourly rate for CarteGraph employees
is approximately $28.50/hour, resulting in an estimated annual payroll of
$3.7MM.
Using the project targeted average wage of $32,750, in 2007 CarteGraph
will generate an equivalent employee count of 113. Space in the project
building is also leased to InteGreat, another technology company.
InteGreat currently has 42 full time employees. In aggregate, the project
building currently is home to 155 equivalent high-tech jobs."
believe this successful locally-owned and operated company has met the spirit of the
development agreement.
I concur with the recommendation and respectfully request Mayor and City Council
approval.
~~
,~~ ~~ ;
Michael C. Van Milligen
MCVM/jh
Attachment
cc: Barry Lindahl, City Attorney
Cindy Steinhauser, Assistant City Manager
David J. Heiar, Economic Development Director
THE CITY OF
DUB E MEMORANDUM
Masterpiece on the Mississippi
July 11, 2007
TO: Michael Van Mitligen, City Manager ~~
FROM: David J. Heiar, Economic Development Director` ~.., `~
SUBJECT: Status Report on Job Creation Goals/CarteGraph Systems, Inc.
Recommended Action
INTRODUCTION
This memorandum provides for City Council review information on the status of
CarteGraph Systems, Inc.'s job creation status as defined in a Development Agreement by
and among the City, Horizon Development Group, LLC (property developer) and
CarteGraph Systems, Inc. (employer) dated January 18, 1999. City Council concurrence is
requested concerning release of the company's obligations.
BACKGROUND
The City has primarily used two local financial incentive tools to encourage new
development:
• TIF -- in one of two forms:
1. Up-front TIF loan repaid by a TIF bond, or
2. TIF tax rebate that refunds the actual increase in the taxes
resulting from the new development
• Land discount:
The City of Dubuque has provided a 50% land discount to developers/
companies creating new jobs. In competitive marketing situations, industrial
land is often "free" in return for new jobs, new property value, etc. promised
by a company.
Horizon Development and CarteGraph were the recipients of upfront TIF and a land
discount. Horizon received both the TIF and the land discount to assist the developer in
building a 30,000 square foot $2+ million project to house CarteGraph. These incentives
were subject to the creation of 80 new jobs with wages of at least $9.34/hour. They were
required to maintain 61 jobs.
DISCUSSION
Although the financial incentives of TIF and land discount went directly to Horizon,
CarteGraph, as the employer and recipient of certain beneficial lease terms and conditions
from Horizon, was held responsible for job creation performance in the Development
Agreement. The job goal was 80 new full-time equivalent jobs in addition to the existing 61
jobs for a total of 141 jobs.
Development Agreements in 1999 had different penalty provisions for non-performance
than the current agreements. Current development agreements specify repayment of TIF
and land acquisition grants for non-performance. This particular development agreement
specified a repayment of a portion of the land acquisition grant if the employer did not meet
the job creation numbers. The acquisition grant had a value of $112,000. Repayment was
stipulated at $1,300 per job not created.
In correspondence and reporting, the company kept both the State and City abreast of the
failure to meet job creation goals. Company President Scott Taylor cited numerous factors
affecting business performance including technology market slowdown following Y2K
compliance investments, the dot.com meltdown and transition to an outbound sales model
instead of an inbound telesales model. Their revamped marketing strategy required fewer,
more highly compensated employees. In January, 2003, Mr. Taylor made a formal request
for a waiver on the job creation requirements of the development agreement. He noted the
following:
• the company's business strategy had changed
• employees averaged $23/hour instead of the minimum $9.34/ hour or
$15.76/hour average, with payroll in excess of $3 million per year (special
note: this rate has increased to $28.50/hour in 2007)
• all other financial commitments to the project had been met
• required repayment would undermine the financial stability that had been
gained by the company
• required repayment would jeopardize any prospective hiring potential.
In April 2003, the City Council granted an extension until December 2005 to see if job
creation numbers would improve. The Council also agreed to count jobs created by
Integrate, a company that leases some of the excess space in the building.
Gurrently, Cartegraph has 62 jobs and Integrate has 42 jobs. In total, this is 37 jobs less
than originally pledged in the Development Agreement. Based on the payback provision in
the agreement, this would equate to $48,100 (37 X $1,300}. Cartegraph has requested that
the City forgive this repayment based on the positive economic impact that the company
has made despite significant challenges in the industry (see attached July 11, 2007 letter).
I call your attention to the attached letter from Rick Dickinson, Executive Director and COO
of Greater Dubuque Development Corporation, requesting that the City would recognize
the circumstances surrounding Cartegraph and release the company from any financial
obligations. In part the letter states, "the world has changed since that initial agreement,
including a global "tech bubble" that burst and destroyed hundreds of companies from
coast-to-coast and left thousands upon thousands of people unemployed.
Here in Dubuque, however, due to a number of deliberate, strategic decisions, CarfeGraph
not only survived the devastating collapse of the technology sector, but bounced-back
stronger than ever. Of all of the decisive moves Taken by Scott Taylor (President & CEO of
CarteGraph) and his team, the most significant decision was to transition from a telesales
(phone-based) distribution model to a solutions-oriented (face-to-face) distribution model.
The solutions-oriented model requires fewer employees than the original telesales model
(which is the predicate for employment counts in the original development agreement).
However, under the new plan, the employee compensation is significantly greater and the
net, positive impact for the City is tremendous. "`
RECOMMENDATION/ACTION STEP
It is apparent that Cartegraph has made extraordinary efforts to comply with the original
intent of the development agreement. Based on the extenuating circumstances beyond the
control of Cartegraph, adjustments made to Cartegraph to survive the national trends for
technology companies, and the superior quality jobs that were created (well above the
requirements identified in the 1999 Development Agreement), it is my recommendation
that the City Council forgive the land acquisition pay back for Cartegraph.
F:\USERS\bHeiar\CarteGraph\Status Report on Job Creation Memo.doc
July 6, 2007
Mr. Michael C. Van Milligen
City Manager
City of Dubuque
50 West 13~n
Dubuque, IA 52001
Dear Mike:
I am writing to express Greater Dubuque Development's strong support and appreciation
for one of our region's true, home-grown success stories, CarteGraph. The company
has made (and continues to make) a positive economic impact on its many employees
and our community.
To that end, we respectfully request commencement of the process to formally close-out
all agreements between the City of Dubuque and the company. Specifically, we ask that
CarteGraph be recognized for having satisfied its obligations and that no financial
settlements are required.
Because we recognize the City of Dubuque's obligation to the taxpayers, we contend,
with confidence, that CarteGraph's net economic impact has actually exceeded
expectations. We also understand and thank the City of Dubuque for providing
CarteGraph with early assistance to help the company expand.
To nurture and assist CarteGraph's bold expansion plans in the Dubuque Technology
Park, you may recall that the City and the company first executed a development
agreement in 1999. As you know, however, the world has changed since that initial
agreement, including a global"tech bubble" that burst and destroyed hundreds of
companies from coast-to-coast and left thousands upon thousands of people
unemployed.
Here in Dubuque, however, due to a number of deliberate, strategic decisions,
CarteGraph not only survived the devastating collapse of the technology sector, but
bounced-back stronger than ever. Of all of the decisive moves taken by Scott Taylor
(President & CEO of CarteGraph) and his team, the most significant decision was to
transition from a telesales (phone-based) distribution model to asolutions-oriented (face-
to-face) distribution model.
The solutions-oriented model requires fewer employees than the original telesales model
(which is the predicate for employment counts in the original development agreement).
However, under the new plan, the employee compensation is significantly greater and
the net, positive impact for the City is tremendous.
Overall, since occupying its new building, it is estimated that CarteGraph has created a
$30,000,000 economic impact to Dubuque and the State of Iowa. Consider just a few
examples:
Creating Careers & Paychecks to Spur Dubuque's Economy
CarteGraph's payroll is $3,700,000 for 62 employees -OR-an average of $28.50 per
hour/$59,280 per year. Therefore, based on Dubuque's current, average wage,
CarteGraph's employment has the payroll equivalent 113 jobs ($15.75 per hour/$32,760
per year). In fact, since just 2002, the company has paid $18.2 million to Dubuque area
citizens.
CarteGraph's facility is also home to Integreat Software and its 42 well-paid
professionals.
Adding Value to the City's Investment in the Dubuque Technology Park
CarteGraph was an early pioneer in Dubuque's Technology Park. The company's
expansion was the driving force behind a new, 30,000 square foot facility. At a cost of
$2,294,735, the building project created high-paying construction jobs and is, today, a
beautiful welcome for thousands of visitors traveling on U.S. 151/61.
Supporting & Strengthening Dubuque's Tax Base
Since occupying the building, CarteGraph has paid more than $400,000 in property
taxes. In fact, in 2007, CarteGraph purchased their office facility at 3600 Digital Drive to
become a permanent, corporate resident of Dubuque. Moreover, the company will
continue to pay an estimated $75,000 per year in property taxes and an additional
$35,000 per year in property enhancements/maintenance.
It's clear that CarteGraph's presence makes Dubuque a better place. It's also clear that
with over $30,000,000 in financial impact to Dubuque and the State of Iowa, the
company has exceeded its obligation to the taxpayers.
Again, we respectfully request commencement of the process to formally close-out all
agreements between the City of Dubuque and the company. Furthermore, we request
that such closure include a stipulation that CarteGraph has satisfied its obligations and
that no further financial settlements be required.
If I can answer any questions or provide clarification, please contact me at 563-557-
9049.
Sincerely,
~!
Rick Dickinson
Executive Director & COO
Cc: Scott Taylor, President, CarteGraph
David Heiar, Director, City of Dubuque Economic Development Department
.~
CarteGraph ~~~~~~~~- ~~,~~~~:.~~~ ~~~~;
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July 11, 2007
a
w Mr. Michael C. Van Milligen
o, City Manager
~ City of Dubuque
~ 50 West 13tH
Dubuque, IA 52001
w
> Dear Mike:
~ We received a copy of a letter addressed to the City of Dubuque from the Greater
a Dubuque Development Corporation. In that letter, Rick Dickinson requests the
~ commencement of the process to formally close-out all agreements between the City of
o Dubuque and CarteGraph. We at CarteGraph want to express our appreciation for your
o consideration of that request.
0
As a result of a development agreement executed back in 1999, CarteGraph occupies a
first-class office building in the Dubuque Technology Park where the image of
CarteGraph and the signature of Dubuque are on display every day. We greatly
appreciate the economic development assistance provided by the City of Dubuque on
this project and know that we could not have undertaken a project of this magnitude
without that assistance.
Under the terms of the development agreement, CarteGraph had certain commitments
that it was required to fulfill.
1. Building construction in the amount of $2,294,735. Satisfied.
2. 10-year property lease agreement. Satisfied. Renewed
thru 2016.
3. Bank loan in the amount of $1,100,000. Satisfied.
4. CEBA project loan in the amount of $60,000. Satisfied. Paid in full.
5. ECIA loan in the amount of $200,000. Satisfied. Paid in full.
6. Business working capital in the amount of $540,000. Satisfied.
7. Business equity in the amount of $336,000. Satisfied.
8. Expand workforce from 61 to 141 employees. Equivalency.
The business strategy for CarteGraph has changed significantly from the
beginning of the project due to market factors. The shift from a telesales
phone-based distribution model to asolutions-oriented, face-to-face
distribution model allowed CarteGraph to survive and establish financial
stability during adverse market conditions facing technology companies in
2000-2004. While the total number of employees required under the
revised business model is fewer than in the original business model, the
individual compensation is significantly greater.
The current CarteGraph wage for employees greatly exceeds the $9.34
per hour minimum and the $15.75 per hour average required in the
project agreement. For 2007, the average hourly rate for CarteGraph
employees is approximately $28.50/hour, resulting in an estimated annual
payroll of $3.7MM.
Using the project targeted average wage of $32,750, in 2007 CarteGraph
will generate an equivalent employee count of 113. Space in the project
building is also leased to InteGreat, another technology company.
InteGreat currently has 42 full time employees. In aggregate, the project
building currently is home to 155 equivalent high-tech jobs.
In addition to the financial commitments list above, CarteGraph has generated the
following economic impacts:
1. Since occupying the project building, CarteGraph has had a total economic
impact in the City of Dubuque of over $30,000,000.
2. Since occupying the project building, CarteGraph has directly paid over
$400,000 in property tax.
We hope that CarteGraph has demonstrated the positive economic impact that was
contemplated by the City of Dubuque back in 1999 when the development agreement
was signed. Though we have faced significant challenges, we have emerged as a
strong company that is once again poised for growth in the technology industry.
Thank you once again for your consideration of the request to close out the development
project. We are proud to call Dubuque home and look forward to our continuing role as
a representative of the tremendous business opportunity that our community has to
offer.
Sincerely,
cott J. T ylor, President & CEO
CarteGraph Systems, Inc.
Cc: Rick Dickinson, Director
Greater Dubuque Development Corporation
David Heiar, Director
City of Dubuque Economic Development Department
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July 11, 2007
Mr. Michael C. Van Milligen
City Manager
City of Dubuque
50 West 13~h
Dubuque, IA 52001
Dear Mike:
We received a copy of a letter addressed to the City of Dubuque from the Greater
Dubuque Development Corporation. In that letter, Rick Dickinson requests the
commencement of the process to formally close-out all agreements between the City of
Dubuque and CarteGraph. We at CarteGraph want to express our appreciation for your
consideration of that request.
As a result of a development agreement executed back in 1999, CarteGraph occupies a
first-class office building in the Dubuque Technology Park where the image of
CarteGraph and the signature of Dubuque are on display every day. We greatly
appreciate the economic development assistance provided by the City of Dubuque on
this project and know that we could not have undertaken a project of this magnitude
without that assistance.
Under the terms of the development agreement, CarteGraph had certain commitments
that it was required to fulfill.
1. Building construction in the amount of $2,294,735. Satisfied.
2. 10-year property lease agreement. Satisfied. Renewed
thru 2016.
3. Bank loan in the amount of $1,100,000. Satisfied.
4. CEBA project loan in the amount of $60,000. Satisfied. Paid in full.
5. ECIA loan in the amount of $200,000. Satisfied. Paid in full.
6. Business working capital in the amount of $540,000. Satisfied.
7. Business equity in the amount of $336,000. Satisfied.
8. Expand workforce from 61 to 141 employees. Equivalency.
The business strategy for CarteGraph has changed significantly from the
beginning of the project due to market factors. The shift from a telesales
phone-based distribution model to asolutions-oriented, face-to-face
distribution model allowed CarteGraph to survive and establish financial.
stability during adverse market conditions facing technology companies in
2000-2004. While the total number of employees required under the
revised business model is fewer than in the original business model, the
individual compensation is significantly greater.
The current CarteGraph wage for employees greatly exceeds the $9.34
per hour minimum and the $15.75 per hour average required in the
project agreement. For 2007, the average hourly rate for CarteGraph
employees is approximately $28.50/hour, resulting in an estimated annual
payroll of $3.7MM.
Using the project targeted average wage of $32,750, in 2007 CarteGraph
will generate an equivalent employee count of 113. Space in the project
building is also leased to InteGreat, another technology company.
InteGreat currently has 42 full time employees. In aggregate, the project
building currently is home to 155 equivalent high-tech jobs.
In addition to the financial commitments list above, CarteGraph has generated the
following economic impacts:
1. Since occupying the project building, CarteGraph has had a total economic
impact in the City of Dubuque of over $30,000,000.
2. Since occupying the project building, CarteGraph has directly paid over
$400,000 in property tax.
We hope that CarteGraph has demonstrated the positive economic impact that was
contemplated by the City of Dubuque back in 1999 when the development agreement
was signed. Though we have faced significant challenges, we have emerged as a
strong company that is once again poised for growth in the technology industry.
Thank you once again for your consideration of the request to close out the development
project. We are proud to call Dubuque home and look forward to our continuing role as
a representative of the tremendous business opportunity that our community has to
offer.
Sincerely,
colt J. T ylor, President & CEO
CarteGraph Systems, Inc.
Cc: Rick Dickinson, Director
Greater Dubuque Development Corporation
David Heiar, Director
City of Dubuque Economic Development Department