HomeMy WebLinkAboutAgenda - Mail Packet - 12/16/2014 - Council Finance Committee Agenda - December 15, 2014Council Finance Committee & URA Finance Committee
Agenda Planning Calendar 2014-2015
RVSD 12/08/14 mnb
Dec. 15 TOPIC TIME WHO
CFC
2014 Revenue Update 15 min M. Beckstead
Review of Prior Revenue Diversification Discussions 45 min J. Ping-Small
RMI Business Update 30 min M. Freeman
Establishing Parking Fund in 2015 15 min M. DeKock
URA
Jan. 12 TOPIC TIME WHO
CFC
Police Training Facility 45 min J. Hutto
M. Beckstead
Airport Financials 30 min J. Licon
Economic Health Policy 30 min J. Voss
J. Birks
URA
Feb. 9 TOPIC TIME WHO
CFC
Financial Peer Review – RubinBrown Study 30 min C. Donegon
URA
Mar. 16 TOPIC TIME WHO
CFC
URA
Future Council Finance Committee Topics:
• Review Special Improvement Districts
Future URA Committee Topics:
• No Topics in Queue
Finance Administration
215 N. Mason
2nd Floor
PO Box 580
Fort Collins, CO 80522
970.221.6788
970.221.6782 - fax
fcgov.com
AGENDA
Council Finance & Audit Committee
December 15, 2014
10:00 a.m. to Noon
CIC Room – City Hall
Approval of the Minutes from the November 17, 2014 meeting
1. 2014 Revenue Update 15 minutes M. Beckstead
2. Review of Prior Revenue Diversification Discussions 45 minutes J. Ping-Small
3. RMI Business Update 30 minutes M. Freeman
4. Establishing Parking Fund in 2015 15 minutes M. DeKock
Finance Administration
215 N. Mason
2nd Floor
PO Box 580
Fort Collins, CO 80522
970.221.6788
970.221.6782 - fax
fcgov.com
Council Audit & Finance Committee
Minutes
11/17/14
10:00 a.m. to 11:30 p.m.
CIC Room
Council Attendees: Ross Cunniff, Bob Overbeck, Mayor Karen Weitkunat
Staff: Darin Atteberry, Mike Beckstead, Josh Birks, Carrie Daggett,
John Duval, Kevin Gertig, Jeff Mihelich, John Phelan, Lance
Smith, Ellen Switzer, Tom Leeson, John Voss, Katie Wiggett
Others: Kevin Jones, Chamber
Mike Beckstead suggested that the final item on the Council Finance Committee be postponed if time
ran short in order to ensure that the URA meeting could be held. The committee agreed to close the
Council Finance meeting before hearing the last item and reopen the Council Finance meeting if time
allowed.
Approval of the Minutes
Ross Cunniff moved to approve the minutes from the October 20 meeting. Bob Overbeck seconded the
motion. Minutes approved unanimously.
On Bill Financing (OBF) Interest Rates
John Phelan explained that the purpose of this presentation is to follow up on the October 28 Work
Session discussion. Staff is presenting a set of recommendations for revisions to Utilities On-Bill
Financing (aka Home Efficiency Loan Program) and is seeking agreement and director for the following:
1. The allowable range of interest rates which will be included in the rate ordinances updates for
the affected customer classes and service types
2. Guidelines for the selection of an annual interest rate
3. Direction for the setting of 2015 interest rates
Currently, the allowable range of interest rates is set within each utility service type rate ordinance.
The program rules call for an interest rate to be set for the following calendar year by the financial
officer; this rate is intended to be fixed for the calendar year. Individual loan rates are fixed for the term
of the loan. In 2013, the rate ordinance range was “prime plus 2% to 5%”; in 2014, the rate ordinance
range was simplified to 5-10%.
John showed a program comparison chart featuring leading OBF programs. He concluded that the data
primarily demonstrated that the interest rate does not necessarily drive the success of a OBF program,
because successful programs had both low and moderate interest rates. Ross Cunniff asked which of the
programs compared were most similar to the City’s. John answered that the Clean Energy Works
Oregon was the most similar; however, all the programs were very distinct and not directly comparable.
Bob Overbeck suggested adding a column for loan sizes.
2
John went on to explain the key considerations for setting interest rates:
1. The Utilities anticipated “cost of capital”
2. Market rates for alternative investments of reserves
3. Possible use of third party capital in the future
4. Other City programs which offer loans (e.g. historic preservation, radon)
5. Participation targets related to Climate Action Plan and Energy Policy
6. Simple and predictable for clarity of outreach and administration
Concerning the “cost of capital” consideration, Mike Beckstead explained that these would likely be
taxable bonds due to the use of the funds; therefore, the current estimate for borrowing is between 5-
5.25%. Loaning at less than the cost of capital would mean the City would bear a portion of the cost of
financing if borrowed funds were used. As an example, for each $10M borrowed and each 100 basis
point spread between borrowing and lending, the cost to the City is approximately $900K. As a further
example, if $10M were borrowed at 5.5% to support home energy improvements as part of Climate
Action Planning and loaned at 1.5% the cost of financing born by the City would be approximately
$3.6M. Bob noted that the City budgets for outcomes and the City may choose to budget money to
cover the cost of a lower interest rate in order to achieve the desired outcome. What Council needs to
determine is how much difference from cost of capital the City would be willing to fund. Bob suggested
encouraging residents to participate by making the rate the market rate minus 100 to 200 basis points.
Ross agreed that this was a possibility, but noted that such a discounted rate would need to be
budgeted for.
Staff recommends establishing the allowable range of interest rates in the rate ordinance at 2.5-10%.
Staff also recommends that the OBF Rules and Regulations reference the key considerations noted
above.
Staff also recommends the City Financial Director set the annual interest for loans over the next year at
the City’s cost of capital less 100 to 200 basis point.
Council Finance agrees with staff’s recommendations.
Options for Street Lighting
Lance Smith noted that Staff has brought forward an ordinance to revise City Code to specify that the
operation and maintenance of the street lighting system is an in kind payment by the Light and Power Fund
in lieu of franchise fees. The ordinance does not change the existing practice or policy. The ordinance was
originally voted down (3-3) on October 28, 2014 but then passed 4-2 on reconsideration that same night.
Council asked that the item be discussed at Council Finance before second reading which is scheduled for
November 18, 2014, but will likely be postponed until December 16.
Lance explained that there are two options for paying for Street Lighting Costs. In Option 1, Utilities would
increase L&P’s PILOT to 7.2% and adjust rates down to be cost neutral to rate payers. In Option 2, Council
passes Ordinance 146, 2014 to codify the intent of the 1986 ordinance and the practice of the past 28 years.
Both Options are common utility practices. Lance pointed out that Option 1 is cost neutral to the General
Fund and the 7.2% PILOT is reasonable compared with other municipalities though high compared with an
investor owned utility.
3
Option 2 would require a Code clarification only because the practice and policy would remain the same
as it has been since 1986. It would require no changes to the 2015 rates or budget. The only con to
option 2 is that the transaction is not recorded in financial statements and therefore is not as
immediately transparent as Option 1.
Ross noted that this lack of transparency in Option 2 is his biggest concern. The Mayor asked if there is
a way to make Option 2 more transparent. After some discussion, the committee came to the
conclusion that by being in the Code, being in the budget document, and by adding the information to
the back of utility bills, Staff could make the cost of street lighting more transparent while sticking to
Option 2. With the above clarifications, Council Finance agreed with moving forward with Option 2.
2014 Low Income Rebate Update
Katie Wiggett explained that the Finance Department currently administers three rebate programs for
low-income, senior and disabled residents: the Property Tax/Rent Rebate, the Utilities Rebate and the
Sales Tax on Food Rebate.
The program was revamped at Council’s request in 2012, and participation in the program increased
13% in 2012 over 2011, an increase attributed to outreach efforts and program improvements. In 2013,
a continued expansion in outreach efforts grew the program by an additional 2%. In 2014, Staff
partnered with the Fort Collins Low Income Assistance Project Team to find new ways to better reach
low income residents. Staff also worked with CPIO to create dynamic outreach materials including
posters, e-mailable flyers, and an improved application. As a result of these efforts, the number of
rebates issued in 2014 increased 13% over 2013’s totals.
Katie highlighted key outreach efforts in 2014, noting that the addition of electronic advertising
materials played a significant role in reaching more partnering organizations and more applicants.
Council Finance is pleased with the outreach efforts made in 2014 and the continued improvements to
the program.
General Financial Policy
John Voss showed Council Finance the City’s internal Financial Policy webpage. Mike Beckstead
explained that this information will be available on the fcgov.com once all policies have been approved
by Council.
John Voss explained that, in August, Council Finance approved combining and reducing Policies 3, 4 and
6 into one general financial policy. These three miscellaneous policies contained a lot of information
redundant with other policies, City Code and Intergovernmental Agreements (IGAs); they also contained
many sections that contained no policy elements or were not financial in nature. John walked the
Committee through the various sections of the old policies, explaining what had been cut and what was
kept in the new general policy.
Ross noted that section 3.11 which was cut due to its being informational in nature would still be
valuable as a paragraph on the future external policy webpage as citizens would find the information on
how they can be involved in the dedicated quarter taxes helpful.
The Mayor asked why 3.4 C gives the specific minimum of 55% when this is supposed to be a general
policy. She asked that staff look in to where this minimum comes from and whether it is found in any
other policy or ordinance. Mike Beckstead said that Staff will look into it and include the answer in the
4
AIS when the policy goes to Council. Ross also suggested adding an index of applicable City Code
sections to the policy website.
Council Finance supports bringing the General Finance Policy forward for Council approval.
Other Business
Mike Beckstead announced that the first Quarterly Financial Report has been compiled and will be sent
out to Council on November 20. Staff will bring the report to Council Finance for review.
Mike also explained that a Natural Gas Franchise memo has been drafted and he expects to bring the
topic to Council Finance for review within the next few months.
COUNCIL FINANCE COMMITTEE
AGENDA ITEM SUMMARY
Staff: Mike Beckstead
Date: December 15, 2014
SUBJECT FOR DISCUSSION: 2014 Revenue Forecast & Utilization
EXECUTIVE SUMMARY
At the December 9
th
Council Work session, staff was asked to provide detail on the additional
revenue anticipated above forecast for the 2014 year and facilitate a discussion to determine if a
portion of this revenue should be allocated to projects and priorities that have been removed
from consideration within the Capital Tax project list because they should be included within the
budget. In addition, staff will provide an updated forecast for the 10 year Capital Tax revenue
period.
GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED
Does Council Finance recommend assigning a portion of the additional 2014 revenue to
unfunded projects previously considered within the Capital Tax?
BACKGROUND/DISCUSSION
None
ATTACHMENTS
None
1
2014 Revenue Update
Council Finance
Committee
15 December 2014
2
Sales & Use Tax Revenue
• Additional revenue in Sep Forecast used in 2015/16 Budget
• Including set aside of:
• $750K for Parking
• $1,000K for Police Training
2014 Budget
September
2014 Forecast
Sales Tax $ 93.9 $ 97.6
Use Tax 14.5 22.4
Total $ 108.4 $ 120.0
3
2014 Sales Tax Detail
%
Over/(Under) Over/(Under)
Month Actual Budget Budget Budget
January $ 10,117,188 9,798,121 $ 319,067 3.3%
February 7,080,015 7,095,187 (15,172) -0.2%
March 6,850,826 6,879,326 (28,500) -0.4%
April 8,207,849 7,911,698 296,151 3.7%
May 7,683,485 7,357,973 325,512 4.4%
June 8,216,937 7,742,764 474,173 6.1%
July 8,767,673 8,399,727 367,946 4.4%
August 8,376,784 7,648,915 727,869 9.5%
September 8,932,858 8,427,883 504,975 6.0%
October 9,159,413 7,958,627 1,200,786 15.1%
November 8,233,009 7,329,815 903,194 12.3%
December - - - 0.0%
$ 91,626,037 $ 86,550,036 $ 5,076,001
4
2014 Use Tax Detail
%
Over/(Under) Over/(Under)
Month Actual Budget Budget Budget
January $ 1,653,973 $ 1,206,561 $ 447,412 37.1%
February 1,500,203 1,206,561 293,642 24.3%
March 1,989,203 1,206,561 782,642 64.9%
April 1,518,663 1,206,561 312,102 25.9%
May 2,099,766 1,206,561 893,205 74.0%
June 2,083,394 1,206,561 876,833 72.7%
July 2,045,605 1,206,561 839,044 69.5%
August 2,252,859 1,206,561 1,046,298 86.7%
September 2,552,068 1,206,561 1,345,507 111.5%
October 3,526,683 1,206,561 2,320,122 192.3%
November 3,416,270 1,206,561 2,209,709 183.1%
December - - - 0.0%
Net Collections 24,638,687 13,272,171 11,366,516 85.6%
YTD Rebates 1,627,475 4,031,720 (2,404,245)
Total Collections $ 26,266,162 $ 17,303,891 $ 8,962,271 51.8%
5
2014 Revised Forecast
2014 Budget
September
2014 Forecast
December
2014 Forecast
Sales Tax $ 93.9 $ 97.6 $ 99.6
Use Tax 14.5 22.4 26.6
Total $ 108.4 $ 120.0 $ 126.2
Sales Use
Additional 2014 $ 2.0 $ 4.2
Dedicated Portion 0.8 1.7
Available General Fund $ 1.2 $ 2.5
6
Considerations
Alternative Usage of Additional 2014 GF Revenue:
Assign to Select Projects Eliminated from Capital
Project List
OR
Allow Select Projects to Compete with Other
Priorities in 2015 Revision or 2017/18 BFO Process
7
Capital Tax Revenue Estimate
Current Preliminary
Total Forecast $ 81.4 $ 83.0
O&M 2.1 TBD
Inflation 5.2 TBD
Available Projects $ 74.1 TBD
1
COUNCIL FINANCE COMMITTEE
AGENDA ITEM SUMMARY
Staff: Jessica Ping-Small, Revenue and Project Manager
Mike Beckstead, Chief Financial Officer
SUBJECT: Revenue Diversification Recap
EXECUTIVE SUMMARY
The purpose of this item is to provide a recap to the Council Finance Committee of the ongoing
Revenue Diversification project. Since 2012, staff has continued to analyze and consider various
facets of diversification which have been presented to City Council in phases. This item
summarizes the efforts to date.
GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED
Staff is seeking direction on next steps in the ongoing revenue diversification project.
BACKGROUND/DISCUSSION
The City receives 45%-50% of its revenue from sales and use tax. Sales and use tax can be a volatile
source or revenue during times of economic downturn. The conundrum of how to strike the balance
of adequate revenue to fund current levels of service without an overreliance on sales and use tax is
an ongoing issue.
In 2012, staff embarked on an ongoing project to assess the City’s revenue. Phases of the project
have included the following initiatives:
• Analyze City’s revenue base and compare it to benchmark jurisdictions
• Evaluate diversification options
• Update Revenue Policy to include revenue principles for decision making
• Analyze a Street Maintenance and Park Maintenance Fee
• Complete comprehensive fee comparison study
The presentation will recap the following:
1) Current Work Plan
2) Revenue Comparisons
3) Revenue Principles
4) Options to Diversify
In general, the information presented has not been updated to current revenue figures. The
presentation is intended to recap for the Council Finance Committee the information that has been
gathered at each phase of the ongoing project.
ATTACHMENTS
1. PowerPoint Presentation
2. Sales Tax Rate History
1
Council Finance Committee
Revenue Diversification
Recap 2012-2014
December 15, 2014
2
4 Year Work Plan
2012-Q2 2013 Q3 2013 Q4 2013 Q2-Q4 2014 Q4 2014 2015
Revenue
Diversification
Analyze
Street
Maintenance
Fee and Park
Maintenance
Fee
Done
Complete
Comprehensive
Fee Study
Done
Council Decision
on Fee vs. Tax
for Street
Maintenance
Done
Next Steps
Per CFC
Direction
Analyze
City’s
Revenue
Diversity &
Draft Policy
Done
Next steps dependent on CFC direction.
Review
Revenue
Diversification
Options
3
Revenue Diversification
“Not putting all your eggs in one basket”
Revenue – the total income produced by a given source
Diversity – the condition of having or being composed of
differing elements
There is merit in the notion that states and local
governments should balance their tax systems
through reliance on the "three-legged stool“**
** Source – National Conference of State Legislatures (NCLS)
While we can improve revenue diversity, is a
three-legged stool feasible in Fort Collins?
4
Fort Collins Governmental Revenue - 2013
Sales & Use Tax
111,845,544
45%
Intergovernmental
68,696,205
28%
Charges for Services
33,323,140
13%
Property Tax
18,484,916
7%
Other Misc.
6,274,587
3%
Other Taxes
3,755,659
2%
Fines & Forfeitures
2,803,037
1%
Investment
585,365
0%
Licenses/Permits
3,040,048
1%
Sales & Use Tax percentage ranges from 45%-51%
dependent on Federal Grant amounts.
5
How do we compare in
Colorado and Nationally?
6
2010 Revenue Comparison - Colorado Cities
Fort Collins reliance on sales tax increased with KFCG
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
Other Revenue
Other Taxes
Property Tax
Sales & Use Tax
7
2010 Revenue Comparison – National Cities
Diversity in other cities is often achieved with an
income tax and/or higher property tax.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Other Revenue
Other Taxes
Sales & Use Tax
Property Tax
Other Taxes
• Springfield, OH – Income Tax &
State levied shared taxes
• State College, PA – Income Tax
• Williamsburg, VA – Restaurant
Tax, Hotel-Motel Tax
8
Fort Collins Combined Sales Tax Rate is on the Low End
2011 Sales Tax Rate Comparison – Colorado Cities
**Jurisdictions with multiple tax rates due to special districts and/or located in multiple counties
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
10.00%
Other
Cultural
County
State
RTD
City
9
Layer Cake of Taxes….
Significant Portion of Tax Rate Sunsets
10
Mill Levy Rate Comparison
Fort Collins is Slightly Above the Average of 8.828 mills
Compared to Other Colorado Cities
0
5
10
15
20
25
30
35
8.828
mills
11
Revenue Principles
• Revenue Principles adopted in 2013 as part of
revenue diversification process:
1. Maintain a diverse revenue base
2. Maintain a stable revenue base
3. Cultivate revenue sources that are equitable among
all economic levels
4. Generate adequate revenue to maintain service
levels
5. Maintain healthy reserves
6. Fees for services are fairly born by those who use
those services
The principles intended to serve as the foundation for
revenue decisions.
12
Options to Diversify
13
Options to Diversify-Stabilize Revenue
1.Expand sales tax to cover services
2. Implement a differential sales tax rate
3.Assess a transportation utility fee
4. Increase property tax
5.Make ¼ cent taxes permanent
6. Implement an occupational privilege tax
7.Park Maintenance Fee
3 of the 6 options are Based on Sales Tax
Alternatives Considered
14
Analysis of Options
* Assumes $36.00 annually per residential unit and a tiered fee for commercial
** Range from $2-$5 per employee paid by both employee and employer per month
Options
Annual Revenue Estimate
Voter
Approval
Required
Assess a Transportation Utility Fee*
$7.0M No
Expand Sales Tax to Cover Services
–3 levels
$200K-$4.3M based on level Yes
Expand Sales Tax to Cover ALL
Services
TBD Yes
Increase Property Tax Rate by 2
Mills
$3.6M Yes
Make ¼ Cent Taxes Permanent $7.0M Yes
Implement a Differential Tax Rate
on Restaurants/Liquor Stores of 1%
$3.5M Yes
Implement an Occupational
Privilege Tax**
$3.6M-$6.2M Yes
Park Maintenance Fee $750K No
15
Recap
• Revenue Principles in place
• Analysis is complete
– Compared overall revenue to peers
– Analyzed options to diversify
– Completed comprehensive fee study
• Key Discussions/Initiatives for the future
– ¼ cent renewals – April 2015 Election
– Transportation Tax
– Public Facilities Tax
– KFCG Expiring - 2020
16
Key Considerations
• What else can be done without jeopardizing
existing initiatives?
• How can we reduce dependency on taxes that
expire and carry the risk of non renewal?
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
2030
2032
2034
Sales Tax Rate
Sales and Use Tax Rate, 1968-2035
1/4% BCC Community
Enhancements, Voter
Approved
1% by City Council Ordinance 140, 1979
effective 4/1/80
1% Designing Tormorrow
Today Voter Approved
Capital
4/1/73-3/31/80
1% General, Voter Approved
1/4% by City Council Ordinance 149, 1981
1/4% Necessary Capital
(RECAP) Voter Approved
7/1/84-6/30/89
1/4% EPIC,
COUNCIL FINANCE COMMITTEE
AGENDA ITEM SUMMARY
Staff: Josh Birks, Economic Health Director; and
Mike Freeman, Chief Executive Officer, Rocky Mountain Innosphere
Date: December 15, 2014
SUBJECT FOR DISCUSSION
Rocky Mountain Innosphere Business Update
EXECUTIVE SUMMARY
The purpose of this item is to provide an update on activities of the Rocky Mountain Innosphere
(“Innosphere”) in 2014 and plans for 2015. The Innosphere is an essential partner with the City
to provide business incubation and entrepreneurial support. In 2014, the Innosphere continued to
enhance the services it provides clients and expand its footprint to include Denver. Both of these
changes have netted benefits for Fort Collins the headquarters location of the Innosphere.
Finally, Innosphere staff would like to present preliminary performance metrics for 2014; these
metrics will be finalized and presented in an annual report in February 2015.
GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED
1. Does the Council Finance Committee have any additional questions regarding the Rocky
Mountain Innosphere?
BACKGROUND/DISCUSSION
Fort Collins has numerous sources of innovation, intellectual property and inventions within its
city limits, including Colorado State University (CSU), federal research labs and a long list of
innovative companies. As a result, the city has one of the highest rates of innovation in the
United States, producing 10 patents per 10,000 residents annually. This fact, coupled with the
recognition that entrepreneurship can be a powerful engine of economic prosperity, has led the
City to identify innovation as a cornerstone of the Fort Collins economy. The City’s Strategic
Plan, a guiding document for Budgeting for Outcomes, reinforces the role of incubation in
several objectives, including:
Objective 3.2 – Improve policies and programs to retain, expand, incubate, and attract
primary employers where consistent with City goals.
Objective 3.4 – Improve effectiveness through collaboration with economic-health
oriented regional partners.
In 1998, the City began its support of business incubation and entrepreneurism with the creation
of the Fort Collins Technology Incubator. This first incubator was a virtual incubator providing
services and training. In the years since, the organization has undergone significant enhancement
and expansion to become the Innosphere. Today the organization occupies a 31,000 square foot
LEED platinum building and provides services to a large number of businesses spanning
multiple industries and geographic locales.
Capital Access Program Enhancements
In 2014, the Innosphere worked to enhance several services provided to client companies. A
major undertaking has been improving the access to capital for technology based start-ups in Fort
Collins. This led to several improvements:
Implementation of an early state debt-pool at the Colorado Enterprise Fund. This pool
makes early debt an option for Innosphere client companies who are generating first
revenue, orders, etc. but are not yet eligible for banking programs. 1
st
National Bank and
Home State Bank lead the formation of this pool.
Building Angel investor networks is a key part of the Innosphere program. Angel
investors are typically the first equity investors into client companies. Innosphere has
continued to build up the network of investors in Colorado and out of Colorado in select
circumstances.
Family Offices (high net worth individual directed investment funds) are increasingly
important investors at an early stage for Innosphere clients. Innosphere staff put a lot of
effort into building up our Family Office investor network.
Large companies in the US are increasingly finding innovation opportunity in partnering
and investing in smaller companies. These investors are called “corporate strategics”.
Innosphere and CSU are focused on identifying and introducing corporate strategics to
client companies. Clients saw great success securing paid pilot projects, early investment
and partnerships with larger companies this year.
Revenue Diversification/Financial Sustainability
The Innosphere will launch an Early Exit program in Q1 2015. Innosphere would specifically
recruit a limited number of companies (probably 4-6 per year) into this program. The recruits
will have a strong probability of and preference for achieving an Early Exit. An Early Exit is
defined as selling the company within a 2-3 year timeframe after formation. Upon the sale of the
company, Innosphere would receive a success fee of 2% on the transaction capped at a specific
dollar amount. This scenario establishes a clear path from onboarding as a new client to
alignment with the investors around a shorter-term targeted exit. The Innosphere Board gave
approval to implement this program in 2015 and staff is working on technical and legal details.
Innosphere expects the program may generate funds as early as 2016.
Service Area Expansion
In addition, Innosphere has continued to expansion geographically to provide greater access for
clients and serve new populations:
Expansion to Golden – National Renewable Energy Lab (NREL): Innosphere took an
opportunity to step in and replace the defunct NREL incubator CleanLaunch in early
2013. After raising funds, separate from their other operations, the Innosphere re-opened
the NREL incubator using their branding. The result has been increased access to NREL
for all Innosphere client companies.
Expansion to Denver – Industry: In 2014, the Innosphere expanded into Denver to
better served non-resident companies it had been working with in the metro area. In
addition, the expansion allowed for Innosphere to take on additional clients from the
metro area. Today, 35 percent of Innosphere funding comes from the City of Denver and
Denver based contributors. Fort Collins client companies have benefited from greater
connectivity to the Denver based investor community, access to large corporate strategic
investors, and an expanded advisor network that leverages the metro market.
Finally, the Innosphere has reached 49 client companies to-date with an average incubation time
of less than or equal to 24 months. These clients have spanned three target industries including
Cleantech, Biosciences, and Software/Hardware with three, seven, and six new clients
respectively. In addition, the Innosphere graduated 12 companies from the incubation program
exceeding their goal of 10 in 2014. (NOTE: These numbers are preliminary and will be verified
and finalized in the Innosphere Annual Report anticipated in February of 2015).
ATTACHMENTS
1. Memo from Rocky Mountain Innosphere; RE: City Council Work Session; December 7,
2014
2. Innosphere Staff Presentation
Memo
320 East Vine Drive Suite 101, Fort Collins, CO 80524
To: Josh Birks, Economic Health Director; Mike Beckstead, CFO
From: Mike Freeman, CEO
Date: December 7, 2014
RE: City Council Work Session
I am looking forward to providing an update to the City of Fort Collins City Council Finance Committee on
December 15th. As part of the update, I was asked to address a few questions which I will cover in this
memo. I have also provided a Power Point overview of Innosphere for the Council read-before
document.
Expansion to Golden – National Renewable Energy Lab (NREL)
In December, 2012, the CleanLaunch (incubator at NREL) Board of Directors and the National
Renewable Energy Lab (NREL) reached out to determine if the Innosphere would consider resuming the
incubator operations at NREL. CleanLaunch had failed to create sustainable financial model and had
ceased operations leaving NREL and the cleantech community in Metro Denver without an incubator
resource. The Innosphere Board of Directors voted in March, 2013 to launch a program to fundraise for
the operational funding needed to resume the office which was done. Being the incubator for NREL
would allow Innosphere client companies to maintain a close relationship with NREL and to provide
incubator services for startups that license NREL technologies. Since resuming the incubator operations
in Golden at NREL, Innosphere has built up the leading cleantech program for Colorado.
Expansion to Denver – Industry
In early 2014, discussions began about further expanding into Denver or Boulder to better serve the
companies that we work with in the Metro area. Following Colorado State University’s decision to pursue
new operations in City of Denver at the Stockshow complex, Innosphere began focusing our search
there. It became clear that the best option in Denver would be at Industry (a commercial development)
in North Denver. This area is in an Urban Renewal Authority area and part of the broader redevelopment
of the area which is consistent with our mission in Fort Collins as well. In addition, the Industry team
aligned with Innosphere around our mission and the potential to add a new dimension to their
development. As we sought Board of Directors approval to expand into Denver, the Innosphere Board
provided clear direction that any new operational costs would need to be raised from Denver supporters
and dilute existing investors and supporters.
Subsequently, staff raised funds for the cost of the Denver office space in advance of signing the lease
and has secured direct funding and funding for a new Denver based position from the City of Denver.
2 | Page
Today, more than 35% of our overall funding comes from Denver based supporters. Fort Collins based
Innosphere client companies have benefited from our expansion to Denver. Specifically,
The vast majority of investors in Colorado are located in Denver and Boulder – we have
dramatically increased our investor network this past year benefitting all clients
The largest corporate strategic investors are in Denver – we have built our network with large
companies providing better access to our startup clients
We have expanded our executive advisor network for the benefit of all companies
Early Exit Program Summary
Innosphere has found it challenging over the years to develop a successful and repeatable financial
sustainability plan that moves the organization away from a nearly 100% reliance on donors and
investors. The organization has implemented client fees in the last year -- and these are beginning to
generate income ($2000/year per client moving to $5000 in 2015) -- and has implemented new program
revenue opportunities.
The complexity around the task of developing a more sustainable model is to identify and deploy
strategies that do not fundamentally alter Innosphere’s 501(c)(3) mission of promoting economic
development, cause us to drift away from the alignment of purpose with our historical investors, or create
disconnects with the client companies we service. A simple solution to our sustainability challenge would
be to implement a blanket equity policy that Innosphere takes in new companies as clients (in other
incubators and accelerators usually 6-8%). Locally for example, TechStars takes an 8% equity stake and
Boomtown 6%. A core challenge around this model is that a large number of the clients we work with are
building companies that will own and operate as headquarters companies. In these companies, taking an
equity position does not make a lot of sense nor would it produce revenue back to the Non-Profit.
Headquarters companies have a very elongated “exit” or no “exit” at all from the company. Further,
Innosphere may be in a conflict position if it were perceived as “pushing” a company toward a faster exit if
that were not the founders plan.
The recommendation of Innosphere staff is to launch an Early Exit program in Q1 2015. Innosphere
would specifically recruit a limited number of companies (probably 4-6 per year) into this program that
have a strong probability of achieving an Early Exit. An Early Exit is defined as selling the company within
a 2-3 year timeframe after onboarding with Innosphere. Upon the sale of the company, Innosphere would
receive a success fee of 2% on the transaction capped at a specific dollar amount. This scenario
establishes a clear path from onboarding as a new client, to alignment with the investors around a
shorter-term targeted exit. In regards to alignment with investors, we see this as one of the significant
advantages of this program. Angel, Family Office, and corporate strategic investors will greatly benefit
from Innosphere’s robust due diligence process and referral of fully vetted investments. In the past few
months, based on our early exit concept, Innosphere has aligned with one Angel group and five Family
Office investors to refer vetted investment opportunities to them. The Innosphere Board was given
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Attract
15+
New
Clients/
Year
Incubate
40+
Total
Clients/
Year
Graduate
10+
Total
Grads/
Year
Financial Sustainability
Our “coherent strategic concept”
approval to implement this program in 2015 and staff is working out technical and legal items around the
launch. We are expecting that this program may generate funds to Innosphere as early as 2016.
2014 Operational Summary
The following graphic summarizes our overall strategic purpose. This graphic was developed in 2014 to
summarize at a high level what we do. It has been helpful to use this graphic with other organizations
because it provides a framework for assessing how potential partners might work with us – the idea being
that all initiatives and programs we run are designed to better support Innosphere in:
attracting high quality companies;
providing quality incubator services to current clients;
and/or graduating successful companies.
and accomplish all of these in a financially sustainable manner.
Metrics for Incubation services strategic plan implementation:
Metrics for 2014 Goal Outcome
Total companies served ≥40 clients 49 clients*
Average incubation timeframe ≤27 months Estimating ≤24 months
Jobs created TBD 2/15 – annual report
Capital raised TBD 2/15 – annual report
*Estimating that ±8 companies of the 49 will fail out of Innosphere by end-of-year 2014
Metrics for target industry segments strategic implementation:
Metrics for 2014 Goal Outcome
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Cleantech new clients ≥3 3 – met goal
Biosciences new clients ≥3 7 – met goal
Software/Hard. new clients ≥3 6 – met goal
Graduate companies ≥10 12 – met goal
City of Fort Collins
City Council Finance Committee
December 2014
1
Innosphere is Colorado’s leading science and
technology incubator focused on supporting
entrepreneurs who are building high growth
potential companies in cleantech,
biosciences, hardware and software.
“Do we have a simple, coherent strategic concept
that we pursue with relentless consistency.”
Michael Porter
Simple but complex question…
OUR “COHERENT STRATEGIC CONCEPT”
Financial Sustainability
PRIMARY FUNDING PATH
[VALUE]
[VALUE]
[VALUE]
[VALUE]
[VALUE]
[VALUE]
Angel Venture Revenue Debt Grants Strategic Partner
Note: Does not include Hatchery companies
INNOSPHERE FUNDING PARTNERS
INNOSPHERE STRATEGIC PARTNERS
INDUSTRY PARTNERS PROGRAM
INNOSPHERE BANK PARTNERS
OUR PREFERRED PROVIDER NETWORK
IS HERE TO HELP
So Why Does Job Creation Matter?
• WSJ – business closing are higher than business starts
• Net new job creation comes from firms with less than 50 employees
• All net job loss happens within larger firms – churn
• Accenture – survey of technology entrepreneurs:
• Only 25% believe their government actions support entrepreneurship & innovation
• Only 20% believe their government does enough to support international expansion
$2300 Per Job Supported
KEY INITIATIVES: T2M
• Building a Strong
Pipeline of
Companies with the
Technology to
Market Tool
Major Initiatives for 2015 (not Board approved)
• Further implementing Lean Launchpad (up front training program)
• Better defining services delivered by staff vs. advisors, providers
• Creating more definition around our software program
• Defining our role with CSU Powerhouse
• Advancing our access to capital program (focus on seed funding)
• Improving financial sustainability (early exits program)
Startup Challenges
Key Initiative: Early Exit Program
Launches in 2015 – First Financial Participation by Innosphere
Customized Program for Companies with Early Exit Potential
Engagement of M&A Resources Early in Process
M&A Planning Integrated Day One
Alignment with Investors, Client Company, Innosphere Around the Exit
COUNCIL FINANCE COMMITTEE
AGENDA ITEM SUMMARY
Staff: Mike DeKock
Date: 12/15/14
SUBJECT FOR DISCUSSION: Establishing a Parking Fund in 2015
EXECUTIVE SUMMARY
The City determined in 2014 that a new fund should be established in 2015 to report parking
revenues and expenditures previously reported in the Transportation Fund to provide greater
transparency to these activities. The CFO has the authority to establish a new fund, however
Council approval is required to transfer parking reserves currently reported in the Transportation
Fund.
GENERAL DIRECTION SOUGHT AND SPECIFIC QUESTIONS TO BE ANSWERED
Is additional information needed for approval of ordinance?
BACKGROUND/DISCUSSION
Parking activities have previously been reported in the Transportation Fund, but all revenue and
expenditures specific to parking have been tracked by the Parking Department and Finance to
calculate annual reserves each year. The Parking Department is requesting that these reserves be
transferred from the Transportation Fund to the new Parking Fund in 2015. An ordinance will be
presented for the February 4
th
Council Meeting to transfer an estimate of reserves as of
December 31, 2014 of approximately $1,519,485.
This balance is “estimated” as additional 2014 parking expenditures could be found subsequent
to the AIS; however we do not anticipate these amounts will be significant. If there are any
additional transactions recorded altering the year-end reserve amount an appropriation will be
proposed for the year-end adjustment ordinance.
ATTACHMENTS:
Presentation
Establishing a Parking
Fund in 2015
December 15, 2014
Parking Fund Establishment
• In 2014 Parking and Finance determined a new fund
should be established in 2015 to report Parking
revenues and expenditures
• Historically activity has been reported in the
Transportation Fund
• Allows for greater transparency for Parking activities in
response to community interest in current and future
developments
• CFO has the authority to establish a new fund, however
appropriation is needed to transfer reserves
Parking Reserve
Activity
2010 2011 2012 2013 2014
Beginning $ 893,818 $ 1,020,910 $ 1,155,321 $ 1,351,081 $ 1,372,858
Revenue 1,850,297 1,941,993 1,938,805 1,929,404 1,936,491
Expense (1,723,205) (1,807,582) (1,743,045) (1,907,627) (1,789,864)
Ending $ 1,020,910 $ 1,155,321 $ 1,351,081 $ 1,372,858 $ 1,519,485
Voter
Approved
1/4% Choices 95
Capital Program,
Voter Approved
1/4% BCC Natural Areas
and Parks, Voter Approved
1/4% BCC Streets &
Transportation, Voter
Approved
1/4% Street Maintenance
Voter Approved
7/1/89-12/31/97
1/4% BOB Community
Enhancments, Voter Approved
1/4% City Natural
Areas, Voter
Approved
1/4%Pavement Management,
Voter Approved
1/4% Open Space, Yes,
Voter Approved
.85% KFCG
Voter Approved
updated 8‐30‐13
1/4% Open Space, Yes,
Voter Approved