MEMORANDUM 07-85

 

TO:            Mayor Hornaday and Homer City Council

 

FROM:      Lease Committee

 

DATE:       May 8, 2007

 

SUBJECT: Lease Proposal / Lot 12 / Hughes Pellets Alaska

 

 

The City recently solicited lease proposals for Lot 12 near the Deep Water Dock. This is the five acre parcel that Gates Company used to store and ship wood chips. The cement pad and the wooden fence remain from that operation. The deadline for submitting proposals to the Clerk’s office was Friday, May 4, 2007.

 

The City received one proposal from Hughes Pellets Alaska. We anticipated this proposal because we have been talking to Hughes for several months now. The Lease Committee reviewed and discussed this proposal on Tuesday, May 8th. The Committee has some follow-up questions that it wants to forward to Hughes but it found that the submittal substantially complied with the requirements for proposals contained in the Lease Policies and that it provided sufficient information to make a recommendation to the Council.

 

Hughes Pellets Alaska is a local company formed as a subsidiary of Hughes Holdings; a corporation with international assets and a main office in Australia. The company business plan is to harvest dead trees on State, Federal, and private land through-out the Kenai Peninsula and process those trees into wood pellets at a processing plant in Anchor Point. The Pellets will then be shipped to Homer, stored in silos, and then shipped out on large vessels. The operation at dockside will be very similar to Gates except that this is a value added product that will be stored in Silos 35 to 40 feet tall.

 

Hughes anticipates that about 10 trucks filled with pellets will arrive in Homer each day. They expect to create about 58 full time jobs on the lower peninsula ( 6 at dockside) and pay over $1 million dollars in property taxes. Annual lease revenue would be in excess of $100,000. Homer would also benefit by moorage and tariff fees, sales taxes, and increased activity for the businesses that would support and serve this operation. Hughes is requesting a lease with a twenty year term and believes there is enough wood to support operations for that long. Hughes could be one of the anchor tenants the City has been seeking at the deep water dock. They are very interested in the proposed dock expansion and want to work with the City on the design.

 

The Lease Committee recommends that the City Council approve this project and lease proposal in concept. If the Council gives preliminary approval, the next steps would be for the administration to send the proposal to the Port and Harbor Commission for recommendations, request some follow-up information, start lease negotiations, and authorize Hughes to begin the permitting process. This proposal may require a conditional use permit which would include a public hearing. The proposed lease would be submitted to the City Council for final approval.

 

RECOMMENDATION:  The Lease Committee recommends that the City Council give preliminary approval to this project and authorize the City Manager to forward it to the Port and Harbor Commission for comments and begin the lease negotiation process.