AgendaItem#7a.

RECEIVED
0C T 1 1 2013
To: Mayor, David Raven From: Bart Larson

CITY OF ft!VIt.ITOKE

Dear David, I am writing this letter to bring to your attention a case where the current Class 5 municipal tax rate will likely present a barrier to an important economic development opportunity in Revelstoke. In this letter I will present background on the proposed project along with enough detail that you may decide if this case warrants presentation to Council for further discussion. For over a year now I have been searching for an affordable piece of property on which to construct a new brewery. Currently, we rent a significant amount of additional offsite space for warehouse purposes since we have used most of our onsite warehouse space to house our new canning line. We are also nearing the production limit of the existing brewery. I have determined that a reasonable size for a new facility would be approximately 15,000 square feet which would approximately double the size of our current location. From preliminary discussions with construction project management companies, we estimate the cost of this to be 1.5M$ to 2M$. Our goals in building a new facility are fourfold: first, we need to accommodate growth which has been in excess of 20% for the past three years, second we want a facility which allows us to expand the tourist component of our business through more frequent tours, third, we need to increase our efficiency of operation, and last but not least we would like to have a facility that reflects the quality of our products, that is esthetically pleasing and that we and the city of Revelstoke can be proud of. We are currently entertaining three building options, one of which includes building on our existing site to increase our warehouse space, but it will force us to halt any production increases and stay with the status quo. We believe though that we have found a very promising site located across the parking lot from the Revelstoke Railway museum. There are issues with the site (rezoning would be required and some sewer line and road work needs to be done) but preliminary discussions with city staff and with Railway museum board members have yielded nothing but a positive response to the prospect of locating a new brewery there. I think all stakeholders believe that a great tourism synergy could result that would benefit the Railway museum, Mt Begbie Brewing, and the city of Revelstoke. Assuming that the technical issues can be addressed and the city is in a position to do the required infrastructure work by the start summer 2014, the road block to us going ahead is purely financial. I believe that the financing of a project of this size is feasible for our company but is at the absolute edge of what would be fiscally responsible for us. At our current cash flow level and debt load we cannot afford the potential tax increase that will accompany a new facility. To put it in perspective, to financially service a loan of 1.5M dollars one would pay roughly $10,000 per month. If the new building was assessed at $2.0M we would pay an additional 70K$ per year or $5833 per month in taxes. When the school tax exemption is lifted in 2014 the tax per year would increase to about 90K$ or $7500.00 per month assuming the Light Industrial (class 5) tax rate remains at its current level of 45$ per thousand. Once the school tax exemption is lifted, the

Letter from Bart Larson - October 11, 2013

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AgendaItem#7a.

class 5 rate will be the second highest rate class. Only the utility class would pay a higher rate. Of note is that our taxes have almost tripled in the past 7 years and this increase would basically amount to a further tripling of our taxes. I bring this to the Mayor and Council's attention because I believe, in our case, these taxes will prevent us from going forward with this project. In my talks with city staff, I believe that there may be a possibility of obtaining some tax exemptions that could help with this situation in the short term. In the longer term (5 years+) we will have retired enough debt to be able to pay the appropriately assessed tax amounts. Please note that we cannot rely simply on increased sales to be able to afford the tax increase because they are speculative. Although our annual growth rate has been over 20% there are signs it is slowing somewhat. What, if any, options exist to help get this project off the ground are purely up to the City ofRevelstoke. I am happy to provide more detailed information as requested by Council and staff. I believe the City should seriously consider our case for a number of reasons. Mt. Begbie Brewing currently employs ten full time people and one part time person in Revelstoke. This number can easily double if growth continues. More permanent full time residents are desparately needed here. Mt. Begbie Brewing provides benefit to our community in numerous ways besides paying taxes. Examples include the significant portion of our revenue that is directed toward local clubs and non-profit organizations, healthy yeast for our sewage plant and free grain for local cattle farmers. We also produce beers that are only available at local pubs and restaurants so that we can steer customers towards eating and drinking locally and stimulating Revelstoke's economy in slower months. Mt Begbie provides important diversification in Revelstoke's economy bringing in revenue from both the tourism and manufacturing sectors. On the manufacturing side though, the brewing industry is very competitive and future growth will depend on us being competitive in markets outside ofRevelstoke. For our brewery one ofthe largest detractors ofbeing located in Revelstoke is the cost of shipping goods in and out. Since we sell over 60% of our product out of town we have to pay for shipping in both directions. Last year, shipping and distribution costs paid to transport companies were 9% of our gross revenue. We were prepared for high shipping costs when we started our business, but the fmancial offset was that we could procure lower rent costs and low taxes. One last point is that the brewery would be a great use of the space we are looking at and only enhance that area. In summary, I believe our situation deserves a closer look by City council from two perspectives. First, is the City of Revel stoke interested in helping with this potential economic development opportunity to determine if there could be a 'tax relief scenario that could help out in the short term? Second, would city council review both the Class 6 and Class 5 rates as they are significantly higher than surrounding communities and could potentially deter any other potential interested parties in doing business in Revelstoke. In my research, I have determined that we would pay 31% less in taxes to do the same building project in Salmon Arm. Sincerely

73(/ J--~~ .

Bart Larson President, Mt. Begbie Brewing Co.

Letter from Bart Larson - October 11, 2013

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