Digi-Key boom brings good problems to Thief River Falls

Think of it as the Amazon.com for electronics techies.

Need 450 transducers, 30 solenoids or just a single moisture-resistant resistor, and want to have them they next day? Digi-Key has it covered and will put the gear on a plane from its northwestern Minnesota outpost in no time.

From its 200-square-foot start in Thief River Falls, Digi-Key has mushroomed into a powerhouse in its field. And the company is about to get a whole lot bigger with the help of millions in tax incentives and grants awarded this spring by state and local governments. The build-up will test the capacity of the region's tight labor supply and pose other challenges.

On Sept. 15, Digi-Key will hold a groundbreaking ceremony for a $200 million to $300 million expansion. The project is expected to add 1 million square feet — bigger than the old Metrodome in Minneapolis — to the component distributor's global hub, more than doubling its current size.

The real prize is the promise of at least 1,000 new jobs at a Digi-Key campus where more than 3,100 already work. That's in a city of about 8,800 people.

Decades beyond its 1972 founding by ham radio enthusiast Ronald Stordahl, the company says it's on pace this year to top $2 billion in sales for the first time. It has staff in Asia and Europe and customers in more than 170 countries, with only about a third of its shipments destined for Minnesota addresses.

At the same time, Digi-Key Vice President Rick Trontvet said the company has taken pains to stay rooted in the city about 75 miles from the Canadian border.

"We think the secret sauce is our workforce. We really think that differentiates us in the industry," said Trontvet, himself a Thief River Falls native. "And, so our real desire here was to build here and expand our footprint here."

Originally catering to fellow ham-radio operators in search of parts for telegraph coders called digi-keyers, the company now offers more than six million electronic components produced by other firms that are ultimately purchased by hobbyists and big manufacturers alike.

"We're shipping to the exact quantity the customer wants," said Dave Doherty, Digi-Key's president and chief operating officer. "If they don't want a 10,000-piece reel, they need 137 parts ... it's essentially people reformatting those parts into the size and shape and format the customer is looking for."

The company's upcoming growth doesn't come without complication. The first is finding enough workers to fill the jobs.

To get around the struggle now, Digi-Key runs buses to Bagley, Crookston and Grand Forks to ferry employees to the facility.

Thief River Falls Mayor Brian Holmer said local officials were relieved when Digi-Key committed to expanding instead of relocating.

The city's big challenge now is to ensure there's enough affordable housing for the new workers and to make the community a place where people want to live and downtown a place where they want to go — "the things to do in the evenings, maybe the shows to go see, the arts that are involved," Holmer said.

The city just put in a free kayak launch dock, has designs on a water park and is hoping to expand bike paths in and around town.

More directly, the city has a stake in Digi-Key's buildout.

Thief River Falls capped building permit fees. It created a tax-increment financing district. It sold the company a city public works building next to the current Digi-Key headquarters. And it secured $1.6 million in state grants for roads and other public infrastructure related to the project.

The Legislature also ponied up, approving a forgivable loan of $4 million and tax exemptions that could reach $40 million over a decade.

Trontvet wouldn't put a price-tag on the total government incentives, but he said they were vital.

"It very likely wouldn't be happening here" without them, he said, noting that the company explored alternatives.

Company executives note that expanded payroll, spinoff development and other economic output will outpace whatever the public puts into the project.

Digi-Key's support among Republicans and Democrats at the state Capitol is strong. It's received direct state grants as far back as 1984 and was a driving force behind a runway expansion not long ago at the area's airport to accommodate big cargo planes. DFL Gov. Mark Dayton has twice cited Digi-Key by name in State of the State addresses and once offered to personally dig the hole for a stoplight to facilitate a prior expansion.

The company is also a GOP darling; top Digi-Key executives have donated more than $50,000 to Republican candidates and groups since 2010.

There was some grumbling from conservatives about the latest package, said state Sen. Mark Johnson, R-East Grand Forks, who helped usher the incentives along.

"They make plenty of money. What's the deal?" Johnson said, conveying some of the feedback he got. Officials in North Dakota, South Dakota and Texas expressed interest in luring Digi-Key to their states with incentives of their own.

"We're really competing with these states that have an investment package just waiting for a company like Digi-Key to pop up and move," Johnson said.

Now it's clear Digi-Key isn't going anywhere. If all stays on schedule, it should be filling out its massive new space by 2021.