Committee Minutes

FINANCE DEVELOPMENT STANDBY COMMITTEE
Wednesday, February 4, 2009 - - 4:30 p.m.
City Hall - - Room A101

Present: Christensen, Glassheim (via phone), McNamara, Gershman.

1. Matter of pre-audit communication between the auditors and Finance Committee

Saroj Jerath, Interim Finance Director, stated that the Committee had received a copy of the pre-audit communication letter from Brady, Martz & Associates. She stated that the purpose of the letter was to make the Committee aware of the scope of the audit and to inform them of their responsibility to make the auditors aware of any knowledge of suspected fraud so that it can be explored as part of their audit.

2. Report on Phase II of Downtown Development.

Greg Hoover, Urban Development Director, stated that staff has been continuing to look at options for development of the old Civic Auditorium and parking lot property along 1st Ave N. He continued that from prior discussions and proposals preference was to deconstructing the Civic Auditorium building and creating a new development on the properties.

Hoover continued that initial plans had included use of low income tax credits as part of the incentive package for developers, but the turn in the economy has lowered the potential field of buyers and not sure whether could still use those or not. Hoover stated that he has been told there is a local developer that is working on a proposal to rehab the existing building into a conference center and would also involve purchase of the hotel across the street in the development of the project.

Hoover distributed copies of some concept drawing s that came out of the Charette. Option 1 shows vacation of 1st Ave N, row house development on the current parking lot property and development of downtown market with housing above and additional housing on the current auditorium lot. This development would include the acquisition of the currently undeveloped grass parcel adjacent to the parking lot which is currently owned by the hotel. Option 2 includes no development of the parking lot parcel at this time. It includes a downtown market on lot currently used for parking by the US Bank building, then new shared parking developed on north half of parcel that would serve both buildings and a rain garden pocket park type feature on west edge of the property.

Hoover stated that they have been moving slowly on going forward with this due to the potential stimulus package and that there could be resources there that could assist with this project. Christensen stated that he doesn’t like to see projects lingering and this has been ongoing for over a year and would like to see some movement on it or just decide to not do it. Glassheim agreed with Hoover that there is potential funds in the stimulus package, and that even State Legislature is holding on appropriations until see what the final package will be, and would be in favor of holding for another month or so to see what becomes available.

Gershman stated that thus far the preference has been to projects that all include the demolition of the building and perhaps could start looking at RFP for the deconstruction portion and then when get stimulus information can be ready to get started on the redevelopment. Glassheim replied that the way the stimulus package looks to be structured, if you have already approved any appropriation for a project then won’t be able to substitute in stimulus money even if it is a project that otherwise would have qualified. He added that under some things he has seen may even be possibility to access some of the stimulus money for the demolition if it were part of the overall redevelopment.

The group discussed that perhaps staff could begin to gather information relative to the deconstruction and perhaps even get the RFP out to developers, locally and region-wide including the Minneapolis area and would not have to include any appropriation of funds at this time. Hoover inquired whether the Committee would favor development of both parcels together or individual proposals for each parcel. Consensus was to get the word out and look for as broad a parameters as possible and see what the developers come back with and prefer concept option 1, but maybe someone would have an even different idea that they would bring in.

The group discussed what to include in the RFP. Consensus was to keep it as broad as possible so that developers could come up with creative ideas for consideration. The group discussed whether to include potential incentives that might be available such as reduced land cost or property tax relief items, but don’t want to be too specific to the point where if stimulus funds could be used we exclude the project yet need to balance that concern with needing to let developers know what we could bring to the table if they put effort into submitting a proposal. Gershman stated that given the economy we are going to have to be aggressive to attract good development ideas. Christensen stated that he would see that for the project to be successful would need to be described as a public private partnership and that could evolve into buyout so that after number of years becomes all private and maybe should include that could offer 15 year tax credit and/or low interest loans, etc. Glassheim cautioned that he would not be in favor of including any specifics on a financial commitment for at least a couple of months until the stimulus package is known so don’t jeopardize that potential source of funds for the project and depending on final package could change the incentives that we could offer.

Consensus of the Committee was for staff to take initial steps to get an RFP moving and to keep the terms listed very broad and list options, but no specifics in the area of incentives.

3. Report re. JDA activities for past 5 years.

Hoover distributed a spreadsheet that showed a breakdown of the types of projects that have been done over the last 5 years. He noted that since 2004 most of the projects have been under the PACE and because of that have had to do fewer loans. He noted that this list does not include projects that used EDA funds. Hoover continued that this structure also frees up some funds that can be utilized in the land purchase that is being discussed. He stated that EDA funds have a time limit on when they need to be spent and have not had a problem working with that limitation in the past. Gershman requested that perhaps a report on that could be given at the Growth Fund meeting.

Christensen inquired whether EDA funds could be used for the lift station that is needed. Hoover stated that they could not unless we have a committed new business coming in then could use EDAfunds and that is why we have been able to look at that for work near the Amazon lot. Christensen asked whether could use EDA funds for downtown project. Hoover will research that and bring a report back.

The group discussed funds that are available in Fund 5996. Hoover stated that he has meeting with Jerath and Storstad to discuss availability and to work on the financing structure for the land purchase, but believes that there could be $1million to $1.5 million and may include a borrowing from the Utility Fund, which would be paid back in 4 years, but still in discussion. He stated that there are some upcoming necessary repairs at the Noah’s Ark building that will need to be paid from 5996 and need to also keep those in mind. Staff will bring report back to Committee once a financing plan has been worked out.

Christensen suspended the agenda and moved the last item up for the benefit of some audience members that were in attendance at the meeting.

5. Discussion re. CVB fund balance.

Maureen Storstad, Budget Officer, stated that information regarding this item was distributed to Committee Members in their packets and as listed on the information the building bond was paid in full with the February 1, 2009 bond payment, there exists in the bond fund a balance of $374,000, which due to the bond covenants and related city code can not be transferred into the Loan & Stabilization Fund. The group discussed that when the tax to support payment of this bond was put in place it was stated that the funds must be used in support of activities and facilities that promote tourism for the community. Christensen stated that we now have the Alerus Center and that facility does promote tourism as does the staff of the Alerus and would like to explore whether some of the funds from this tax could be used to cover losses at the Alerus and the conversation is do we want to leave the current balance of dollars and the future tax collection for the use of the CVB or explore other potential uses for some of those funds.

Duquette cautioned against transferring all the funds to a different use, as in the past have done that and then need for repairs or improvements at a facility comes up and have to look for a source to fund those and would suggest to at least leave some to cover future needs for the building.

Christensen pointed out that besides the bond funds the CVB also has $500,000 in reserves in the 2007 financial report and in looking at the budget information has been operating with a budget of $600,000 to $ 650,000 and does leave some excess that perhaps could access those funds for potential future needs. Julie Rygg, Executive Director of CVB, stated that the building is almost 15 years old and is beginning to show its age, that they have need for some major improvements to maintain the facility such as roof and window work, flooring and furniture replacement, furnace and air conditioning unit repairs, etc. and that they have used about $80,000 in reserves over the last 2 years in order to deliver the programs that they have done. Christensen stated that the building is owned by the City so will always have a source to come to for funding of necessary repairs and if there is a list to provide that to Council. Rygg distributed a copy of the 15 year CIP that the CVB Board has compiled which totals about $90,000. Christensen stated that would not have a problem allocating $100,000 from the bond reserves and just get the repairs done and then still have $274,000 left that potentially could be used for other things. Glassheim commented that perhaps now that the building is paid for why the City should continue ownership and perhaps should sell it to the CVB and then could get ¾ of a mill back for the City.

Gerhsman stated that was responsible for the CVB to come to the City and let them know that the bond is now paid and seems that while some want to take the 1% and use it for other purposes, would be a better use to let it remain with the CVB and let them continue to use it to promote our City, particularly with the way the economy is. He stated that the CVB has shown that they have handled their funds effectively and responsibly and should allow them to continue as they have been. Christensen stated that he would like to see some discussion about integrating some of the promotion between the Alerus and CVB and maybe other entities. McNamara was also in favor of broadening the discussion to look at how the promotion is done and the entities working together and see if there are ways to integrate or merge some of those services and maybe everything is being done best way, but just look and evaluate. Glassheim stated that we should also get a legal opinion on whether the money can be transferred to other uses and any restrictions on what those other uses could be. The group agreed that should have Howard Swanson, City Attorney, review and provide a report to the Committee on this including what options there are for the current balance in the bond fund as well as the future uses of the 1% now that the bond has been paid off.

Rygg replied that the actual budget for 2009 is $800,000+ and when compare to other major ND cities very low, for instance Fargo has budget of $1.7 million and in industry that is very competitive need to keep pace if we are going to promote the City adequately. She distributed examples of the current Grand Forks visitor guide versus Fargo’s visitor guide and noted that with additional funding being available we would be able to step up our efforts to be closer to the level of some of our competing cities.

Christensen responded that he believes that the staff is doing a great job in their efforts and have been promoting the City and Alerus Center, but wants to make sure that there are synergies in place and know that the leaving the funds where they are at this time is the right decision to make and that looking at if maybe there are some places to merge or be more cooperative in work load could benefit everyone and that is what he wants to explore. Jody Hodgson, President of CVB Board, expressed that currently the CVB staff does a great job of broadly promoting all the amenities of the City and feels that if that is what the desire is that the CVB is the broadest fit for the dollars. Christensen replied that this could be true, but in looking at the budget, CVB is planning to expand and utilize more of the funds for 2009 than they had in prior years and just want to be confident that is the best use of the funds, as we are having issues in other areas and need to look at the whole picture to make sure making the best use of the meager resources that are available.

McNamara agreed stating that the level of reserves the CVB has is large in relation to the annual budget and need to look at the most efficient use of the funds and make sure that the right level of funding is being provided to all groups and feels that it is good to periodically review and make sure that all aspects are being served and regardless of whether current system is best one, not sure that the Committee has enough information and understanding to make a decision today.

The group discussed that perhaps CVB board and staff could get together with Alerus Commission and staff and discuss how things are going and look to see if there are ways to integrate some of the activities or if there are different and better ways to do some of the promotions as have been doing things the same for eight years and seems good time to review the process and could include The Ralph and others if interested. The group consensus was that if wanted to have those discussion and then bring a report back to Committee would be alright. Glassheim expressed that the current system has been working well and not in favor of just taking away from one entity to give to another, or if we can even do that, and not sure that having a joint board and staff would be best service to the community and like how has been going.

Hodgson stated that the CVB was created with the intent for the 1% to assist with existence and looking at things from an operating standpoint will need it to continue and to be competitive and from a CVB Board standpoint like the security of knowing there is an ongoing revenue stream so don’t have to worry about coming back in the future should unanticipated needs arise.

The group discussed moving to segregate the $374,000 remaining in the bond fund as a reserve for the future needs of the CVB, but looking at the ongoing 1% and think there should be discussion about the use for that money. Christensen noted that the CVB in anticipation of having additional funds increased their budget, but perhaps some of those additions are items that could be integrated with the Alerus if the 1% was redirected. Steve Hyman, Executive Director of the Alerus Center, commented that the CVB has done excellent work in the past promoting both the City of Grand Forks and the Alerus Center and that while can look at mergers, the two entities have very different focus and that the Alerus has very micro selfbased focus and CVB is macro broad based promotion activity. He reiterated that overall have had very good working relationship and like to see it continue. Christensen pointed out a couple of things in budget such as special event funding and that Alerus Center brings in events and that could be potential $175,000 that could be used toward Alerus shortfall and then would have $175,000 more in Fund 2163 for other needs.

Hodgson stated that the entire community benefits from a strong CVB and already have made collaboration with other groups a priority and think that perhaps better fit is to allocate part of the $374,000 to different use but leave the 1% as good source of future needs for CVB. McNamara stated that he would still like to see discussion about if there are any ways to collaborate more at this time and then have time to review more information and feel confident in the decision. Kreun stated that they did review this several years ago and made changes that lead to the collaborative structure that now exists between the various groups in town and can look at this again and bring back report to Committee on any potential changes that could improve the relationships. Christensen requested that groups get together and bring the report back to Committee in 30 days for review.

Motion by McNamara, second by Glassheim, to receive and file.

4. Discussion of the Alerus Center write-off of $872,000.

Christensen stated that Committee is reviewing the transfers to the Alerus Center of $872,000 and at this time has not made a decision to write-off the amount as suggested in a memo received by Council in late December. He continued that Fund 2163 currently carries a receivable from the Alerus Center in that amount, that staff had made the transfers to meet operational needs over the last few years based on the belief that the funds would be repaid to 2163 from the excess funds collected in the debt service account as allowed under the bond covenants, but came to know in November 2008 that this was not possible due to a conflict in the wording that was included in the ballot language/City Code which supercedes the bond covenants, and now would like to discuss potential other means for the Alerus Center to pay the money back and perhaps some type of payment plan as did with other loan they had to the Water Fund. Jerath corrected that other loan was able to be paid with funds from the debt service account, as was for capital need, not operational.
Motion by McNamara, Second by Glassheim, to refer the issue of the $872,000 loan to the Alerus Commission to come up with a repayment plan, which will be brought back to the Finance Development Standby Committee. Aye: All. Motion Carried.

The group discussed the process for transfers between funds such as what occurred with the Alerus Center fund and whether there should be some periodic notification to Council Members when a transfer of a certain size either individually or cumulatively was made. Jerath reported that transfers between funds to accommodate cash flow issues are done and are reported in the Comprehensive Annual Financial Report. The group discussed whether some additional detailed listing of the transfers should be given to Council or the Finance Committee. Duquette explained that in the past these have been subject to annual monitoring and that have now decided that future transfers if needed for the Alerus Center will come from 2163 and will report those to Council. Christensen replied that there is a budget process and City prepares its budget, Alerus prepares its budget and every December Council approves many transfers and amendments because as municipality can’t deficit spend and no one should be spending dollars that are not in their budget. He continued that if there is a need outside the budget for additional funds then the request should come to Council to come at least quarterly and make a request. Kreun replied that at the time the transfers were done staff had been under the belief that the funds would be paid back from the bond fund and was acting properly. The Committee concurred that there had been no wrongdoing by staff at the time the transfers were done but that would not be any future transfers of this type.

The group discussed that this is in addition to the concert fund which had been established with $250,000 of City funds, but now has balance of $1,000 and anticipate that there will be a forthcoming request for advance of additional dollars for that fund as well. The group agreed that they all were aware of the transfers to the concert fund and Council had approved all of the transfers to those funds as well.

The group discussed that transfers are an ongoing part of fund accounting and are reported in the CAFR. Gershman noted that Council Members should have seen the listings of transfers in the CAFR and no one questioned it, but maybe should have or should get a memo so points it out and explains the reason for the transfers. Duquette stated that they can look at this process.

Christensen stated that now everyone knows that the Home Rule Charter does not allow the bond funds to be used for operations and won’t have any transfers for this again; that appears the first bond covenants were written and included use for operations but lawyers did not talk to each other and know that Home Rule Charter was written differently and no one noticed until now, even when the second bond covenants were written using the same language; and that then someone assumed that one source of information, the bond covenants, was correct and didn’t go back to the other source to verify. He continued that now we just need to work on how we will resolve the situation and some have suggested that perhaps have an election and ask to have “operations” added to the permitted uses of sales tax proceeds in the Home Rule Charter, but some feel that not a good idea at this time. He continued that also now will have Council notice prior to any transfer of funds to the Alerus Center and concern is to get the report back from the Alerus Commission on how the money will be repaid. He continued that he hopes to see an expansion of the explanation of the due to’s and due from’s in the CAFR this year and going forward.

McNamara commented that has not seen this loan footnoted anywhere in the Alerus Center statements. Christensen stated that is included in the CAFR, but believes that most of the Commissioners do not realize that this loan exists and would like to also see some improvement on what type of statements are coming out of the Alerus Center, as reporting a profit but not including this liability in that and seems to be should show up somewhere.

McNamara asked whether should set criteria for reporting transfers to Council. Christensen stated that each department has a budget and should live within it and if can’t then should come to Council with request for more.

Gershman commented that he would like to see a copy of the Home Rule Charter and has been told that the bond covenants don’t supercede, but maybe there is something in the Charter that would refer back to the bond covenant definition and then would be able to access the debt service funds for operations.

Glassheim commented that he does not believe that an election would be all negative and might have people approve the request in order to free up general city dollars for other uses and believe that should keep option of an election on the table. Christensen stated that we wouldn’t loose anything that we already have and could also include a change for the uses of part of the sales tax so could have available for different project. McNamara also concurred that this option should be considered. The Committee agreed that if this were approved would provide an ongoing source of funding for needs at the Alerus Center for operations, but would need to put some stipulations in so that available with City Council oversight on the release of funds to put the pressure on the Alerus staff to stay within their budget as much as possible.

The Committee requested that staff put a process in place for the handling of transfers including notification to Council and bring back to Committee.

Meeting adjourned 6:25 p.m.

Respectfully submitted,

Sherie Lundmark
Admin Spec Sr.