Committee Minutes
ALERUS CENTER TASK FORCE
Thursday, December 17, 2009 - - 5:00 p.m. - - Council Chambers
Minutes
Present: Gershman, Christensen, Bjerke, Block, Emmons, Glassheim, Hafner, Hutchison, Kreun, Rygg, Thompson.
Gershman called the meeting to order at 5:00 p.m.
1. Review of Sales Tax Collection allocated to the Alerus Center
Howard Swanson, City Attorney, reviewed the authorization to collect the sales tax for the Alerus Center and distributed copies of Article III from the City Code which relates to sales tax and copies of a presentation that was given to the City Council on November 18, 2008 by Springsted and Dorsey& Whitney related to the sales tax collected for the Alerus Center. Swanson explained that there is a difference between the wording in the bond covenants and the City Code, and that the City Code governs the use of the proceeds. Thompson asked whether this could be changed to allow for some of the ¾% to be used for operations. Swanson replied that this would require a public vote and could be either electorate generated or called for by the City Council.
Swanson explained that when the initial ballot was drafted there was a division put in that the ¾% would sunset following satisfaction of the bond indebtedness, while the ¼% is an ongoing intended to be used to support marketing, promotion and operation of the facility. Swanson noted that the bonds can not be repaid prior to December 1, 2015, even if accumulated funds exist to pay them off sooner.
Gershman commented that there has been discussion of setting aside any excess left in the fund after the bonds are paid in an endowment that could fund future renovations and maintenance needs for the facility. Stjern stated that currently funds accumulated in excess of the annual bond payment needs have been used for funding capital needs at the facility including some of the initial construction costs, parking lot land acquisition, parking lot paving, and video signage, as well as some future planned capital needs that have already been approved. Christensen commented that the Commission can spend up to $500,000 a year on capital and anything above that comes to City Council for approval. Kreun added that the Alerus Center also includes a CIP within their budget each year.
Christensen requested that a spreadsheet showing the flow in the debt service fund be provided that would go until the funds run out in approximately 2029.
The group discussed whether there is the ability to set up an endowment for any funds remaining after the bonds are repaid. Swanson stated that the Home Rule Charter would govern the use of those proceeds and he could look into what options were.
2. Review of Bond Covenants
Swanson stated that the bond covenants are the promises to the bond holders and only go into play if there is not enough accumulation to pay the bonds when they are due. The Home Rule Charter governs above the bond covenants and stipulates that all revenue from the ¾% must go to satisfy the debt first and then if there is revenue left that revenue can fund other items as listed. He continued that some have asked about selling additional bonds to fund items at the Alerus Center, and if additional bonds are sold there is a requirement that funds be maintained in the account of at least 1.35 times the amount owing and this can not be lowered or eliminated for the life of the bonds.
Swanson continued with a review of the bond covenants as contained in the November 18, 2008 presentation handout. He again noted that there are some things in the bond covenants that are adverse to the City Code, but the City Code governs over the bond covenants.
The group discussed whether a vote could be done to change the Home Rule Charter so that it would be in line with the bond covenants thereby allowing access to all the funds for operations. Swanson stated that he would recommend if there were to be a vote that the language for the ¾% tax would be amended to mirror the language used in the ¼% as that would be a better long-term solution.
Hutchison inquired if no changes are made and things continue as they are until the bonds are paid, including the City potentially advancing to the Alerus Center operating funds as needed, the when the bonds are paid off, do any remaining funds revert to the City? Swanson stated that they do not, they would remain in that fund to be used as stated in the Home Rule Charter until they are exhausted, meaning that they could be used for capital needs and additions, but not for operations, programming, or marketing.
Hafner inquired why the language in the covenant is different than in the Home Rule Charter. Swanson replied that first there was a miscommunication in the drafting of the covenants, and second, that there will always be a source of limited support for the Center, but is discretionary on the part of the City because that operating revenue can also be taken for defeasance of the bonds. Bjerke stated that he recalls it was a safeguard for the citizens, as there was one part of the tax for construction and a separate part for operations and the two were not supposed to meet, as there were many that did not want an unlimited source of funds to supplement operations.
Gershman replied that some factors have changed both within the community and in the economy and that need to evaluate this and would believe that even if there were to be a change in the Home Rule Charter, that would still include some control on how much, with City Council approval, would go to the Alerus Center.
Christensen commented that the purpose of the Task Force is to look at the governance of the Alerus Center and will most probably have to address ongoing maintenance concerns once the ¾% is gone and would like to see when that is forecast to occur as part of this discussion.
The group continued discussion on potential issuance on additional bonds and whether there would be any issues. Swanson stated that besides arbitrage, there could also be some other concerns as you normally can not sell bonds without a specific project. The group discussed that there is a long-term cyclical CIP for the Alerus Center and should look at that and look into starting an endowment that could continue to fund those going forward.
The group discussed the Alerus Commission minutes. Gershman commented that the minutes as taken for the Commission meetings need to be more comprehensive and requested Swanson’s opinion. Swanson replied that he agreed that the minutes do need to be improved and that he is willing to work with the Chair and Alerus Staff on this matter. He continued that the minutes should reflect who was in attendance, the date, time and items to be discussed, and while not needing to be verbatim, should include information as to what happened so that a person not in attendance at the meeting could understand the logic that led to the decision that was made. He added that despite comments that have been made, he has never instructed them to keep the minutes brief and in fact, having more complete minutes has been a help in dealing with City matters that have led to court cases, as the court can only consider the record as it was completed at the time of the meeting. He continued that our complete minutes have assisted with the winning of several cases and he has never lost a case due to having more information in our minutes.
Christensen added that all City meetings are recorded and would like to see the direction coming out of this that all Alerus Commission meetings also be recorded and those recordings maintained at the City and if needed the City could assist them in obtaining the necessary equipment and if needed have City staff transcribe the minutes as well. Kreun commented that he agrees and would like to see the minutes more closely mirror the City minutes.
Block asked how the City Attorney is involved in relation to matters at the Alerus Center or if they have their own legal staff. Swanson stated that he has not been consulted for any negotiations or operating activities other than initially his office did write some suite contracts and lease agreement documents. He continued that to his knowledge the Alerus Commission does not have their own legal counsel and if they did select one that individual should be appointed as a special Asst. City Attorney, the process for which is included in code.
Block inquired whether there was a budget risk assessment as part of their annual review. Swanson stated that their insurance needs are not included in the budget, as insurance is provided by the city and he does review that.
3. Review of Monthly Income and Expense Accounting provided by VenuWorks to Alerus Commission.
Hyman distributed to the group a handout of the typical financial report that is given to the Commission at their monthly meeting. The group discussed that the format is very general and that there should be more detail provided on the revenue and expenditure items in order for the items to be evaluated properly. Hyman answered a variety of questions on what certain line items were and why they were presented as they are on the report.
The group discussed how the concert fund had been set up to assist with bringing in large concerts, and now that has become similar to a “line of credit” to assist with slower times of the year like summer and is funded through fund 2163, economic development. This is treated as a loan from the city and members discussed whether it really should be a loan when all City owned. Stjern explained that it could be set up as an operating transfer rather than a loan. The group discussed that the intent was always that these amounts should be reimbursed to the City should there be the means in the future and intent has not been to just give them money. Gershman stated that if it was possible to change the Home Rule Charter there would be then a means to reimburse the economic development fund for the money it has advanced. The group agreed that there should be some accountability for a request for funds and may be more when viewed as a loan.
The group discussed the amount of this year’s loss to date and Hyman provided information. Bjerke commented that it is always better to just state the number and not give a number and then annotate what needs to be added to or subtracted from the number, as that is what frustrates the citizens and leads them to think there is something being covered up. Gershman agreed that we should just be direct with numbers and not make it hard for people to understand.
The group discussed that many events centers do not make a profit and that sometimes smaller events can make more than larger shows. Emmons commented that management should just try to run it as a business to make money and doesn’t make sense to pay someone to run it at a loss. The group discussed that perhaps need to also look at the current thought that have to bring in big acts, which may not be most profitable, to satisfy suiteholders and maybe look at adjusting suite rates or bringing in more smaller events so don’t feel that pressure. Christensen stated that in working towards our goal on the governance side that could fit in our recommendation as to how do you analyze your risks when bringing in events. Block asked if a profit & loss is done for all events and how the commission sees those recaps, as from what was distributed today, there would be no way to make any analysis of what went right or wrong with the event.
Christensen summarized that consensus seems to be that reporting is not adequate and have seen some examples from other facilities and they are much more detailed, in particular on analysis side and we should include this in our recommendation to the commission as to what we expect them to do.
Rygg asked who is involved in the decision process for bringing in an event. Hyman responded that himself, Steve Peters, and the Exec Committee. Christensen responded that seems to be a decision that maybe shouldn’t be the responsibility of three people to make a decision that could cost $850,000 and perhaps could come to City Council and would have the ability to go into executive session and then could see the plan and then be prepared for what could happen with the event. Kreun stated that the process in place is the one that was put in when the facility opened, but is something that could be looked at and not sure any one person wants the responsibility of signing for an event.
Thompson stated that he understands there is a strategic plan and a capital plan for the facility and saw reference to a balanced scorecard for evaluation purposes and would like to hear more about that so can try to understand how come out with the public perception that exists. Rygg stated that she talked to the person that was on the Commission and originally worked with setting up the performance model and understands that it is not currently being used. Hyman stated that currently no one on staff understands the old model but they are learning it and will be bringing this back and will then begin to use it. Kreun noted that the old model was based on when the arena side carried the convention side, but that situation has reversed so felt it appropriate to update the model to reflect that before putting it into play.
Hyman distributed and reviewed with the group a handout on the suite and advertising revenue. He also noted that most advertisers are not suiteholders. Hyman continued that the addition of the four digital billboards is not included in the information presented and believe it could have a six figure increase and complimented the aggressive sales plan that has been laid out by staff to bring that about.
Christensen stated that to conclude today’s meeting the group should decide on a few items that they want to discuss next and what should be left for later. He added that if anyone has more information that they would like to see to let him know and he will provide it as soon as possible.
4. Consolidate various points to be reviewed from December 10 minutes.
Closing comments were:
1) Need to review some of the past actions and resolve them before able to look forward.
2) Need to see reports with a greater level of detail from the Alerus Center. More information on current analysis reports will be provided and then suggestions for improvement can be made.
3) Group noted there was a citizen here hoping to share some comments, but left before he was able to and perhaps in future make provision for speaker cards and set aside time to allow for that.
4) Discussed the existing plans and analysis that was in place and not sure that whatever is there and it’s expectation is being effectively communicated to the management staff. The group discussed that there should be a budget and analysis done for each event.
5) Information that has been presented so far is starting to come together and now time to start analyzing it. The group needs to stop spending time on past failures and start looking at the system to put in place to lead to future successes.
6) Perhaps bring in comments from Jody Hodgson, as he was involved with management of a city owned venue prior to coming to the Ralph Englestad Arena and our current system seems to have too many layers and perhaps look at some other models that have been successful and see if we can adapt our model to be more workable. Several in the group had visited privately with Mr. Hodgson and also know of some other similar facilities and perhaps put that data together and include as part of our analysis.
7) Need to look at the analysis of the event and also the pre-event promotions and expectations and make sure that they are being done to the most positive manner for the facility regardless of the outcome of the event. The group discussed some of the past public relations problems and that there is a small segment of the population that may always look for the negative, but we need to be sure that we are presenting the facts in a way that brings out the positive of an event without overselling it or putting an incorrect focus on a particular aspect of an event. Look at how we advertise our events and determine the best way to do that while still accomplishing the mission of the facility.
Meeting adjourned at 7:05 p.m.
Respectfully submitted,
Sherie Lundmark
Admin Spec Sr.