Print VersionStay Informed
Minutes of the Grand Forks City Council/Finance/
Development Standby Comm. - June 14, 2007 - 4:00 p.m.

The city council of the city of Grand Forks sitting as the Finance/Development Standby Committee met in the council chambers in City Hall on Thursday, June 14, 2007 at approx. 4:00 p.m. Present t roll call were Council Members Christensen, Glassheim, Brooks, Gershman

Also present were Curt Kreun, Mike McNamara, Rick Duquette, John Schmisek, Pete O'Neill, John Packett, Wally Helland, John Herz, Mel Carsen, Roxanne Fiala, Todd Feland..

1. Hearing on property valuation protests:
a) Dudley Benson, 1609 2nd Avenue North
b) U.S. Foodservice, Inc., 4601 32nd Avenue South
c) Sandra Montgomery, 3411 Belmont Road
d) Jennifer Tarlin, 410 Reeves Drive
e) Norman Dutout, 126 Gentle Hills Circle

Chairman Christensen stated they would hear protests prior to the item relating to bonding.

c) Sandra Montgomery, 3411 Belmont Road - value of property $144,700.
Mel Carsen, city assessor, reported they initially priced this property for 2007 based on an exterior inspection and used the interior inspection they thought to be correct, after the inspection they changed depreciation by 2% and added basement finish which comes to a higher value but not suggesting to increase the value. He reviewed comparable sales after making adjustments for the differences, has reviewed information with Ms. Montgomery this week, but she still wanted to be heard by this committee.

Ms. Montgomery stated she did not have an appraisal, and that the appraisal would be based on the sales on assessed value and didn't see any value in having an appraisal if that was what they would base it upon. She stated there haven't been any improvements or additions made to the house and that a $25,000 increase seemed like an excessive amount. Mr. Carsen stated they went through most of the homes after the 1997 flood in 1998 and 1999 but did not go through the entire house at that time, total interior inspection done in 1980's.

Gershman stated that he had heard that they were now using comparable sales throughout the city, and not using the quadrants any longer. Mr. Carsen stated they haven't been using quadrants as in the past - he stated they developed a pricing manual that is going to be used throughout the entire city, and have used that manual only on new appraisals this year because the market was changing quite rapidly and on smaller homes increasing much more rapidly and bigger homes almost had to reprice rather than using common factor for the neighborhood. Gershman stated he didn't understand why they would move off the quadrant city-wide, and might be other things that pertain to a home other than just sale price. Christensen stated he thought that was another agenda item for the committee but Gershman disagreed because Ms. Montgomery is protesting and if did it in the quadrant what that value would be. Mr. Carsen stated they only did that in one area of town because didn't have accurate information to reprice every home. The market shift is so drastic starting in late 2005 and continuing through 2006 and are faced with having to change our system because of that. Inflation was relatively equal on all price ranges.

Mr. Carsen stated that when they have land sales we use those sales as an indicator but in a fully developed area you don't have land sales, land values will vary some but a good number in most neighborhoods is 17-18% of the total value; lot side for this property is 100x259.7 ft. Mr. Carsen stated that the average increase that they had to give property city-wide was 7% to maintain the 97% level. Christensen stated he is hearing a need for another finance committee meeting or committee of the whole to get a better understanding of how our assessing department is assessing property in this community, that we have the ability to establish some guidance.

Ms. Montgomery presented information re. taxable value for the last 10 years. It was noted that there were 3 years that were exactly the same and only went up $3,000 for several years and this property which is in the $150,000 range has increased dramatically over the last few years, and that is what has happened to the market. Since 1997 this property has increased 37.62% in 10 years.

Council Member McNamara reported present.

Mr. Carsen reported that the value of the property at $144,700 was the value prior to .7% negative adjustment that was approved by the City Board of Equalization, so new value really is $143,700 vs. $144,700, and that is reflected in the .7% decrease.

Ms. Montgomery stated she purchased the house in November, paid $120,000 for her mother's estate, realtor came up with number based on comparable sales of $125,000, and presented info to the committee. Mr. Carsen stated that an estate sale typically not used in study, that under State regulations this is one of the 23 sales that is not to be included, and is removed from the sales study that is used by the State.

Chairman Christensen stated the committee would take this under advisement.

d. Jennifer Tarlin, 410 Reeves Drive.
e. Norman Dutot, 19 Inland Hills Court.
Mr. Carsen stated that neither Ms. Tarlin nor Mr. Dutot will not be at this meting, they have accepted the assessor's value; that for Ms. Tarlin have reduced the value to $248,700 prior to the .7% decrease because of condition of the house, that for Mr. Dutot did not reduce value but that based on sales was the proper value.

c. Dudley Benson., 1609 2nd Avenue North - value of property $137,200.
Mr. Carsen reported this home in the area that was not able to be repriced because of insufficient accurate information on all the properties (area between Washington Street and 20th Street, and between Gateway Drive and Dyke Avenue), to price it individually and this was the only area in town done under quadrant system, that they have looked at this property 3 times in the last 5 years and have accurate information on this property. The value of this property for 2007 was increased by 9% of the land and 7% on the buildings done by quadrant approach and increased the value to $136,200 with the .7% reduction ($137,000 and if based on fair market value, $144,000). He reviewed comparable sales which show value of this property at $152,000. This property burned and in 1990 Mr. Benson rebuilt the house on the existing foundation built in the '40's; this is one story house with 13,077 sq.ft., almost 100% finished basement.

Mr. Benson presented information re. property taxes for the past several years. Mr. Carsen reported that the valuation of the property went up 7+% and that Mr. Benson qualified for the senior citizen tax credit because income limits were increased by the State of a 40% credit on the first $75,000 value. Mr. Carsen stated that the value on this property was low for a number of years, that he and Mr. Benson have talked about this, that the two previous years to last year, '04 and '05 Mr. Benson went to the City Board where it was denied, went to County Board and was denied, and went to the State Board and they sent an appraiser to look at the property and they upheld value.

Mr. Benson stated that he is on a fixed income and impact on his ability to pay increases, that the property has increased in value every year since 1991 and thinks excessive; that he didn't think he could sell the property for the appraised value, because of repairs that have to be made to the property (replacement of vinyl in kitchen and dining room, permanent damage to the foundation on the south end of the house from flood, sidewalk and driveway have to be replaced), and with repairs needed on the house find valuation excessive and would feel comfortable with a reduction of $5,000, that he talked to realtor who said that valuation of $130,000 in line. It was noted that new information could be presented to the County or the State.

It was moved by Brooks and Glassheim to uphold the city assessor's valuation. Motion carried.

b) U.S. Foodservice, Inc., 4601 32nd Avenue South,
Jeff Steinke reported he had received information this a.m. and presented the info. to the committee.

Mr. Carsen reported a letter from Ahold USA, Inc. in May of 2007 protesting the real estate tax for US Foodservice, Inc., 4601 32nd Avenue South; appealing the true and full value determined by the City of Grand Forks to be $7,713,300 and requesting value of the property should be $41 per sq.ft. or $5,054,000 based on enclosed income capitalization and sale comparison data. He stated that he didn't think the $5 million was supported by the information submitted (sales of plants around the nation, an income approach) He stated that this property is in the process of being sold, currently owned by Ahold USA, Inc. and leased to US Foodservice, the real estate will be sold to a third party, and that third party has requested an appraisal for financing purposes, that he has a copy of that appraisal, and that he has copied some of the pages that are pertinent that demonstrate what the appraiser was trying to say. That the appraiser has come up with two values, one is hypothetical as is, leased fee interest of $7,175,000, and hypothetical, as is, fee simple, go dark value of $5,070,000; and he wants value reduced to $5,070,000. The tax rep. lives in Philadelphia and to come to meeting burdensome and probably not very fruitful, that he is also going to meet with the County Commissioners next week and if doesn't get approval, he plans to take it to the State Board.

He stated the fee simple, go dark is a definition of a vacant piece of property that is looking for tenant or for a sale, and doesn't think that is representative of this property - he stated they have to appraise property under fee simple and fee simple means absolute, 100% ownership, the right to lease it or use it, etc. and have full bundle of rights - leased fee is a portion of that bundle and leased fee is the ownership interest of the owner on a leased piece of property. If property leased to somebody, your ownership interest the lease payment for the term of the lease and at the end of the lease you get the property back, on a long term lease that can be restricted value. There is another part you have to add to the lease fee to get to fee simple, lease fee is the owner's interest on a leased piece of property, the tenant may well have an ownership interest by way of a favorable lease. He stated he thinks this appraisal on the leased fee's interest in this case is fee simple; and thinks he is attempting to value the entire property and has some problems with his adjustments. He stated the reason this is called hypothetical as is, hypothetical because that is not the case here, this property is owner occupied and he has established an income stream based on other properties in the market and looked mainly at the Minneapolis market for rental, also for sales, there are only 4 properties like this in the state of ND, large freezer refrigerated buildings, and his value is based strictly on the cost approach with depreciation (10 year effective age and 12-13% depreciation on overall basis); this is a steel structured building and the exterior wall panels are in most of the building 4" and freezer building 6", steel on both sides and insulation in the middle.

Mr. Carsen reviewed fact sheet showing our value with the .7% decrease is $7,659,300 with total gross value of $64.48 s.f., this plant sold along with the Bismarck plant in 2000 for $6,625,000 and at that time it sold for $73.88 s.f., since then it added 29,116 s.f. of building in 3 areas at a cost of $3.7 million and have a total cost of $10.3 million and divide by s.f. you could get $86.92/s.f. and that when add addition to the building you don't get full value - that we have to value it as one entire building; and noted that this was a tax increment project back in 1994, was bonded and that bond requires the additional taxes to pay off the bond, that bond is almost paid off - '07 payment, '08 and some in '09 and not in danger of defaulting on it. He stated this was based on replacement cost less depreciation; and replacement cost of that building is about $80.00 s.f..

Mr. Steinke stated this came up in the process of selling the company, they looked at 85 facilities that they are buying and that this was on the higher end of what people are paying for taxes across the board, they brought another team in here, CB Richard Ellis out of Minneapolis to appraise the property and that is when involved with Dan Doerer, from their tax department, and doesn't think they are looking for the low end and don't like the high end but middle ground.

Christensen stated that the place isn't going dark and is going to have a user, doesn't believe that aspect of the appraisal which is fee simple go dark isn't relevant and what he sees using your appraiser's own numbers the value is $7,175,000, and doesn't think we have any facts to justify decrease trying to justify $600,000 adjustment.

Moved by Brooks and Glassheim to uphold the city assessor's valuation. Motion carried.

c. Sandra Montgomery and additional protests.
Brooks stated they need to be consistent and uphold, that Ms. Montgomery didn't present official appraisal, was appraisal by a realtor. Committee looked at several comparisons. Motion by Brooks and Glassheim to uphold the city assessor's valuation, (and to set up a committee meeting to go through the new system). Christensen stated he would go against motion because 21% increase too much, and that an estates sale should be disregarded. Upon call for the question, the motion carried; Christensen voted no.

Mr. Carsen reported that the sheet that he had handed out contains their decisions on all of the 40 protests that were made, all except 5 scheduled for this meeting were worked out and satisfied.

Glassheim moved to recommend to uphold the agreed upon values of the 2007 valuations of the city assessor dated 6/04/07. Council Member Brooks seconded the motion. Motion carried.

1. Matter of Resolution Authorizing Issuance and Sale of $1,360,000 Mosquito
Control Reserve Revenue Bonds, Series 2007B, calling for the public sale thereof.._
Christensen presented Memo regarding how he believes we could finance the mosquito
control facility along with information received from Mr. Schmisek. (Comm. and other individuals took time to read the memo) He stated the City has a cash carryover in General Fund from 2006 of $1,298,346 (info. from March), money that wasn't budgeted, and a cash balance report at the end of April of 2007 of $122,000 in the Mosquito Fund, and arguments made that they might need it to cover this year's mosquito season; that we have $1.3 or $1.4 million to apply towards paying for the mosquito facility portion rather than going into debt. That if pay for the mosquito facility portion we don't incur the debt and we save the issuance costs, $55,000, and save the interest over 20 years of $635,700 - $685,000 savings; and that frees up the money that would be generated from the mosquito fee of approx. $112,000 to $115,000 annually to pay for the costs associated with the operation of the training facility (the training facility operation costs will be $65,000/year) and if have on average between $112-$115,000 year for bond payments and have that available cash to pay various things - and frees up an additional $50,000/year to apply for different things, and because have $1.2 million or better we could pay for it rather than sell the bonds - that we will save the interest and the issuance costs, and in addition free up the bond payments ($113,000) available cash, thinks that is what we should do. He stated there are other uses for this money but is opposed to putting $728,440 in the savings account for a rainy day fund - no need to increase our reserves - that we have had for the last 3 years a General Fund cash carryover projected (2005 - $2,990,000, 2006 - $2.9 million and 2007 - $2.7 million) and every one of those years have received rave reviews about our accounting office and have had good ratings from Moody's and no one said to increase reserves; and hasn't been shown to him that by increasing reserves will increase bond rating, the proposed use covers the additional 2007 DB Pension contribution over a budget amount and that is paying more into the Defined Benefit Plan, and taking the balance of $330,000 and using that as money to have available to pick up whatever you need in 2008 budget. He asked why we would have to increase our reserves and why pre-pay the Defined Benefit balance, that is underfunded by $17 million and that he has been asking for and calling for and thinking about using some of the reserves in other funds, esp. Enterprise Funds, to pay down that deficiency, and thinks $283,000 is drop in the bucket when trying to pick up a $17 million shortfall, that you can always find homes for $330,000 but that the $230,000 to replace a 1974 fire engine has already been accounted for in the fire department's cash carryover, and if that is the case, that has been covered and would hope the council would look with favor on paying for something rather than going into debt for this, and doesn't think reasons advanced are sufficient for this community to pay $680,000 when don't have to.

Brooks stated we are just talking about how to fund the mosquito facility portion, that have to look at things that are brought forward, set policy, that the training facility is an area where we as elected officials need to look and scrutinize, which they did was something that needed to go forward and when get into the financing more complicated, that what we have here is the fund accounting system, governmental accounting system that we operate under. He stated he wants the audit report to come forward and doesn't question finance department but likes to see the audit report brought forward, and re. budgeting and would like to know where cash carryover came from, why ended up with a $1.3 cash carryover, need to analyze, - another concern is the $122,000, mosquito reserve, and has dealt with mosquito funds, some years good and some years bad - every year when set fee and develop budget, you develop it to have some reserves because have variety of how those years will look, and this one not looking too good, but need to have a reserve in there, people say 15% is adequate in General Fund, can refer to bond rating but can't see them driving some decisionst, State doesn't give us any guidelines and is something need to look at. He stated re fund accounting - when get into fund accounting and there are some definite requirements in regards to fund accounting as to what can be used and where it can be used - Enterprise funds are created because they are supposed to maintain and support themselves - and what is done with a lot of funds by law and by statute, etc. and that is determined and can't as a governing board arbitrarily use them one place or another - and the key point is that we make policies and make decisions about where we are going to go, and thinks made a good decision in terms of this facility, thinks it is needed.. and expects the expertise of our finance department and when they come forward with a recommendation, unless someone give him a good reason not to go with that, and that is what we should follow.

John Schmisek, director of finance, stated the questioning of this gives them the opportunity to say when we look at something like this, don't look at this blindly, there are legal requirements, governmental accounting standards, legally the mosquito control fund, 2160, cannot be interchanged with the general fund and that is because in the ordinance adopted it states all fees and charges collected under this section shall be placed in a special fund and utilized by implementation of operating and maintenance of mosquito control program for the city of Grand Forks to be administered by or at the discretion of the city health department, can't be used to pay the operating costs of police building, and under governmental accounting standards have to allocate the cost of the functional period through that functional area or will be guilty of hiding costs, and not going to do that.

Reserves are reserves - that we have cash balances because had this cash and the sales money that we said would use for things like the Base realignment, etc. and have been able to say with the combination of these two we are over our 15% and as we spend down cash balances that is not so easy to do anymore and is that a policy decision of the council , absolutely, and that is only one factor that Moody's looks at, and other things they look at, is if replacing capital and infrastructure, look at mill levies and say are you willing in times of need and as look forward in
growth, willing to raise the taxes or continue services.

He stated they talk about $160,000 of expenses but only $52,000 as $107000 goes into Debt Service Reserve Fund which at the end of the bond issue, will pay final payment; and when talk about the interest savings of $635,000 this is only if you decide to do what administration is saying ,if come up with the 15% of that cash carryover of the 728, right now earning 3.96% on our money, and if net that out against that $635,658 we would earn on the $728,000 approx. $28,000 or $29,000 per year over 19 years, $547,000 and that $28,000 of interest income goes to the General Fund and used to offset operating costs. That on the interest side of it, savings of about $87,000 and another $52,000 for the cost of issuance, about $130,000 over the term, $7,000/yr. He stated when talking about the training facility, the est. cost of $65,000 and that would leave an additional $50,000 in General Fund under their expenses, that expenses that are attributable to the share of the facility, the safety will be charged to the safety facility. Can we loan money or borrow money from other things, we can, but the intention is when loan something is that you will get it back, otherwise what doing is using other funds to support another fund, and hiding true costs, and can't do that. You will notice those years that we have used funds for different things, the one that are the most flexible to us and have used them - the 1% sales tax dollars and even though some dollars go into the General Fund for property tax relief, some go into infrastructure and some go into the economic development budget, there is no fixed percentage, and council has the authority at any given point to use it for property tax relief, infrastructure or economic development any percentage that you want, so that is why those two years ago when we had a significant balance in the economic development budget we transferred $1.2 million of that to do some infrastructure and that is because the use of those funds are interchangeable, and not that way in the General Fund, etc. and the Mosquito Control Fund when we went through this whole process to set it up as a bond, the ordinance that was adopted in February of 2007 had to change it from a Special Revenue Fund to an Enterprise Fund by utility in order to sell bonds and that is how we will be recording it as an Enterprise Fund. In looking at the $1.2 million and carryover, the question comes up that we had the $200,000+ budgeted in the Loan and Stabilization Fund for the pension payment so why should we take that out of the General Fund, that if everything stayed the same and had not changed that would be okay. In the Loan and Stabilization Fund when set the budget had anticipated coming into 2007 with $1, 075,000 , but FEMA for the flood of 1999, the windstorm of 2001 and another flood that we fought and had some fairly expensive things between that time and now, came back with unapproved costs of $529,000, went through all the appeal processes, did whatever we could but they disallowed that, and most of that is related to the windstorm and the cost of the General Fund and Street Department. He stated he could have taken that out of the General Fund but didn't do that, but took it out of the Loan and Stabilization Fund because we weren't sure where we were going to be at the end of the year in the General Fund, and brought that carryover down from $1.075 to about $600,000. He stated we had budgeted $345,000, $100,000 for police department removing, $200,000 for remote mobile data terminals, $45,000 for some office remodeling here, and when you take that out, down to $215,000, and have a cost of associated with the General Fund and that the L & S is set up to help subsidize for unanticipated costs in the General Fund but in looking at that it seemed to make some sense in administration that we did have this carryover more than anticipated of cash balance but does it not make some sense to pay out of that the costs of the General fund and recommending doing that.

Brooks moved that we go along with the recommendation from staff regarding the funding for the Mosquito building, died for lack of a second.

Moved by Glassheim that we fund the Mosquito Control facility through sale of bonds, seconded by Brooks. Motion carried; Christensen voted no.

The meeting adjourned at 6:30 p.m.

Alice Fontaine
City Clerk