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PROCEEDINGS OF THE CITY COUNCIL
OF THE CITY OF GRAND FORKS, NORTH DAKOTA
January 28, 2002

The city council of the city of Grand Forks, North Dakota met in the council chambers in City Hall on Monday, January 28, 2002 at the hour of 6:45 o’clock p.m. with Mayor Brown presiding. Present at roll call were Council Members Brooks, Bjerke, Stevens, Hamerlik, Burke, Glassheim, Gershman, Christensen, Klave, Kerian, Kreun, Martinson - 12; absent: Council Members Lunak, Bakken - 2.

RECESS

Mayor Brown stated that the meeting was scheduled for 6:45 p.m. Council Member Burke stated that because of the interest in this and that most people who watch this at home wouldn’t watch until 7:00 p.m., moved that we recess the special meeting until 7:00 p.m. and resume at that time. Council Member Bjerke seconded the motion. Carried 12 votes affirmative.

At 7:00 p.m. Mayor Brown reconvened the meeting of the special city council with all members present.

Mayor Brown announced that anyone wishing to speak to any item may do so by being recognized prior to a vote being taken on the matter, and that the meeting is being televised.

APPROVE CIVIC AUDITORIUM LEASE

The matter of the civic auditorium lease agreement with Starlites Center for the Arts, P.O. Box 678, Cavalier, ND 58220, for the building previously known as the Grand Forks Civic Auditorium located at 615 1st Avenue North, Grand Forks, North Dakota, and parking facilities generally located adjacent thereto, for a one year term beginning on February 1, 2002, with one renewal term consisting of one year, and base rent of $216,000 for the term payable as provided in the lease and other terms and uses as contained in the lease agreement, was presented for consideration.

Council Member Burke asked for clarification on the matter of Article 5, Other Rent. Mr. Swanson stated that it says in addition to base rent we are treating any other tax payment that would be owed by the tenant as rent, ie., if they are in default of any taxes that are due or special assessments that are due, the City can not only utilize the remedies provided under State law but also have remedies provided under the lease, which includes eviction and other legal remedies. Council Member Burke asked if this would mean that Starlites would be obligated to pay property taxes. Mr. Swanson stated that this does not assume that they are or are not paying taxes, it indicates that it would have to be a legally imposed real estate tax; the city assessor would have to determine in the normal course of city assessor’s work as to whether or not it is a taxable entity for purposes of real estate taxes, it clearly is subject to special assessments. Council Member Burke asked the task force that considered the lease if there was discussion with the prospective tenant as to whether or not requiring them to pay real estate taxes, whether or not they were obligated as a non-profit but imposing that anyway either as an additional fee from the landlord or some other way was a deal breaker. Council Member Christensen stated to clarify the issue of profit or non-profit, the fact that if you are a non-profit generally doesn’t mean you’re going to be relieved from paying real estate taxes; that the statute that deals with exemptions for real estate taxes has very little reference to non-profits (non-profits are 501C3 through 6 of the Code); and stated that if the city assessor determines that the activity and entity which is leasing this property from the City should pay taxes, he will assess them accordingly for the taxes for the structure on the land based upon the term of the lease, which is one year.
Mr. Swanson stated that part of the discussion was if they were determined to be exempt from taxes under State law that this particular entity shouldn’t be treated any differently than any other entity doing similar functions or similar activities; that it was discussed that would put this entity at a different position in relationship to other charitable functions in the city. Council Member Burke stated that the difference here is that they are asking to occupy a piece of property that the City owns and council has the right to discuss this issue if we so desire. His concern is not so much whether or not we get property taxes while they are leasing it but whether or not if they come to own it, we are forgoing taxes on that property into the future because many people hoped that building would be on the tax rolls once we abandoned it in favor of the Alerus Center and that was his expectation that it would become a tax generating property; and whether it’s legally liable for property taxes or not, he would like to see it pay the equivalent of the property taxes that property would generate if it were subject to property taxes.

Council Member Gershman stated that we shouldn’t lose sight of the fact that property never has paid taxes because owned by the City and never been on the tax rolls; that if in fact Starlites decides at the end of the year that they have a viable business and want to buy it under the Codes that we have and is a 501C3, that building would be like other non-profit theatres in town which do not pay property tax; he would like it to pay property tax but at this point the City has somebody who appears that they can make a go of it, and at end of the year if have a viable business and wish to buy it for a fair market price for the City, that they have to take a hard look at that. He stated that if we do have a private entity that wants to buy it, then that is going to be the deal breaker. He stated that if this works the City is going to get $216,000 in rent and are going to have the utilities paid and the City will be ahead by about $275,000, and that just about covers the shortfall of the Alerus this year.

Council Member Brooks stated that he has been in favor of expanding the tax base and generating more property tax; that we need to get down to the fact that the property taxes is an expense, quarter of a million when it was in operation and now approx. $60,000 or $70,000 year, we have before us the ability to eliminate that burden on the expense side of the general fund and generate some revenues, would like to see it on the tax rolls but from a finance standpoint that’s the benefit of this deal.

Council Member Hamerlik questioned comments made that if there were two purchasers involved, that property taxes would be a deal breaker, but doesn’t lease holder have the right of first refusal; Mr. Gershman stated they have the right of first refusal in the lease, but if the deal is something they can’t handle, then they would have to increase their rent to have it be equivalent to the taxes or do the taxes.

Council Member Hamerlik asked how the $18,000/month was arrived at. Mr. Swanson stated that the $216,000 rent was proposed by Starlites in their correspondence dated January 2, 2002, was simply to divide it by 12 months for the one year lease to arrive at the $18,000 per month payment; they requested that the first payment not be due until the beginning of month for the lease and that’s where the deferment of approximately $54,000 came into play. Mr. Duquette stated that the $216,000 was the initial proposal from Starlites.

Council Member Hamerlik stated that the contract we have with the Grand Forks Public Schools where they pay $1.00 rent for the use of the parking, with the City to maintain it, that we’re not using that lot any longer and as we rent out this facility the lot goes with it; that the maintenance of the sidewalks and parking lot, etc. are not included and they should be. Mr. Duquette stated in their discussions with Starlites they would like to formalize the arrangement with the School System, presently we chain off the back portion of the north parking lot, and need to formalize that between Starlites and the School System, Starlites has indicated that is not an issue for them, will move forward and formalize that, and we need to be out of the maintenance part of it. He also stated he is not sure we have a contract with the School System. Mr. Swanson stated that Mr. Hamerlik was referring to was whether or not the City has a formal agreement with the School District for the use or maintenance of the parking lot, he is not familiar with any formal agreement but familiar with the practice that has occurred; that in paragraph 2.3 on page 2 of the lease, we reflect that by saying that Starlites use of the parking lot must be in coordination with the Grand Forks Public School District, however, with respect to snow removal and the maintenance in that regard, Starlites does have that responsibility and that appears in paragraph 10.4 on page 7 under Janitorial; they would not have the capital maintenance of the lot itself.

Council Member Bjerke questioned right of first refusal, that it states that if they choose to purchase, it would be the same price, same offer, and if a private sector business made an offer on that building, and would have to pay taxes, would that not in effect make that offer that they would have to match the price and the amount of the taxes per year. Mr. Swanson stated that would be a matter that the council would have to address at the time that they attempt to exercise any right of first refusal; the way that it is written not only refers to the price but also does refer to the same terms as contained in the bone fide offer. Council Member Bjerke stated that if a private sector made an offer, that they would have to pay taxes; Mr. Swanson stated it would depend upon how the offer was presented.

Council Member Glassheim questioned 2.2 Use of the Premises, that in the original draft Starlites wanted to use some of the downstairs for classrooms, teaching rooms, etc. and that 2.2 makes it illegal for them to use it for anything but theatre or dinner and asked why we would want to do that - would want them to have a great a chance of success to pay us our money as possible and don’t know why we care if they use a basement for a classroom and charge for it. Council Member Christensen stated that the committee was of the opinion that the primary purpose of this venture is for dinner theatre and have a one-year lease to see if this concept is going to work, and rather than disrupt the balance of the community and the rest of the individuals in the community who are engaged in similar activities, thought it would be better to have a dinner theatre for the summer of 2002, see if it works and if it does, to move forward, that the rental payment reflects that because they were going to pay a higher rent than what they initially projected and gross was higher; that we want this but recognize that something called SPA, that have different people in the city giving piano lessons in their homes, etc. and this would be a good compromise based upon some of the things we were hearing from others. Council Member Burke stated he had some of the same concerns as Mr. Glassheim and that the activity that the theatre would engage in that would threaten other organizations in town is their primary activity, and asked if this would preclude them from doing their television production. Mr. Duquette stated that Mr. Eagen from Starlites went through the facility again and inspected the facility and some of their initial concepts are to have storage, rehearsals, props in the basement rooms related to their theatrical productions; they have also discussed doing some video productions in the basement for their own use but that’s extent of discussions to this point.

Council Member Burke asked if Starlites was satisfied with article 2.2; Dan Eagen, president of Starlites, stated at this point they are satisfied with it, although they have had several calls from other musical entities that want to work with them, and will be using some of those rooms as classrooms but would only be in conjunction with running music for their shows, etc., not for the purposes of instruction per se and not restrictive to them at this point. He stated he thought that there are other business entities that wish to partner with them that might see that otherwise.

It was moved by Council Member Christensen and seconded by Council Member Klave to approve the lease with Starlites Center for the Arts as presented. Upon roll call the following voted “aye”: Council Members Brooks, Bjerke, Stevens, Hamerlik, Burke, Glassheim, Gershman, Christensen, Klave, Kerian, Kreun, Martinson - 12; voting “nay”: none. Mayor Brown declared the motion carried.

ADJOURN

It was moved by Council Member Martinson and seconded by Council Member Kreun that we do now adjourn. Carried 12 votes affirmative.

Very truly yours,



Saroj Jerath
Deputy City Auditor

Approved:
_____________________________________
Michael R. Brown, Mayor