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9.1. SR 06-16-2014 City of Elk Request for Action River To Item Number Mayor and City Council 9.1 Agenda Section Meeting Date Prepared by Work Session June 16, 2014 Cal Portner, City Administrator Item Description Reviewed by Pinewood Discussion Reviewed by Action Requested Provide responses to prepared questions from Pinewood Golf Course supporters Background/Discussion Following litigation on Pinewood Golf Course, and a later amendment to the claim by the attorney representing the seller requesting$90,000 per year rent for use of the course, the City Council, after conferring in a closed meeting, consented in a public meeting on March 17, 2014, to close Pinewood Golf Course until the case is resolved. The Council decision to close Pinewood was approved before the course had opened for the 2014 season. Letters were mailed to residents abutting the golf course explaining closure, city web and social media pages displayed notice, and all user lists maintained in Constant Contact were notified. Information regarding the closure was limited due to the ongoing litigation. At the regular Council meeting on May 5,2014,Mr. Peter Kimball spoke at Open Forum as a representative of concerned Pinewood supporters and stated that his group would like to submit a list of questions in advance for and meet with the Council in a Work Session. Mayor Dietz and the Council concurred and directed staff to notify neighbors and publish a notice in the newspaper. Mr. Kimball submitted his list of questions to the city administrator in a letter dated May 17, 2014. Neighbors of the course received an invitation letter to the meeting and the meeting notice was published by the Elk River Star News. The city's attorney and staff have reviewed and answered the questions,which will be presented to those in attendance. Financial Impact N/A Attachments ■ May 17, 2014 Peter Kimball Letter P a w E A E U a r NaA f RE] r- Peter Kimball 14357 190i1' Ave NW Elk River, MN 55330 May 17, 2014 Elk River Pinewood Golf Course To Whom It May Concern: We, citizens of Elk River, a city where town and country meet,believe in the vision of Elk River: to promote a lifestyle in an innovative and involved community offering unlimited opportunities. We believe in maintaining resources that provide long-term contributions for the growth and well-being of its citizens. These core values are encompassed in a small plot of land in Elk River called the Pinewood Golf Course. Historically,members of the community, as young as 4 and as old as 99, have regularly enjoyed this city amenity_ Eight years from the original purchase and after spending a million dollars in tax payers' money, residents have been(poorly) informed--without warning and after secret meetings held without the benefit of public discussion-- that the course will not open in 2014. Citizens are disappointed to discover that the City, which represents them, has breached a contract in an unethical manner that would be prohibited by most individual's core moral values. As a result, the citizens are requesting answers from City Council regarding the actions taken concerning this city park. Litigation Questions: 1. What litigation result is City Council hoping to see? 2. Why wasn't the community asked to help make the decision? What was the rationale behind using closed door meetings and leaving the community uninformed until it was too late? 3. How does the city justify collecting revenue in 2013 if, in April before the golf season, there was never any intention to pay the bill? Budget (questions: 4. In the last five years,which city parks/recreation facilities have consistently lost money? S. What has been the`real'cost of operating Pinewood (outside of interest and principle)? What portion of these expenses are longterm purchases (i.e. new golf carts)? Pinewood Golf Course May 17, 2014 Page 2 6. How do the expenses for the last two years of the golf course compare to the total expenses of the course? 7. Who initiated the process to not make the final balloon payment? 8. Does the city have the money to make the final balloon payment? 9. What were the city's alternative plans for the golf course if it did not meet these financial expectations? 10. Does the forfeit of the balloon payment have anything to do with saving for future projects? 11. If the city forfeits the golf course,will the purchase money need to be repaid to the park dedication fund? If so,will this money also need to come out of the taxpayer's pockets? 12. What effect will this have on the city's bond/credit rating? Future Intentions: 13. Why did the City enter into the purchase of the golf course? What were their intentions? 14. Did the current city council have any intention of continuing Pinewood Golf Course after the Contract for Deed expired? 15. What are the realistic conditions the city would consider before re-opening the golf course? 16. Has any thought been given to other alternatives available to make the park more financially attractive (better local advertising,community events like Easter Egg hunts, Halloween activities,etc.). 17. How soon would the clubhouse and irrigation system need to be replaced? Is there an alternative to a 2 million dollar clubhouse? 18. Realistically, city parks and activities are not profitable;they are an intrinsic reward. Has city council, behind closed doors or in secret, decided to close other parks and amenities (i.e. Lake Orono, hockey arena expenses, library expenses,softball, baseball, senior citizen center,etc.)? If so,why not? Pinewood Golf Course May 17, 2014 Page 3 19. Does the current council have any obligation to support a previous council? Thank you for attention to this matter. Sincerely, Peter Kimball Elk River Citizen -4andw / 4r-m . tplto llq CEO#i' The following questions were submitted on behalf of 1K = individuals supporting Pinewood Golf Course in a letter ' iver dated May 17, 2014, by Peter Kimball. Litigation Questions 1) What litigation result is the City Council hoping to see? The city did not initiate litigation, the Krauses initiated the lawsuit. In April of 2013 and prior to the date of closing, the city proposed to the Krauses an Amendment to the Contract for Deed that reduced the final balloon payment from$15 million to$800,000. The$800,000 was still significantly in excess of the current fair market value of the property. The city cited as reasons for the modification, taxpayer financial losses for operations, substantial property value decrease from the economic recession,loss of the primary revenue stream from Park Dedication Fees to purchase the course,and market changes that have made operating many golf courses financially unsustainable. Instead of negotiating or discussing the request at all, the Krauses sued the city to compel the full payment. The judge agreed with the city's position that Minnesota law limits the Krauses'remedy in the event of nonpayment by a municipality to recovery of the property. Consistent with this law, the city has requested that the judge also dismiss the remaining damage claim which is scheduled for trial in September. Once the lawsuit is over, the city can make a final decision on the future of the golf course. No such decision has yet been made. 2) Why wasn't the community asked to help make the decision? City government is a representative democracy whereby eligible voters elect the City Council to make policy decisions on their behalf. There are a handful of situations,per Minnesota Statute,in which a City Council may hold a closed, nonpublic meeting. The situations include: 1)Labor negotiations,2)real estate transactions, 3) employee/employment discussions,and 4) meetings with the city's attorney to discuss pending lawsuits. Just like a private individual meeting with his or her own lawyer,the City Council has the right, and in fact an obligation, to discuss real estate transactions and pending litigation in private without the other side listening to the discussion so the city can be properly represented in the lawsuit. At the recommendation of its attorney,the City Council met in closed session to discuss the overall litigation and the impact of the continued operation of the golf course on the city's ability to successfully defend the lawsuit. The city's attorney stated that it could be detrimental to continue to operate the golf course while the matter was in the Courts and he recommended closing the golf course while the litigation is pending. Following this closed meeting,the matter was discussed at an open public meeting,with the consensus of the Council to direct staff to not reopen the course this year. 176706v2 3) How does the city justify collecting revenue in 2013 if, in April before the golf season there was never any intention to pay the bill? In April of 2013,the city proposed an amendment to the balloon payment. The city continued operating the course expecting a counter offer from the Krauses. The Krauses did not provide a counter offer. For the 2013 golf season,golf revenue collected at Pinewood Golf course was short of operational expenditures by$47,027,requiring a taxpayer subsidy. The subsidy does not include capital expenditures of$27,764 for a replacement mower that was needed to continue operations. The City Council budgeted for 2013 and 2014 golf course operations knowing the course would require a subsidy in order to operate. As stated above,the intention was to renegotiate the final payment with Mr. Krause to reflect economic changes and to continue operations and maintenance of the course. The Krauses notified the city that they were amending their lawsuit to claim further rental fees for the property while in litigation. In response to their amended complaint,and the Krauses'claim for damages,the Council agreed with city legal counsel's recommendation to close the course in 2014 while the lawsuit is pending. Budget Questions: 4) In the past five years, which tits parks/recreation facilities have consistently lost money? City parks have ongoing maintenance and operational costs. They are provided for public good and have no revenue expectation. Most parks are provided to the community as required park dedication by a developer and cannot be utilized for any other purpose. Some parks and park land were purchased with state, federal or other grant monies or with funding from the implementation of a conservation easement. Most have some restrictions on their use and maintenance. The city owns the following recreation facilities: a) Pinewood Golf Course/Clubhouse—Does not earn enough revenue to support operations, capital equipment/improvement needs or purchase price. b) Elk River Ice Arena—Ice rental,building rental, and concessions pay for full operational costs, capital equipment replacement,and some building expenses. The Barn Rink was gifted to the city after construction and operation by the Elk River Youth Hockey Association. c) Elk River Activity Center—Operations,maintenance,and capital repair/replacement are funded by taxpayers. Senior programming is subsidized,approximately$193,000,by general taxes. d) Lions Park Building—Rentals offset only a small portion of the operations and maintenance,but not capital repair expenses. The building and park were gifted to the city by the Lions Club. e) Trott Brook Barn-Rentals offset only a portion of the operations,maintenance,but not capital repair expenses. The building and park were provided to the city as Park Dedication. 176706v2 5) What has been the 'real' cost of operating Pinewood (outside of interest and principle)? What portion of these expenses are long-term purchases (i.e. new golf carts)? Principal,interest,and capital improvements/equipment replacement are the"real'cost of operating Pinewood Golf Course. The operational subsidy per year,excluding P&i,are cited below. Before Pinewood could open in 2006, the course needed carts and a mower. An equipment lease was subsidized with General Fund monies. The course needed new maintenance equipment in 2013 and was projected for 2014 in order to sustain operations. The course was not projected to earn enough revenue to cover operational costs and fund the new equipment. YEAR Operate GF Lease ERF TOTAL 2006 (85,761) (28,969) - 114,730 2007 (89,364) (34,634) - 123,998 2008 (81,190) (36,049) - 117,239 2009 (24,902) (36,050) - 60,952 2010 (45,398) (8,496) - 53,894 2011 (48,301) (8,496) - 56,797 2012 (46,578) - 46,578 2013 (47,027) (27,764) 74,791 2014 Budget (60,100) (18,200) 78,300 6) How do the expenses for the last two years of the golf course compare to the total expenses of the course? The taxpayer subsidy for the past two years is similar to previous years with the exception that we have postponed planned equipment replacement,which would have increased the annualized losses. Incidentally,2012 had an early start following a tepid winter and was our longest season and still required a similar subsidy to operate. 7) Who initiated the process to not make the final balloon payment? City staff identified scenarios that potentially would provide leverage to renegotiate the final payment. The city attorney and real estate attorney representing the city on the final closing researched the legalities. The information was provided to the Council for their direction. The decision to propose to the Krauses an amendment to the Contract for Deed was made by the entire City Council. As discussed previously,even though the Council decided to propose an amendment to the Contract for Deed, the Krauses immediately commenced suit without further negotiation or discussion. There has never been a decision of the Council not to complete the Contract for Deed. 176706v2 8) Does the city have the money to make the final balloon payment? The city has money available for the purchase and the further ability to raise all of the revenue needs through general taxes. 9) What were the city's alternative plans for the golf course if it did not meet these financial expectations? The City Council's direction was to request to amend the Contract for Deed to reflect a property value more consistent with the market following the recession,loss of development,and the anticipated Park Dedication Fees to fund the purchase. The City Council has not discussed any alternative plans for the golf course property. 10)Does the forfeit of the balloon payment have anything to do with saving for future projects? The request to amend the Contract for Deed and any potential savings from the original contract price has no impact on future projects. The original plan was to pay for the golf course with the proceeds from future Park Dedication Fees and revenue in the GRE Fund. Using other capital funds until repaid with Park Dedication will require the Council to either postpone or cancel other planned capital improvements or utilize other fund sources,including the general tax levy. 1 1)if the city forfeits the golf course, will the purchase money need to be repaid to the Park Dedication Fund? Only the seller can cancel the Contract for Deed. In that event,Park Dedication Funds,which have been minimally used for the purchase would be repaid to Park Dedication. Costs have thus far been primarily paid by the GRE Fund,Equipment Replacement Fund, and General Fund. There has been no discussion about paying back any funds, except to the extent they were treated as loans. B 2)What effect will this have on the city's bond/credit rating? Bond Ratings are completed by a committee at the rating agency using several criteria and factors. Our financial advisor has indicated that the request to amend the Contract for Deed does not support the inability to pay. The city can demonstrate its minimal impact on finances,and its willingness to repay GO bonds or other rated securities. Future Intentions 13)Why did the city council enter into the purchase of the golf course? What were their intentions? The decision was made by a different City Council body under different economic conditions. The discussions of late 2005 and early 2006 are recorded in the respective meeting minutes. 14)Did the current city council have any intention of continuing Pinewood Golf Course after the Contract for Deed expired? The Contract for Deed did not expire. Only the seller can cancel a Contract for Deed,which has not happened. The only direction by the City Council was to renegotiate and amend the Contract for Deed. Instead of negotiating,the Krauses sued the city. The city's legal counsel recommended ceasing operations until conclusion of the litigation. The Council will discuss course operations 176706v2 when the case is resolved. There has been no decision by the Council about whether the course will be permanently closed following the litigation. 15)What are the realistic conditions the city would consider before re-opening the golf course? The City Council has not discussed Pinewood operations beyond this year and is not in a position to do so until the lawsuit is over. 16)Has any thought been given to other alternatives available to make the park more financially attractive (better local advertising, community events like Easter Egg hunts, Halloween activities, etc,) The Golf Course Superintendent,Parks and Recreation, and marketing staff have carefully considered and employed numerous revenue enhancement strategies including programming, targeted marketing,and course/clubhouse enhancements. 17)How soon would the clubhouse and irrigation system need to be replaced? Is there an alternative to a 2 million dollar clubhouse? The irrigation system,clubhouse,maintenance building and equipment condition was identified in the 2006 appraisal as a concern before the purchase. Damage and repairs to the irrigation system increase the annual operation costs. The$2 million capital plan estimate is only an estimate,which included early projected costs for irrigation,maintenance facility replacement,practice area addition, and clubhouse replacement with added features that would increase revenue potential. 18)Realistically, city parks and activities are not profitable; they are an intrinsic reward. Has city council, behind closed doors or in secret, decided to close other parks and amenities (i.e. take Orono, hockey arena expenses, library expenses, softball, baseball, senior citizen center, etc.)" If so, why not? Reference answer#2, the City Council may only dose a meeting for specific purpose,which does not include closing parks or facilities. Lake Orono is a public waterway. The Ice Arena earns revenue through fees to pay annual operational expenses and capital equipment replacement costs. The Library is managed by the Great River Regional Library System,not the city.The Activity Center,athletic complexes,trail system, and Lions Park Center are all scheduled for equipment, facility or other repairs/upgrades. The Parks and Recreation Department is currently master planning their priorities, future needs. 19)Does the current council have any obligation to support a previous council? If a council was required by law to support a previous council,we would never be able to amend local ordinances to reflect changes in the community. In this Contract for Deed situation,the law provides that if a future council determines it is in the best interest of the city to seek an amendment to the contract amount or allow the property to go back to the seller,it has the right under the law, and obligation as good stewards of tax dollars,to consider that option. 176706v2