Full school board will discuss proposal on Thursday, March 29
It’s looking more and more as if the Forest Lake Area Athletic Association Sports Center will soon be under the control of School District 831, possibly as soon as July.
That’s the possible path following a review by school board committees on Thursday, March 15 of what steps need to be taken. Since late last year, the school board, FLAAA and city of Forest Lake officials have been in talks over the possible transfer of the ice arena to either the school or the city.
At a special workshop meeting earlier this month, the city council consensus was that it preferred the arena to go to the school district. FLAAA opened the dialogue as a means to allow the association to concentrate on youth athletic programs as opposed to facility ownership and management.
On Thursday, March 29, the full school board, meeting in regular session, will get its first crack at discussing the possible move. Last Thursday’s committee plan reviews were before building and grounds, finance and staff welfare.
Jodie Zesbaugh, a consultant with Ehlers, was on hand March 15 to present preliminary financial reports and a feasibility report that included financing options for the school district.
As expected, Zesbaugh said a legal opinion from Briggs & Morgan, the bond counsel for initial financing, said the school district or any tax exempt entity, would not be allowed to assume the outstanding debt of the sports center. Since the original issue was a conduit bond/note with loan agreement, a new financing arrangement is needed, Zesbaugh reported.
That could come in two ways.
One financing option is for the school district to enter into lease purchase with direct financing from a financial institution. Financing would be obtained through a request for proposal process or through negotiation of a private placed lease purchase agreement with a financial institution. Zesbaugh said the method is quick, has lower up-front costs but may carry a higher interest rate than the second option.
The second option would involve the district entering into lease purchase and the issuance of certificates of participation. It would allow multiple investors to participate in the financing with COPs issued in $5000 increments, similar to municipal bonds. A competitive sale is the general process.
While the second option may result in a lower interest rate, the process is more time consuming.
Under either of the options, should the school district proceed, the process would require review and comment by the Minnesota Department of Education and approval of the commissioner of education. During the term of the agreement, the arena would technically be owned by the lessor, the entity providing the financing. The district would retain the right to purchase the arena at the end of the term for a nominal fee.
Zesbaugh and Larry Martini, director of business services and chair of the building and grounds committee, estimated last week that any tax impact to the school district would be “quite insignificant.”
Under the preliminary feasibility study presented by Zesbaugh, the district would finance annual lease payments through a combination of facility income, lease levy and operation capital or general fund revenues. The FLAAA is currently dealing with annual debt service payments of $262,548, Zesbaugh said.
Zesbaugh’s preliminary pro forma statement takes into account rental fee collections, concession and vending sales and lease levy based on taxes payable for 2012 for income projects. The pro forma on the expenditure side takes into account salaries, wages and employee benefits based on current bargaining and unit contracts, purchased services and supplies based on recent actual activity and capital expenditures.
The pro forma shows arena total operating revenue of $668,800 in ice time and facility rental, concessions and vending. Expenditures for arena operation, including sales and wages, supplies and purchased services, are estimated at $420,265 leaving revenues some $248,535 over expenditures. Capital expenditure needs are estimated at $362,569.
“We think we are being conservative with these numbers,” Zesbaugh said.
The Forest Lake Hockey Association is the largest single ice time purchaser at the arena at $265,000. High school teams provide $75,000 in ice time rental revenue for games and practices with the funds supported by a school lease levy.
The advent of the school taking over the arena is not expected to change the involvement of the Lichtscheidl family which operates a retail outlet for Forest Lake Cycle & Skate within the facility which carries the Lichtscheidl Arena name. A three-year lease extension was recently signed by the business.
Martini said the partnership was a nice addition to the operation and one the school district would welcome.
The school administrator said based on conservative revenue and expenditure estimates, he was confident operating costs would be covered. Covering debt payments will be a major topic to address, he said.
“In most municipalities, the ice arena is a function of the city,” Martini said.
He said the staffing would involve four employees, including a facility manager. Arena staff would report to Martini’s office in a change of policy from the previous Maroon and Gold Sports Center operation when the arena operation was supervised by the Community Education Department.
The original $4.5 million recreational facility revenue note was issued by the Forest Lake Economic Development Authority on June 9, 2008. A recent appraisal of the arena complex and land came in at $8.3 million. The facility is on city property adjacent to the Fenway Athletic Park site south of the airport.
A fair value of the property is currently established at $5.1 million which includes liabilities of $4.6 million. The outstanding FLAAA loan principal as of Feb. 29, 2012 is $4.25 million.
Any acquisition by the school district, however, would fall short of meeting state requirements that would enable the district to qualify for alternative facilities levy funding.
To qualify for alternative facilities funding which has no voter-approval requirement, the state requires total square footage of 1.5 million square feet with an average age of 35 years. Forest Lake Area Schools today is a little over 1,320,000 square feet with an average facilities age of 31 years.
Acquiring the sports center would still leave the district about 100,000 square feet short, Martini said.
After the March 29 school board presentation, board committees will review the topic again on April 19.
A school board decision could be made at a regular meeting on Thursday, May 3 with the matter sent on to the Minnesota Department of Education for review and comment.
If all goes accordingly, the school board could approve legal documents related to arena acquisition financing on June 28. That would set the stage for a final arena acquisition date in July.
There would be no change in FLAAA’s agreement with the city to manage and maintain the Fenway Athletic Park complex and outdoor concession stand.