Pro forma says ice arena operation won’t become a general fund drain

Full school board reviews sports center options

Cliff Buchan
News Editor

Operation of the Forest Lake Area Athletic Association Sports Center by ISD 831 should not result in a general fund drain for the school district.

A pro forma completed by Ehlers, the district’s fiscal consultant, concludes that by the 2015-16 school year, the ice arena and sports center operation will generate profit of $51,550 back to the general fund.

That was the bottom line of a sports center report to the full school board on Thursday, March 29.

Since late last year, the school district, FLAAA and the city of Forest Lake have been meeting via a task force exploring FLAAA’s transfer of operation with the school district the likely recipient of those duties.

The proposal has a number of additional steps to take before any transfer of ownership can be completed. School board committees will review the matter on Thursday, April 19. The topic is expected to come before the full board on Thursday, May 3 for a vote on a decision to acquire the arena and the methods of financing the acquisition.

If the school board decides to move forward, the acquisition must go before the Minnesota Department of Education for review and comment. MDE will have up to 60 days to respond.

That would set the stage for arena financing to be secured through a request for proposal or bid process resulting in a lease purchase. Under this schedule, the arena could fall under school management by August.

More Detail

A review of the process by Briggs & Morgan, the district’s bond counsel, has made clear that the district is not allowed to assume the outstanding debt of the sports center. A new financing arrangement is needed because the original issue was a conduit bond/note with loan agreement.

The initial financing for the arena was provided through a $4.5 million recreational facility note in 2008 issued by the Forest Lake Economic Development Authority. The city provided the land via a lease in the Headwaters commercial area adjacent to the Fenway Athletic Park complex built by the city.

The pro forma which included an appraisal last December determined the ice arena complex and land have value of $8.3 million. The sports center has liabilities of around $4.6 million with outstanding principal of $4.2 million.

The complex was built with revenue notes that carry a current interest rate of 4.1 percent through Jan. 1, 2014. FLAAA is making annual debt payments of $262,548.

Jodie Zesbaugh, a financial analyst with Ehlers, offered the board an expanded pro forma on the operation last week, following up on her report to school board committees on March 15.

The expanded pro forma included projections on what the district would need to finance annual lease payments through a combination of facility income, lease levy and operating capital, or general fund revenues. The potential tax impact of a shortfall could also involve use of an ice arena levy.

Under the proposal, it is projected that the district could enter a 20-year lease purchase with monthly payments. An estimated interest rate of 3.70 percent is projected to finance $4.93 million. The financing amount is $250,000 lower than the initial pro forma from Ehlers.

Questions Raised

Board members Kathy Bystrom and Dan Kieger were the most critical of the proposition.

Bystrom said she had “grave concerns” with a district decision to commit resources to such a proposal. “I’m not sure this is a real good move for us,” Bystrom said.

She said she was also concerned by the lack of city involvement in the new arrangement which forced the school district to take on the full risk. She qualified her statement later in the meeting to let the record show that the city had provided land to FLAAA to help get the project off the ground.

Kieger, like Bystrom, was also concerned by the lack of city involvement. “Ninety percent of cities would have taken care of it,” Kieger said, critical of the city’s lack of park and recreation programs which have traditionally fallen to the school district and youth athletic organizations such as FLAAA.

“It’s not just about hockey,” Kieger said. “We can’t let it get shuttered. It has to support itself.”

Board member Karen Morehead, a non-elected city park board member, offered some defense for the city. “There are a lot of folks who don’t like them [city council] to spend money either,” Morehead said.

She said she was not ready to vote for the school taking over the sports center, but agreed it was something the community needed. “It’s a facility a community should have,” Morehead said. “We have to do some thinking on this.”

Board President Rob Rapheal said the district always runs the risks of facing repair and upgrade costs as buildings age. “We have these issues with any of the buildings we own,” Rapheal said.

The board also heard from one district resident who raised questions about the possible move.

Steve Goedeke, Forest Lake, offered a series of points that he asked the school board to consider as it evaluates the ice arena issue. He questioned if acquiring the arena would improve or degrade the district’s primary mission of academic preparation for students. He also questioned if the board ranked any of the possible arena expenditures with other priorities in the district.

As a way of protecting the district from the unexpected, Goedeke suggested the board structure an agreement for the district to operate the arena for at least two years before taking title.