School district continues to pursue ice arena purchase

Asks for quick response from Department of Education

The District 831 school board voted Thursday, Oct. 10, to submit a second financing plan to the state to buy the Forest Lake Area Athletic Association (FLAAA) Sports Center.

All school districts that propose projects costing more than $1,400,000 are required to submit a Review and Comment document to the Minnesota Department of Education.

The Forest Lake School District is proposing to fund a $3.3 million purchase of the Sports Center. The district submitted documentation to the state earlier this year, but the Department of Education rejected the district’s financing plan.

The original proposal was to use property tax abatement bonds, which the district intended to do without voter approval. The state disagreed, saying voter approval would be required.

In a Sept. 24 letter to Superintendent Linda Madsen, Education Commissioner Brenda Cassellius wrote, “The Department was unable to provide a positive Review and Comment because it appeared that the District’s proposed use of property tax abatement bonds for this particular project required voter approval under Minn. Statute 475.58, subdivision 1(9).”

This was the second time the state responded negatively to the tax abatement bond financing plan. After the first rejection, the school district asked the Department of Education to reconsider and submitted additional information.

The law cited in the Cassellius letter prohibits using tax increments to buy a building that will be used primarily for conducting the business of the school district. The additional information submitted by District 831 included an itemized list of sports center usage over the last year.

“We’re not clear why our proposal wasn’t approved,” Superintendent Linda Madsen said at the Oct. 10 school board meeting.

When the Department of Education declined to change its mind, the district decided to try again with a more conventional financing plan, a lease purchase arrangement. This type of financing would result in a smaller net profit for the district if income exceeds expenses.

At the Oct. 3 meeting the board voted 6-1 to approve pursuing the lease purchase arrangement, with Kathy Bystrom voting no. At the Oct. 10 meeting, when the board voted on the Review and Comment submission, Bystrom voted yes, saying, “I vote aye not as an endorsement of the purchase, but because I want them to review this.” The vote was 5-0, with members Karen Morehead and Dan Kieger absent.

Because the Department of Education is already familiar with the proposal and nothing has changed except the financing method, the school district has asked for an expedited review. The state is required to give its response within 60 days, but during that time can ask for additional information, and then has 60 days from that point to respond.

Josh Collins, communications director at the Department of Education, said no other district has used tax abatement bonds to purchase a building.

Collins said the lease purchase statute, 465.71, does not require voter approval but has other requirements, such as an annual cancellation provision.

FLAAA owes $4.3 million to the four banks that financed the building in 2008. In past years the banks accepted interest-only payments during the slow summer months, with the principal made up in the busy hockey months of October through December, according to FLAAA’s Larry Porter. This year, he said, the banks were unwilling to continue that arrangement.

On Oct. 3 the banks published a foreclosure notice, with a public auction set for 10 a.m. on Thursday, Nov. 21. Bank officials declined to comment.

The city of Forest Lake owns the land where the ice arena, field house and athletic fields sit. When the arena was built in 2008, the city gave FLAAA a 35-year ground lease. City Administrator Aaron Parrish said if the school district succeeds in buying the Sports Center, the city will assign the lease to the district. The lease will expire in 2043.

The school district hopes to reduce operating costs and increase revenue at the Sports Center. In the Proposal for Review and Comment submitted to the Department of Education, annual revenue from ice time and other sources is projected at $686,300, and annual expenses projected at $367,300.