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Commonweal Theatre to refinance debt

Fri, Jan 10th, 2014
Posted in Lanesboro Government

A public hearing was held prior to the Lanesboro City Council meeting on January 6. Councilman Keith Eide was absent. The hearing was in regard to the nonprofit theatre corporation’s request to amend and reissue its commercial development note that had been issued in 2006.

Mike Bubany, David Drown and Associates, explained that with the 1982 Tax Equity and Fiscal Responsibility Act the rules were made more stringent. A city can get a lower rate as a tax exempt entity and this can be extended to non-profits. Commonweal Theatre Corporation can take advantage of the tax exempt rate with the city acting as a conduit in the reissuance of the revenue note. There will be no liability to the city if the city agrees to the requested changes in the original note.

Bubany emphasized that it wouldn’t affect the credit rating of the city in any way. He added that any local government entity could act as the conduit for the theatre. It just made sense for that entity to be Lanesboro as the theatre is located here. There is a limit on the amount any city can designate as “qualified tax exempt obligation” during the period of one year and that is $10 million. Bubany noted that Lanesboro will not be affected by that limit.

With the amendment of the note the Commonweal Theatre will save 1.5 to 2 percent on interest rates. F & M Bank is the sole holder of the debt.

Hal Cropp, speaking for the theatre board, pointed to the downturn in the economy in the years after the original note was issued. He acknowledged that over $450,000 of pledges had to be written off. However, since 2011 funds gained through operations have covered all interest payments on the debt. Principal payments have to come from capital campaign fund raising.

In 2010 a fund raising campaign was started with a target of $1,000,000. Over $450,000 in cash and pledges has been received to this point.

The restructuring of the debt will reduce the annual principal and interest payments to $37,000. They currently are $120,000. The reduction in the debt service will allow the theatre to establish reserve funds for operations, building and equipment, along with new programming.

Charles Aug explained the restructuring of the debt is comparable to the refinancing of one’s home. It will lower the interest rate for the first five years from 5.53 percent to 4.00 percent. It will reduce debt service cost and solve a lot of issues for the theatre.

Interest rates will be adjusted at five year intervals from that point forward. The final maturity date of the note is in 2036. The outstanding principal on the amended and reissued commercial facility revenue note will be $910,000. The original note was for $1,200,000.

There were no comments from the public at the meeting. City Administrator David Todd acknowledged after the meeting that there had been two calls from the public concerning the reissuance of the note. One was from a woman who was concerned about the lack of local residents on the theatre’s board of directors. Andy Bunge had called and asked if the city would have any responsibility if the Commonweal Theatre were to default. Todd assured him that the city was simply acting as a conduit and if the theatre project failed it wouldn’t hurt the city. The note does not constitute a debt to the city.

Councilman Tom Dybing said the refinancing was a “no brainer.” A resolution to approve the reissuance and amendment to the original note was adopted unanimously.

Other Business In Brief

•Mike Bubany discussed the interim financing for the well project through Minnesota Rural Water Finance Authority. It doesn’t require a credit rating and there is no risk in applying. Todd said they need to get started on the well program, water improvement project. The Minnesota Public Facilities Authority (PFA) will fund the bulk of the project, but until those funds come through, a temporary loan from this program could bridge the gap. Todd added they will send out for bids in a few weeks.

A motion to apply for interim financing in the amount of $1 million was approved. Todd noted the PFA financing should be available in September.

•Marv Eggert reported on the activities of the chamber of commerce. He was acting as the interim director, adding they hope to have a new director in February. He noted there are new businesses in town. Weather and construction in 2013 had a slightly negative effect on tourism. In September the city hosted the Historical Society conference. The city was recognized in Travel and Leisure magazine as on of the prettiest winter get aways.

In 2014 one major initiative is to look at the branding of the city. The city is known for its Bed and Breakfasts, but also needs to highlight its trail, river and the arts. The chamber wants to continue to partner with the EDA to improve the business climate in Lanesboro.

•Merchants Bank was designated at the city’s official depository.

•Fillmore County Journal was designated at the city’s official newspaper.

•Cheryl Brekke was appointed to the Library Board. Gerry Evenson was reappointed to the Public Utilities Commission.

•Effective February 1, the base ambulance rate will be $600 and the rate per loaded mile will be $11.

•Park and Recreation rates for 2014 effective February 1 were approved. The auditorium rate was increased from $300 to $350. Use if the chamber room rate was increased $25 to $75. Tent camping and RV camping rates were each increased $5 to $20 for tent camping and $30 for RV camping.

•A motion to approve an employee benefit stipend was approved. The stipend will include benefits for health, clothing, and phone where applicable.

•A discussion to clarify the city’s financial situation was started by Mayor Steve Rahn, saying there is money in funds that are earmarked for some things. Todd maintained the overall financial health of the city is good. The money market reserve is less than $50,000 and he felt that needed to be built up for emergencies. The reserves are the liquid funds the city has and don’t include funds designated for debt service, investment, or city assets. The clarification was the result of a misunderstanding reported through the press concerning the city’s budget and reserves.

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