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glmer

CLW May Pay for City’s Gilmer Purchase

glmer

BY BRIAN JONES

brian.jones@packet-media.com

COLUMBUS – The Columbus Light and Water Board pushed back against a city plan to use part of its water department reserves at its Nov. 19 board meeting. The board agreed in spirit to help the city, but not without conditions, including the establishment of a committee overseeing how the money would be used.

The City of Columbus is asking the CLW for about $650,000 out of the water department’s reserves to fund acquisition of property along the western part of Main Street. The City Council voted earlier this month to acquire the Gilmer Inn for $425,000. At that time the council was considering funding the purchase from CLW monies; now the council has apparently also tacked on the purchase of the old Brumley’s Sporting Goods location at 313 Main Street for about $200,000.

The Columbus Convention and Visitors Bureau is also reportedly attempting to buy the Musselwhite’s Barber Shop building.

The CLW board entered into a wide-ranging discussion of the city’s funding request Thursday afternoon. Although receptive to the idea, the commissioners demanded more scrutiny of how the money would be used, and veto power over any plans they disagreed with.

The city has not said what exactly the Gilmer site will be used for, only that the building will be demolished early next year. Several options that have been mentioned are downtown parking or redevelopment as a commercial property.

Under the proposed agreement, the city would repay the CLW $100,000 a year for the first two years, and then $150,000 a year for three years.

“The city wants $650,000, and they’re giving us a promissory note,” said Chairman Andrew Colom.

“They didn’t even give us a promissory note at first,” said Board Attorney Jeff Smith. “That was (General Manager Todd Gale’s) idea.”

“We discussed this last month, but didn’t take any action because (Commissioner Jimmy Graham) wasn’t here,” Colom said. “My worry is that if we give them $650,000 and they don’t pay us back, we don’t have any protection besides not paying our in lieu of tax payments. I feel like we would be able to do that for one month and then there would be so much political pressure that we would have to start paying again.”

“You would be breaking your fiduciary duty to your users,” Smith said. “You have a duty to them to maximize the cash you have on hand. You can’t throw it away, and I’m not trying to say that this is a throwaway deal. You have to have to take all steps to recover it, and you’ve got a very strong method in your fees in lieu. But political pressure on this board would be tremendous because you could potentially have city employees laid off because the city’s coffers would go down by so much a month.”

“Why do you think they wouldn’t pay us back?” asked Commissioner Michael Tate.

“There is nobody I would loan money to, no matter how good they were, if I didn’t have a plan of what they were going to do with it,” Colom said. “It’s not the city, it’s just me as a person. I have to know what’s going to be done with it, why they think they can pay me back, and how much say I have over the use of it. There’s some rumors about a parking lot, but we haven’t been presented with a plan. All we know is that they want to buy these buildings, which I want them to do. I want them to buy the buildings, but I don’t want them to buy them and make them into a parking lot or sit on them and not know what to do. I want this to be something where, if we loan them that money, we can tell our ratepayers that we’re going to be produce something on the front end. Right now if something does go bad, we’d have to do something very painful to the city. I’m trying to do the due diligence on the front end to avoid having to do something like that on the back end. I just don’t have enough information about what they plan to do and why they think it will generate revenue. Also if we’re loaning money to the city there should be something in it for the utility. For that matter, if they’re going to buy the Gilmer Inn, how are they going to pay to demolish it?”

“How much in lieu of taxes do we pay them?” asked Commissioner Charlie Newell.

“$2 million a year,” Gale said. [The monthly payments are around $166,000. – Ed.]

“Wow, that has gone up,” Newell said.

“You know why?” Colom said. “Because we payed them more money so they could redo the Trotter. We already gave them, two years ago, additional taxes. Now we’re giving them another loan to redo the area really close to the Trotter. I like that they’re trying to revitalize downtown, I just think that we have to make sure that our ratepayers are protected. We are not that strong. We don’t have money just to lose.”

“Right now we have an agreement and a promissory note,” Smith said. “The note has them paying interest on the money at the prevailing interest rate. We originally did it at 5 percent and now we’re doing it at the prevailing interest rate. We’ve also changed the amount of the money. We started off at $425,000, then we went to $600,000, now we’re at $650,000. But you’re got the protection of the tax payments.”

“That’s only as strong as the will of the board,” Colom said. “If a board three years from now said they weren’t going to pay taxes, and the mayor and city council start calling people…it’s only really as strong as the board’s willingness to force them to pay that money back. That would take a lot of gumption, because there is going to be a lot of political pressure.”

“You have got to know where the money is going to be used,” Smith said. “If they wanted $650,000 to build a bonfire, you wouldn’t do it. You need to know that your money is going to be invested wisely. If you went to the bank, that’s the first thing the bank would say.”

“We have tried to help the city all along, and I think we should help because we are part of the city,” Graham said. “But I think there’s a precedent we’re setting. From now on the city is going to use us for funding. We’re in a downward trend, and who knows what’s coming. I think right now we have adequate reserves, and if we start giving away our reserves that tells the public we have an excess.”

“Imagine if we have to raise rates,” Colom said. “Which is not unreasonable to consider. If I were a newspaper reader and I read that the utility loaned the city $650,000 and then raised my rates two months later, I’m saying they raised my rates so they can loan money to the city.”

“Are we in a position where we won’t be paid back?” Tate asked.

“The only way we could not be paid back is if you don’t have the willpower to hold back that $166,000 a month payment,” Smith said.

“If they don’t have the money now, what makes you think they’re going to have the money to pay us back?” Graham asked.

“The way this works to me is we help them buy the land, and then they develop it,” Colom said. “They create a development package with the CVB, and they can put together a development package for a developer. Then he takes out a loan and pays all of us back. Then he has the debt on something that’s making money. We’re using this opportunity to create new revenue for the city. What I fear is that we give them the money and they get the land but don’t use it to create new revenue and then we have the problem of they don’t have revenue, so how are we going to get paid back? The only way I feel confident in our getting paid back is if we’re part of the development team and we’re making sure that this is the developer’s risk.”

“Tell Mr. Tate about our experience with the city on Military Road,” Graham said.

“We had a bunch of complaints about potholes, so we thought it would be best if the city just went ahead and fixed those holes,” Gale said. “I think we paid them $250,000, and then they took that money and paved Military Road. At the end of the deal we had to press to get our holes fixed.”

“It wasn’t a pleasant experience,” Graham said.

“Well, if you remember, they were doing work on Military Road and we were getting lambasted because we working in conjunction with them,” Smith said. “(Graham and Gale) came up with the idea to just repave the whole thing. The thought was we would get through with all the repairs, and then they would repave. But the repaving did not come as quick as the repairs did. But it did get done.”

“I want to help the city, but I want to make sure we get the money back,” Tate said. “I want to see something other than a parking lot.”

“If you have those three goals, the best way to achieve them is to do a conditional agreement,” Colom said. “One condition is that they create a subcommittee that one of us is a part of. Two, before the money is released there is a development package and a presentation of what they’re going to do: how much they’re paying for each property, how much the demolition is going to cost. I have seen the city do things successfully downtown, but what I have not seen them do is put together a development package to generate money. I’ve seen a park and a Riverwalk, and that’s nice. But I haven’t seen them put together a public-private deal where a private person came in and made money off something the public started. That’s what we need.

“I also agree with (Graham) about the precedent we’re setting,” Colom said. “We’re just giving money to the city and we have no protection on the front end. I think the precedent should be set that if we’re giving money to the city we need to be involved in what the money is used to do.”

“Is this the best use of our money? Do you know of other things out there that we could do that we’re not doing that would be beneficial?” Graham asked. “What’s the highest and best use for this money?”

“This is money that is in our reserve account,” Gale said. “You need to have at least $2 million that you can get your hands on in case of emergencies.”

Comptroller Mike Bernsen said the water department has about $3.5 million in reserves currently.

“And the agreement is subject to a 30-day call,” Gale said.

“If they can’t pay us back now, how are they going to pay us in 30 days?” Graham asked.

“In 30 days you can at least start taking that $166,000,” Gale said. “And that $2 million (in reserves) gives you about four months of operations.”

“That 30-day call is an emergency,” Graham said. “That’s if we don’t have a choice, if we’ve got to plug the hole in our funding.”

“To go back to your question, we need to hold that money in reserve,” Gale said. “You asked for the highest and best use, the highest and best use would be to be as liquid as we can.”

“And who knows what reserve’s right,” Graham said. “It just depends on the catastrophe. You just don’t know what’s going to hit you. I want to help the city, we’re part of them and we need to do our part. But better we get an agreement on the front end, because then the fewer problems we’ll have on the back end. It bothers me the precedent that we’re setting. As soon as this is over, they’re going to be looking at us as their bank.”

“The well’s dry after this,” Gale said.

“The state auditor recommends that all public entities keep a minimum of 8 percent of your budget as reserve, but they recommend 15 percent,” Smith said. “You want to keep at least 15 percent. You probably want to have at least $1.4 million in reserve. If you get much more than (15 percent) you’re letting money set idle.”

“I thought the purchase price (for the Gilmer) was $450,000,” Graham said.

“It was, but it went up,” Colom said. “You talk about a bad precedent. Last month they asked us for $450,000, and we didn’t take action because (Graham) wasn’t here. Then the next month is comes to $650,000, and the closing date is the first of December. We never agreed, then they increased the amount and they entered into an agreement with the seller and they gave us very little time to contemplate the decision.”

“All you told us last month was to start working on some documents and to talk to the city,” Smith said.

“The mayor asked me if he needed to come to this meeting, and I told him that I thought we were willing to help the city,” Gale said.

“I don’t think the mayor needs to be here,” Graham said. “I think everyone here wants to help the city. But we need to do it prudently so that we don’t get egg on our face that we didn’t do our job for light and water. Why have we not seen anything in writing? I only know what I’ve seen in the paper.”

“From what I understand the city is planning on buying the Gilmer and the old Brumley’s,” Gale said. “The Gilmer is $425,000, and Brumley’s was about $200,000.”

“Why wouldn’t they give us a presentation about this?” Graham asked. “You wouldn’t go to a bank and not provide any information.”

“All we’re saying is speculation,” Colom said. “This is all speculation. All we know is what’s in the newspaper, and what we’re hearing. None of this is what’s been presented to us.”

Colom recommended conditionally approving the request, but with certain conditions.

“I think one of the things that we need is that we get a committee set up,” he said. “We need to get this money back within two or three years so it doesn’t come to the point that we’re forcing the city to repay us. We also need to see a budget and a development plan. How is the building going to be demolished? We need to have someone with the CVB on board to see what they want to do. We need something to make sure this goes to fruition.”

“Can we not take a lien on the building?” Graham asked.

“You can’t have a lien on something that’s been torn down,” Smith said. “We don’t have the ability at the light and water department to own real estate. We’re part of the city, even though we have a standalone board. The city would in essence be taking a lien on itself.”

“We need to make sure that we don’t just do what the city wants to do in the short term,” Colom said. “We need to make sure that our ratepayers are protected.”

“We don’t have anything in writing?” Graham asked.

“Just what we’ve read in the newspaper,” Gale said.

“From a fiduciary standpoint we need to tell them we want something in writing as to what the request is,” Graham said.

The CLW asked for a subcommittee to be formed, with appointees from the CLW, the City of Columbus and the CVB, and for a plan to be submitted showing how the money will be utilized.

“That’s not asking too much,” Smith said.

“I would prefer that the committee not be able to take any action unless all three people agree,” Colom said. “We need some conditional control over how the money is spent.”

Graham asked that Smith represent the CLW on the committee, and Smith agreed.

The motion was made by Colom, seconded by Graham. It passed unanimously; Commissioner Brandy Gardner was not present.

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