August 6, 2007
HL industrial park delinquencies crippling city's cash fund
By Jennifer Gallus
The City of Howard Lake conducted a special meeting Tuesday as a joint discussion between the Industrial Park Board and the city.
Delinquent taxes not collected for the Industrial Park West are tying up funds in the city’s general fund reserve, said City Administrator Kelly Hinnenkamp.
The industrial park land, which consists of 55 acres, was bought in 1999 for $135,000 by 10 private investors with the intention of bringing more business to Howard Lake and helping the city, according to Industrial Park Board President Chuck Paschke.
When the land was developed, the investors asked the city to install the sewer, water, and utility improvements and have the cost assessed against their taxes.
Taxes for phase one and two of the park are delinquent back to 2005, and phase three is delinquent to 2003.
The total debt owed by the private investors including property taxes owed, special assessments, penalties, and interest is currently $370,000.
The investors planned to pay the taxes as the lots sold, according to Paschke, but the downturn in the economy was cited as part of the problem selling lots.
To date, 46.93 acres remain unsold out of 55 acres.
However, the city said that a lack in marketing the industrial park by the investors is also to blame, not to mention businesses that were turned away from purchasing lots because of “the type of business or who they were,” according to Council Member Tom Kutz.
“We bonded for the improvements and assessed the payments of the bond against the property,” Hinnenkamp said.
“We (the city) have to make our bond payments whether we get paid (from the investors) or not. The general fund reserve is covering the negative industrial fund balance,” she added.
As a result, the reserve has been “crippled” by the industrial park delinquencies, Hinnenkamp said.
The city wanted to build a new maintenance facility and install a new roof on city hall, but has been advised by the city auditor not to go forward with either project.
The city prefers to operate with about a $600,000 reserve, but because of the industrial fund delinquency, that reserve has been drained to about $200,000, according to Hinnenkamp.
Paschke offered three scenarios on behalf of the investors to the city council for consideration.
1. The city could purchase the land from the investors for $120,000, which would pay the investors back and no one would have profited personally.
2. The city could buy the land and spread out the payments by paying the investors $20,000 per year for six years.
3. The land could be turned over to the city without the city paying the investors, which would mean the investors would lose everything.
One of the investors said, “We didn’t make any money on the lots we sold, just enough to pay the taxes (before the delinquencies).”
Some discussion took place back and forth regarding whether the lots were priced too high or too low, with the end result being a wide range of opinions on the matter.
The city had talked with the county regarding facts and figures if the city were to take over the land and its associated debt. Preliminary numbers indicated that the city would get $287,000 back, out of the $370,000 current debt, due to many factors associated with being a city entity holding title to land.
Howard Lake resident Vern Kleve asked, “At what point does this affect the local levy?”
“As soon as the city doesn’t have cash flow to cover the bond payments. I wouldn’t say next year’s budget, but it is tying up our cash,” Hinnenkamp said.
In the end, it was decided that both the investors and the city would do some more research, talk with Wright County Auditor Bob Hiivala more extensively about options, and meet again in a month, but this time, to make a decision.