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HomeMy WebLinkAbout1983-01-24 MinutesMINUTES OF A SPECIAL MEETING OF THE BOARD OF DIRECTORS A Special Meeting of the Board of Directors was held on Monday, January 24, 1983, at 9:00 a.m., in the Chamber of Commerce Board Room, Fayetteville, Arkansas. PRESENT: Mayor Noland, Directors Lancaster, Osborne, Orton, Sharp, and Johnson; City Manager Grimes, Assistant City Manager McWethy, Finance Director Linebaugh, City Attorney McCord, City Clerk Kelly; members of the press and audience; Attorney Boyd Cox. ABSENT: Director Bumpass CALL TO ORDER 393 393.1 393.2 Mayor Noland called the meeting to order and asked for a moment of respectful 393.3 silence. (� DISCUSSION/HILTON PROPOSAL TO PURCHASE MEADOW PARKING DECK QMayor Noland referred to two typographical errors in the Lease/Purchase 393.4 Agreement. He stated that on Page 2, Section 4(a), $3,700.00 should be changed to $3,681.00; on Page 4, Section 8, $1,488,000 should be changed to $1,495,000. Mayor Noland asked Attorney for the Hilton, Mr. Boyd Cox, if he wished to 393.5 make any comment before discussion began, and Mr. Cox asked that the Board direct its attention to the memorandum from Finance Director Linebaugh, dated January 20, 1983, which reads, at paragraph two, "This will be a projected $2,237,883 improvement over the present situation of the City keeping and operating the deck if we take into consideration the interest lost if the City charges itself interest for the money borrowed." In discussion Director Sharp stated that his calculation of present value 393.6 worth in 1983 was $781,000. He added, however, that in looking at the end of the 22 -year period, if projections of 10% inflation were used, the deck would be worth $6 million, and using a more conservative 6% inflation figure the deck would be worth approximately $2.8 million. He stated that if inflation continues at the current rate or a more conservative rate, the Hilton would acquire a facility worth $3-6 million, while paying a balloon payment of $700,000. He added that he would be in favor of the Lease/Purchase Agreement if the Hilton would agree to pay a larger downpayment, or pay in cash. He would want the Finance Director to submit a proposal for a larger downpayment figure. He added that in the current lease agreement for 70 spaces, the Hilton is paying $2,100. If a 6% inflation figure were used, it would reach $2,800 in a few years anyway. The $2,800 is how much they would be paying on the basic payment as payoff for the building. Director Sharp made a motion, seconded ,by Director Lancaster, to reject 393.7 the proposal. Director Lancaster stated that there were aspects of the proposal which he didn't agree with and portions which he didn't fully understand. 1 Director Sharp added that there is talk currently of a bank wanting to build adjacent to the facility and that the bank will need parking. He feels 393.8 the City should look carefully at the costs of operating the deck, with the possibility of changing the operating procedure by eliminating an attendant at the deck. In response to Director Sharp, Finance Director Linebaugh stated that under 393.9 the Hilton proposal, the City would have to borrow money from the one-half CEC 394 surplus, up to $886,000, but by the end of 2004 it will be paid back. Under the current situation, the City will have to borrow up to $1,227,000, of which, at the end of 2004, $500,000 of it will be paid back. The cost of 394.1 money that the City is losing from the money being borrowed is being ignored. In the Hilton proposal the City will get that paid back and in the current plan would lose $1,571,000 worth of interest money during the 22 year period. Director Orton stated that there appeared to be no incentive that the 394.2 hotel would make a profit subject to good operating procedures and the ability to keep the deck full Mr. Linebaugh responded that there is the incentive for the Hilton to make more money from the deck than what the City is projecting to make, and there is an incentive built in that anything over $971,000 will be profit to the Hilton. Attorney Cox added that there is a second element also, that the City has the option to change management o nder the Lease at any time, provided the City can show, through a pre- determined set of circumstances, that it should be changed. Director Lancaster asked how long, in the opinion of Attorney Cox, it would take to change the management if the Board decided it wasn't operating properly. Mr. Cox stated that it would take approximately 30-60 days. City Attorney McCord stated that the Lease provides that the arbitrators shall submit their decision in 60 days. Attorney Cox added, in response to Director Sharp, that the $2,100 394.3 lease payment for the 70 spaces would continue to be paid throughout the 22 -year period of the lease and would be paid back to the City through the o perating profit payment. He also said with regard to the time value of money, the $2,800 could be placed into a savings account and reach an astronomical amount of money at the end of the 22 -year period. 394.4 394.5 Director Osborne asked the City Manager what his recommendation would be and City Manager Grimes stated that he had thought the feeling of the Board was to sell the deck, but that is not the feeling he is currently getting from the Board. He stated that he felt the City would be much better o ff if the private sector could own the deck, but he added that it was the o bligation of the City to act as a stimulus in these matters and stated further that there may be a need in the future for another deck to be built behind the Southside, and he feels that the City has the obligation to see that the local economy is benefitted by the generation of tax dollars to this effect. He added that it was his opinion that it was a fairly attractive offer. Mayor Noland asked to what extent the proposal would alleviate the amount of money the City has to borrow from CEC surplus. Finance Director Linebaugh stated that under the Hilton plan, the City will borrow up to $886,000 by 1992, but under the current plan the City would have to borrow $1,227,000. By the end of the year 2004, the City will still have $500,000 o f outstanding debt to the one-half CEC surplus. With the Hilton's proposal the City will have paid the entire amount back by the end of 2004. He added that the main factor is the cost of money and the $1,571,000 of interest that the City would lose, continuing under the current plan, compared to the Hilton paying that interest back to the City under their plan. Mr. Linebaugh stated that he had projected a good picture on operating revenues for the Hilton, but the Hilton felt that it could not be achieved. The City's present operating revenue is a projected $49,000 a year, but the projection for the Hilton is $71,600 per year 1 1 Director Lancaster asked how the Hilton proposal could be considered a good revenue producing prospect, while it was not a good revenue producer for the City, and Mr. Linebaugh stated that the Hilton would have a lot of tax benefits which the City doesn't have on depreciation. Regardless of o perations, the Hilton would still have to pay the basic price of $971,000. City Manager Grimes and Finance Director Linebaugh stressed to the Board that the projection by the City Staff when the parking deck was built was a loss of $800,000, and Mr. Linebaugh stated that that projection has changed somewhat in that projected expenses have been lower due to the change in the type of management system. Director Osborne suggested the use of a clause in the lease which states that if the deck is damaged, in the event it is given back to the City, that the Hilton will be responsible for repair of the damages incurred. Attorney 03 Cox stated that the lease contains two insurance clauses, one for operation, the responsibility of the Hilton, and one for casualty, the responsibility of CO the City. He added that if the City gets the deck back, even as soon as next year, that the City will save one year of operations losses and debt service O losses and still have the deck. 1 Director Johnson's opinion was that the City could much better utilize its money, rather than paying for management of the parking deck. Director Lancaster referred to Page 2, Section 4(c) of the Lease/Purchase Agreement, which states, "Lessee shall be entitled to a credit against the next month's basic rent in an amount equivalent to said loss, but Lessee shall be required to repay said deficit before Lessee shall be entitled to any portion of net operating revenues thereafter accumulated." Mayor Noland asked if Director Osborne, as an adjacent property owner, would be bothered to have a municipal parking deck owned by a private entity, and Director Osborne stated that he would much rather have the City own it, speaking in his personal interest, but looking at it as a City Director, he hates to see the City incur these losses. City Manager Grimes made reference to Schedule A of Mr. Linebaugh's memorandum, which stated a high estimate of operating expenses, and he felt that it is still too low, bearing in mind the wages that would be necessary to operate two shifts, seven days a week, at the deck, at a minimum wage. If the City decides to keep the deck, he felt the Board should be aware that it probably could not be operated at this estimated operating cost. Director Lancaster etated'.that when Director Sharp and he had proposed selling the deck for. cash, City Attorney -McCord said that the standard clause pertaining to all bond indentures would apply, and that is that the mortgage property cannot be disposed of while bonds are outstanding. This is to protect the bond owners and cannot be done without bondholder approval. When Director Lancaster asked Mr. Linebaugh about other prospective buyers o f the deck, Mr. Linebaugh stated that two others had been interested at one time but had decided against the prospect. Attorney Cox reiterated some facts stating that during the term, assuming that the Hilton does not hold the deck for the entire term, the City saves the o perating expenses, and receives a payment toward the cost, which is money invested in the deck. If the Hilton does not complete the term, the City would have saved those payments and would get to retain the amount of the payments over the term, as liquidated damages. If the term is completed, the deck is still available as a public parking facility and the City will have received all of the money back that it cost to build the deck and the net operating 395 395.1 395.2 395.3 395.4 395.5 395.6 395.7 395.8 395.9 1 39'; expenses over the term. The City would have that money to invest in whatever manner it felt appropriate, and year by year be in a better financial posi- 396.1 tion, to the tune of $2.2 million at the end of the 22 -year period. Mayor Noland asked about the determination of rates in the parking deck 396.2 over time, and Attorney Cox stated that they would be determined by supply and demand. Mr. Cox added that the projection for rates shows a 50% increase, each 5 years, and he felt that was a fair projection. The Hilton would have to keep rates competitive with other parking if it hoped to recover expenses. 396.3 City Attorney McCord pointed out that paragraph 6 of the Agreement stip- ulates that if the City Board would determine that the facility is not being o perated as efficiently as possible, and to the maximum income possible, then arbitration is to take place, and the arbitrators, experienced in the parking industry, then determine that the facility has not been operated efficiently, then the City would thereby take over the management and would receive all net o perating revenues. The Lease was drafted in an effort to provide incentive to the Lessee/Purchaser to operate the facility as efficiently as possible. 396.4 Director Orton stated that she was inclined to sell the deck, but was concerned that the best financial arrangement had not been made. Director Lancaster made reference to Page 4, Section 8 of the Agreement, 396.5 which states, "In the event Lessee exercises this option to purchase, Lessee shall receive a credit toward the total purchase price in an amount equivalent to the basic rent paid by the Lessee during the term of this lease, but Lessee shall receive no credit for the additional rent paid hereunder." City Attorney McCord stated that the basic rent is $32,841 per year, which is applied to the purchase price. Any net operating revenues, the additional rent, is not applied to the purchase price. The basic rent, therefore, plus the balloon, will equal the City's total investment in the facility, taking into account the time value of money, and that would be $1,495,000. 396.6 Finance Director Linebaugh stated that at the time the City decided to build the parking deck, the Board was informed that there would be an $800,000 loss in ten years, which is reflected in the minutes of Board Meetings and Finance Committee meetings. Director Osborne stated that he was of the o pinion that the parking deck was needed and was in favor of it. He added that the City now has the opportunity to have the parking and not have the loss. Mayor Noland said that he had agreed to build the deck because repre- sentatives of the University of Arkansas said it was needed to make the CEC successful. 396.7 Mayor Noland called for a vote on the motion by Director Sharp to reject the proposal by the Hilton Hotel to purchase the Meadow Parking facility. Upon roll call, the vote resulted in a tie of 3-3-1, with Directors 396.8 Lancaster, Orton, and Sharp voting in the affirmative, and Director Bumpass being absent for this vote. 396.9 Director Osborne, seconded by Mayor Noland, made a motion to reconsider, this matter at the meeting of February 1, 1983. 396.10 Upon roll call, the motion passed by a vote of 6-0-1, with Bumpass being absent for this vote. Director 1 1 1 COMPUTER LAWSUIT MATTER City Attorney McCord stated that he had sent a letter to the Board regarding the computer litigation, in which he suggested that the Board 397.1 might want to give the consultants and Microdata Corporation some addi- tional time to submit any settlement proposals. Mr. McCord asked if that would be acceptable to the Board if if they would wish to remain with their original motion which had instructed the City Attorney to serve all parties by February 1, 1983. Mr. McCord added that if the Board would decide to extend the deadline until March 1, 1983 for all parties that there would certainly be no statute of limitations problem. Mayor Noland stated that if the City Attorney felt it would not 397.2 Jeopardize the statute of limitations he would have no objection. 03 Mr. McCord further stated that there had been some concern regarding CO the statute of limitations regarding the vendors. He added that he is not 397.3 concerned about February 1 being the deadline for filing of a lawsuit against U the consultants. He feels the statute of limitations would not expire until April 4, 1983. He suggested proceeding with the filing of the lawsuit against the vendor but asked the Board to give him a decision regarding Q the granting of additional response time to the consultants and Microdata Corporation. Director Johnson, seconded by Mayor Noland, made a motion to grant the 397.4 extension for response to the consultants and Microdata Corporation until March 1, 1983. Upon roll call, the vote passed by a vote of 6-0-1, with Director 397.5 Bumpass being absent for this vote. 397 1 ADJOURNMENT There being no further business, the meeting adjourned at 10:00 a.m. 397.6