Alerus Center getting reimbursement of management fee

Update 1:11 a.m. Oct. 29, 2009: The City Beat has to apologize for misleading some readers about how the numbers work. I did say I wasn't sure about certain things. The biggest of those uncertainties is where the $97,000 loss from the Britney Spears concert went.

Just to simplify everything, here's a table I threw together using data that I have now.

Some of the data is pretty much SWAG because it's just not complete, namely the amount of sales tax paid to the city by the Alerus Center. That number hasn't really been tabulated -- you'll have to read the notes below to see why -- and there's no projection of what it will be like by year's end. But for lack of a real number I'm just gonna throw it in there.

The same is true of the economic impact. This number is derived from the data at the end of September so it should grow as more events come in.

Other data are projections I got from the Alerus Center.

Finally, I should note that I've not included property taxes or sales taxes paid by hotels, bars, restaurants or whatever that wouldn't be there if the Alerus Center wasn't there. Canad Inns, for example, paid $301,000 in property taxes in 2007 when the building was assessed at just $13 million. Its real value is somewhere north of $45 million so when the tax credits wear off, it'll be paying a lot.(Not sure what's up with the tax credits, but the property is worth less in 2008 than in 2007.)

* The $225,000 loss includes $125,000 that was used for the Britney Spears concert. So the $97,000 loss is already accounted for.

** This is sales tax that the events center may have paid to the city. For the purposes of this report, I'll assume that it was paid because it's easier that way.

It works like this: In the year to date (YTD), the Alerus Center has collected $338,995.46 in "Grand Forks taxes." One commissioner thought it was all taxes paid by the events center to the city, which is a number that's a lot easier to verify than the economic impact. But Alerus Center Executive Director Steve Hyman said that, even though the lion's share of that figure is from the Alerus Center, he couldn't verify how much. The other stuff is from other businesses, which I now realize might mean outside vendors at the Alerus Center.

In any case, this figure is just YTD, so I don't think I'd be exaggerating if I just used all of it and pretend it's the year-end figure. Now, the reason the amount above isn't $338,995.46 is because I'm assuming that's what the city got for the 1 3/4-percent sales tax. The 3/4 percent goes toward paying the Alerus Center debt, so I didn't count it, leaving $145,284.

*** The YTD hospitality tax is $281.250. It's projected to grow to $375,000. Steve said the exchange rate is very favorable to Canadians and we're coming up on the holiday shopping season....

**** Debt payment data that I got a year or so ago says the city is paying $5.8 million this year, but next year the payment drops to $5.2 million and stay at that level for a while.

***** This is the YTD economic impact minus the sales taxes paid. You can question this number if you'd like, but I'm reporting it anyway because it's out there. Notice I'm using YTD and not year-end numbers. I don't have a projection to work with right now.

Basically, what you're looking at is a really, really, really rough cost-benefit analysis.

Without the economic impact, the data shows that we're taking a lot of money out of the economy simply because of that massive debt payment. With the economic impact, we're ahead several million dollars.

Two caveats:

•  I don't have a break down of how much of the economic impact is supposed to be just growth in the economy and how much is in actual sales taxes. This is important because the more sales tax the facility generates, the more the city gets for economic impact, streets and sewers -- which keep those special assessments down -- and property tax relief. Obviously, if we have to put more sales taxes into the building, the reverse is true. So finding out how much in sales taxes were generated in the economic impact is important.
• As I noted above, I'm not including property taxes paid by Canad and other hotels on the 42nd Street corridor. It's fair to say that if the trends continue as they have, we can expect more such businesses on this corridor. If those businesses don't take away from existing businesses -- I don't know that they have; hotel owners aren't complaining -- meaning they succeed in attracting more visitors to town, then we should expect more property taxes and sales taxes generated. This would expand the tax base among businesses, easing the pressure on homeowners. A lot of ifs, but the Canad alone would expand the tax base by quite a bit and we already have it.

Sorry, I don't have anything conclusive, just lots of numbers to play with and think about.

Finally, a word about why the $225,000 loss in the concert and contingency fund isn't being reimbursed by the management fee. I thought that the latest contract says it has to be included, but re-reading an old story seems to suggest that was never supposed to happen.

The management fee is based on revenues and expenses in the operational budget, but does not count the concert fund as an expense. So if the Alerus Center broke even on the operational budget and lost all $250,000 in the concert fund, theoretically, the management firm would still collect the full management fee. This is sort of what happened in 2008 when the Alerus Center made a profit on the operational side and lost money in the concert fund.

This seems not quite right so I'll have to look into it some more.

By the way, if you think this is too convoluted, I'm sorry, but welcome to the world of municipal finance. It's like this all over, and even if you recognize practical reasons for it -- different sources of revenues and different kinds of departments have different funds -- you'll still get headache trying to explain it.

The City Beat is in the middle of the Alerus Center commission meeting right now so I don't have time to throw too much data together. But here's the breaking news:

• The city-owned events center expects to lose $120,000 at the end of the year, not including the $97,000 loss after the Britney Spears concert. I'm not sure why that's excluded yet, so don't ask.
• VenuWorks, which runs the Alerus Center, will have to pay back whatever amount it's collected in management fees up to the full amount. Basically, if it collected $120,000 -- which it hasn't -- then it pays back $120,000. If it collected $100,000, it pays back $100,000.
• As of the end of September, the building has lost $508,000 compared to the $173,000 loss up to this point last year. Also, as of the end of September, attendance is at 144,000 compared to 183,000 last year.
• None of this seems to include the $225,000 the Alerus Center has received from the city's $250,000 concert and contingency fund. There were two withdrawals in June and July, so that probably doesn't have a lot to do with Britney Spears. The losses in the concert and contingency fund, since the contract amendment earlier this year, should be included in the total losses. I say "seems" because I'm not entirely sure yet. Again, I'm looking into it.
• To be fair to the Alerus Center, I should note that it says it has had a $10.1 million economic impact on the community. That includes $339,000 it paid in sales taxes to the city, $145,000 of which would've gone to the city for whatever use it wants, such as mitigating property taxes. The rest helps pay off the debt on the events center.
• Also to be fair, I should mention that none of the losses in years past or this year come out of property taxes. They come out of the economic development portion of the sales tax.

Posted by: Tu-Uyen on 10/28/2009 at 8:17 AM | Comments (39) | Permalink

Tags: alerus center, budget and taxes, gf and egf, gf city hall