"One-Time Dollars"

Fielders Stadium in 2012

The August 20th, 2013 City Council meeting centered on a lengthy discussion around the necessity of raising water, sewer, and waste collection rates to cover the projected costs of those services this fiscal year.  Under ordinary circumstances, a minor rate increase would probably pass unnoticed by most people, until they looked at their quarterly bill from the City.

In this case, the reasons for the increase merit special notice, because they are the unintended consequences of decisions made over a period of years.

The first decision, which to my mind is stunning in it's short-sightedness is that the City had not changed the water rate for almost ten years.  Apparently, the city got into the habit of relying on the surplus in the Water Enterprise Fund to cover the difference.

That surplus was created in part by the connection fees collected from new construction and service connections to the Midwest Regional Medical Center. Dave Knable, the city Finance Director described these as "one-time dollars", a windfall that will probably never occur again. According to published reports this surplus amounted to at least $2,300,000 dollars or more.

Now, the fund is so depleted that it is necessary to raise the rates to keep it from going into deficit. 

Where did that money go?

The First Loan

In 2009, the City discovered that they were facing a critical deficit.  At the March 17, meeting the Council approved a loan from the Water Fund in the amount of $3,200,000 to the General Fund to help with the debt. The plan was that the city would eventually repay that borrowed money back to the Water Fund.

At this recent council meeting Mayor Harrison gave a spirited defense of this action, that by doing so, jobs and services were maintained without resorting to raising taxes. It is a legitimate argument, after all a crisis was averted, and the taxpayers were spared the pain of cut services, or higher property taxes.  Where else did that money go? To answer that, we need to provide some background.

The Baseball Stadium

Just a month before the $3 million dollar loan was taken from the Water Fund, the Mayor announced that in 2010, a new minor league baseball team would be coming to Zion, along with a stadium that would include year-round retail and banquet facilities.  Press reports emphasized that local taxpayers would not bear any of the costs. The team owners, investors, and a development grant from the State would pay for the project. Even until March of 2011, an announcement was still posted on the city website about the imminent start of construction on the stadium that stated; “The team owners and developers are accepting the responsibility for the full cost of the project, including the parking and land lease commitments.”

It didn't quite turn out that way. 

After the announcement, those of us who were excited about the possibility of having a minor league team just down the road, watched as groundwork was started at the announced location at the corner of 9th and Green Bay Road. Then, everything suddenly came to a halt, why?

The answer can be found in the minutes of a special City Council Meeting, held on April 9, 2010. Here is the relevant text:

ECONOMIC DEVELOPMENT/BASEBALL STADIUM

 

Delaine Rogers stated without State assistance the 9th Street and Green Bay Road site for the Lake County Fielders baseball stadium will not be possible, therefore, developers and staff have been reviewing alternate sites for the baseball stadium. Ms. Rogers introduced Jason Rosenburg, Panattoni, Rick DeLisle, Lee and Associates, Rick Ehrenreich, President of Grand Slam Sports and Entertainment, and Warner Briske and Andrea Ceclia, Partners in Design with the following proposal:

• Locating the baseball stadium on the northeast corner of Route 173 and Green Bay Road, directly northeast of CVS Pharmacy
• Over $1 million in improvements are at this site, including zoning, permitting infrastructure, etc
• The site plan would include retail stores along Route 173, as well as a retail corridor and possible theater on Green Bay Road
• A press release is being prepared by the developers

Rich Ehrenreich stated the aggressive plan includes groundwork starting next week involving a private landowners partnership. Mr. Ehrenreich stated, because of the added retail attraction, private investors are interested. The construction plan would include bleacher seating this year with the building by next season. Ms. Rogers stated the Illinois Department of Commerce and Community Affairs did provide some funding, which can be used at this site.
 
Ron Colangelo stated he has a meeting with Lake County Stormwater Management next week for permitting and discussing the multi-phase construction. Ms. Rogers stated the plan includes a 25-year lease with a property agreement. The City would lease the property from the partnership, in order to control the project and allow it to remain tax-exempt from real estate taxes until such time as retail is added. This plan would allow the project to start as soon as possible. Mr. Ehrenreich stated it is a 6 – 8 week process to build the field. Rick DeLisle stated he is meeting with Veolia regarding a plan to help provide the material for the berming.

Commissioner Jim Taylor questioned the impact on the residents to the north of this property. Mr. Ehrenreich stated he would be meeting with the homeowners association, noting plans have already been discussed to make sure the area is kept clean and noise doesn’t become a factor.

Commissioner Flammini questioned when they would actually move dirt. Warner Briske stated activity would start next week.

Commissioner DeTienne questioned what would happen with season ticket holders. Mr. Ehrenreich stated
there would be various options depending on exactly what date the field opens. The best case is that the field can still open on June 11, with July 15 as the last anticipated opening date. Possible options for season ticket holders include
1) keeping the season ticket and giving free general admission for 2010, or 2) offering a complete refund with the ticket holder releasing the seat, or 3) something in between these two options.

 Mr. Ehrenreich stated if the June 11 opening can’t be met, an alternative site for one month could be the Schaumburg stadium, noting Simmons Field in Kenosha would take several thousand dollars to bring it up to a semi-pro level for the safety of the ballplayers.

Mr. DeLisle stated the 25-year lease between the City and Grand Slam Sports has a termination clause and property agreement, and will be forwarded to the attorneys for review. Mr. Colangelo stated site work done on the original site at 9th Street and Green Bay Road can still be utilized for future commercial use.

There was Council consensus to support the concept of the Lake County Fielders baseball stadium’s location at Route 173 and Green Bay Road, with agreement to place this issue on the April 20 Council meeting.

At the meeting on April 20, 2010 the city approved the plan to move the project to the new site, and over the next couple of months, the council passed various measures and agreements needed to complete the construction of temporary facilities in time for the 2010 season.  The Fielders ended up playing their opening "home" game at Carthage College in Kenosha, but eventually, the temporary field was ready, and the team played the rest of their inaugural season there. 

Despite the loss of promised State funds, the City moved ahead with the project, with the assurance that investments and grants would be enough to bring it to completion.  The benefit of hindsight argues that it might have been more prudent to shelve the project until solid funding had been obtained, or invoke the termination clause, and let everyone walk away, accepting the losses and moving on.  But, confidence still held sway in early 2011, resulting in an escalation of commitment that leads us back again to the Water Fund.

The Second Loan

At the City Council meeting of February 15, 2011, Director of Finance Pannell made a recommendation to the Council to transfer $1,764,000 dollars from the Water Fund to the General Fund in the form of a 10 year loan.  The stated purpose was to pay Panattoni Construction for work completed on the baseball stadium in 2010, in order to proceed with Phase 2 of the project. The Council approved the loan unanimously. From the meeting minutes:

BORROWING FUNDS FROM WATER FUND 

A memo (11-DOC-15) was received from Larry Pannell, requesting to borrow funds from the Water Fund. Mayor Harrison stated the City unsuccessfully attempted to secure promised funds from the State of Illinois. Initially the State did give the City $1,000,000 for the ballpark project on the northeast corner of Route 173 and Green Bay Road, stating the balance would follow soon.  

In November 2010, a certain state politician was not re-elected, after which the City received a letter stating the grant was now denied. Promised funds did not materialize, therefore the City is now in the position of facing debts owed to the general contractor. Mayor Harrison stated the contractors operated in good faith, based on promised funds from the State. The City feels it is the right thing to pay these vendors by borrowing funds from the water fund. Mayor Harrison noted support remains for the ballpark, but it cannot start on another phase leaving the vendors without payment for past work. 

Mr. Pannell stated Panattoni Construction is owed a total of approximately $1,764,000, and payment will allow the project to move forward to Phase 2 unencumbered. The total amount would be repaid over the next 10 years with interest and payments included in the fiscal year 2012 budget.  

It was moved by Commissioner Jim Taylor, seconded by Commissioner Shantal Taylor to approve borrowing $1,764,000 from the Water Fund for payment to Panattoni Construction. The vote on roll call was: Commissioners Jim Taylor, aye; Flammini, aye; DeTienne, aye; Shantal Taylor, aye; and Mayor Harrison, aye. Motion carried.

That brings the total borrowed from the Water Fund to $4.9 million.

It is important to note that there were three subsequent requests for authorization to pay vendors for work done on the stadium in 2010 totaling about $823,064. But it is not stated in the meeting minutes that the funding source was from the Water Fund. So we will set those aside, along with another $78,050.07 from the Water Operating Budget for utility relocations for the ball field in March of 2011. But, if all these expenditures were considered along with the $1.7 million loan to pay Panattoni, the total city funds expended on the stadium would be in the area of $2,665,114.07 by July of 2011.

Of course the expectation was that revenue from Grand Slam Sports (the Lake County Fielders organization) would offset these expenditures, and the money would eventually be repaid to the Water Fund.  Apparently, Grand Slam was already in financial difficulty before the start of the 2011 season, and by July the team imploded, with managers and players walking out en masse over non-payment. A shell of the team limped through the rest of the summer, not even affiliated with a league at the end.

At the City Council meeting of September 6, 2011, authorization was given to the legal counsel for the city to begin proceedings to file a suit against Grand Slam Sports for non-payment of rent, and breach of contract. Grand Slam also filed its own suit against the City, and both cases are still in the courts today. 

The Loans Forgiven

On March 6, 2012 the City Attorney put a recommendation before the Mayor and Council, that converting the loans from the Water Fund of $3,200,000 and $1,764,000 to permanent transfers would be in the best interest of the city:

RESOLUTION/MODIFYING WATER FUND TRANSERS 

Attorney Randall stated that in 2009, the City of Zion enacted a resolution to transfer funds in the amount of $3,200,000 from the Water Fund to the General Fund with specific repayment terms, and then a subsequent transfer was made in the amount of $1,764,000. It is now in the best interest of the City that these transfers be deemed permanent transfers with no repayment obligation.  

Commissioner Shantal Taylor asked the City Council to consider the sensitivity of the City’s financial outlook with reference to the Water Fund being a resource to rely on in cases of emergency. She stated that the City should be proactive and stick to the original plan to repay the Water Fund and that the upcoming budget talks should include repayment of the Water Fund. She stated these funds may be needed for repairs to the aging system.  

Mayor Harrison stated that the need to use these funds was well known. He stated that some of the funds have been repaid and the fund has recouped nicely. He stated that the City will be looking at severe budget cuts in the upcoming year and the City has no means to repay this fund. It was moved by Commissioner DeTienne, seconded by Commissioner Flammini that a Resolution (12-R-6) be passed modifying transfers from the Water Fund to the General Fund, in the amounts of $3,200,000 and $1,764,000, by deleting any and all repayment obligations. The vote on roll call was: Commissioners Shantal Taylor, nay; Flammini, aye; DeTienne, aye; Mayor Harrison, aye. Motion carried. Resolution passed.

The Final Accounting

With the $4.9 million forgiven, and an additional outstanding loan of $1.3 million, the total taken from the Water Fund comes to $6.2 million.  Much of that $4.9 million consisting of those "one-time dollars", that won't likely be seen again.  Whether those dollars were spent wisely or not, I'll leave it to you the reader, to judge.

Epilogue: The Rate Increase

In the time since I started writing this post, another City Council meeting was held on September 3, 2013.  At that meeting, the rate increases proposed by Director Knable for water, sewer and waste removal were approved.  In my opinion this was the correct and responsible course to take. If we want services, we should expect to pay for them. 

It's unfortunate that the circumstances require a larger increase now than if they had been adjusted incrementally all along as they should have been.  Equally unfortunate is that all of those "one-time dollars" have been expended as I outlined above instead of being used to improve an infrastructure that truly needs it. An opportunity lost. Let's hope that a lesson has been learned and the city does better in the future.