Park Board pursues new headquarters over Council snub

Council's refusal to OK borrowing could add several hundred thousand dollars to cost

The Minneapolis Park and Recreation Board is going ahead with the purchase of its new headquarters building in spite of the City Council's apparent refusal to borrow $4.5 million for the project, said Park Board President Bob Fine.

The City Council did not act on the Park Board's request, and it now appears dead at that level. The Park Board may vote to take out its own loan at a higher interest rate. According to City Finance Officer Patrick Born, added costs could be between $300,000 and $500,000 over the 20-to-30-year life of a loan.

The Park Board estimates the total project will cost $5.7 million.

Both City Council and Park Board leaders say they are doing the fiscally prudent thing.

The Park Board argues it makes sense to own rather than rent, which it currently does in downtown's Grain Exchange building, 400 S. 4th St.

A Park Board financial analysis shows that if it borrows for the new headquarters at 5 percent interest, mortgage payments would equal rent payments until 2018, then owning would produce savings.

The city's budget-watchers counter that the Park Board is inflating long-term savings by overestimating future rent payments. They add that spending $5.7 million during budget-cutting is imprudent.

Budget battle

It is the latest example of money battles between the City Council and Park Board. The Park Board is elected independently, but needs Council approval to issue bonds to pay for the project.

The Park Board has a purchase agreement on 2117 W. River Road North, the former Moore Business Forms Inc. building. The board should close no later than Aug. 19, barring unforeseen environmental problems, Fine said. The Park Board is already reviewing architects' proposals.

Councilmembers "are trying to take away the right of the Park Board to make its own decisions about whether this makes sense," Fine said.

Councilmember Lisa Goodman (7th Ward) is an outspoken critic of the Park Board purchase.

"The bee in my bonnet is caused by the constant stinging of the Park Board's inability to maintain what they have while continuing to buy more, at a time when everyone -- the school board, the state and the city -- are facing significant cutbacks. I'm sick of the sting.

"Every other level of government is showing financial restraint because of the fiscal situation we now find ourselves in," she said.

Disputed numbers

The core question in the debate is whether the Park Board's plans save money or not.

The project's $5.7-million cost includes $3.2 million for the vacant 75,000-square-foot building and contingencies and $2.5 million in renovation and moving costs. It has some money available, but will need a $4.5-million loan.

The board's rental lease runs out on April 30, 2003. The Park Board currently pays $349,000 annually for rent and parking at the Grain Exchange. The Park Board presented figures to the City Council projecting that the current landlord will seek a steep rent increase if the lease is renewed, to about $413,500 a year.

The Park Board said it would structure a 30-year mortgage to break even compared to renting through 2018, when savings would start accumulating. It estimates $79,000 in savings in 2019, escalating to $672,000 in 2033.

Born disputed the Park Board's analysis, advising a City Council committee on July 25 to not vote for the acquisition based on cost savings.

Given the current soft real estate market, he said, rent and parking for downtown offices could be secured for much less than $413,500 next year. He added the Park Board's cost-saving analysis does not factor in long-term building maintenance, including such major items as roof replacements.

Born's analysis, however, does not take into account possible Park Board revenue. The Park Board needs only 50,000 square feet in the new building, Fine said, leaving 25,000 square feet to rent.

At a conservative estimate of $4 per square foot, he said, the Park Board could earn $100,000 a year.

In-fighting's cost

The city's refusal to OK borrowing means the Park Board must get private funding from a bank. The cost difference to the Park Board -- and taxpayers -- could be an additional half a percentage point in interest, Born said.

Born's analysis shows that the added half-point forced by the city could cost taxpayers $300,000 more over the life of a 20-year loan, or $510,000 more during a 30-year loan.

If, as Born suggests, the Park Board gets the 20-year loan, it would have higher monthly mortgage payments so in the near-term, it would pay more to own than rent.

No vote is a 'no' vote

The City Council did not vote on the Park Board's bonding request during its July 26 meeting. Councilmember Barbara Johnson (4th Ward) withdrew the measure, effectively killing it.

Nine council votes are required to pass a general-obligation bond measure. Councilmembers polled said backers lacked the nine votes and therefore pulled the item from consideration.

"It isn't quite clear to me why all these people are beating up on the Park Board," said City Councilmember Dean Zimmermann (6th Ward), an eight-year Park Board member now serving his first year on the Council. "I sure don't understand it."

An out still exists

The Park Board could cancel the purchase by citing environmental problems, Fine said. "There are environmental reasons for anything in that area," he said. "If we want to get out, there is a way."

But he said the Park Board doesn't want to walk away from the new headquarters. Preliminary reports show some contamination, but "nothing serious."

Meanwhile, Councilmember Johnson said that she plans to bring the matter back to the council in modified form.

She could bring forward a "revenue-backed bond" that would mirror private financing by drawing payments directly from funds currently paid to the Grain Exchange as lease payments, she said.

"The taxpayers are going to pay for it," Johnson said. "Why not have it be the cheapest way possible, rather than pay [a bank] a commission?"