Friday, December 5, 2008

Stubler mistake

The Stubler Pit project is the biggest mistake the City Council made in my first 4 ½ years on the council and is the worst waste of money that I have ever been involved with. The project was the Mayor’s idea, and in my opinion was a bad idea from the start. In my post on the South Industrial Park, I wrote about public –vs- private developments. Stubler would have been a great private development project. As a public development, it is a disaster.

The project was set up as the choice between four different public development scenarios. Really, the choice was between two different projects. One that had an initial cost of $459,000, and one with an initial cost of $192,000.

Project #1 had an initial cost of $459,000 and was 19 lots on the north and east side of Stubler. The project included water, sewer, electric and roads. This is the project that the city council voted for. Now that the project is done, we can add the additional costs and subtract all of the grant money that we have received. The total cost of the project came to $595,193. Discounting the grants that Buhl received for this project ($250,000), the project cost Buhl taxpayers $345,193 up front. That is out of the Buhl’s taxpayers pockets.

Project #2 had an initial cost of $192,000 and was 15 lots on the north side of Stubler. This project would have included water, sewer, electric and roads. If we would have selected this project, we would now have 15 lots ready for development. The total cost of the project would have been @$290,000. Discounting the grants that Buhl received for this project ($250,000), the project would have cost Buhl taxpayers $40,000 up front.

Simple math. We built 4 extra lots (nice lots fairly near the water) for an additional $305,000. That was your money. If the houses stand for 100 years, we will not recoup the tax dollars spent on those 4 extra lots. That is IF we can sell the lots. Let’s talk about that.

Using public money for new development is a risk, one I am usually not ready to take. The risk in this project was (and is), can we sell the lots? We have so far sold 1 of the 19. There are good real estate markets, and there are bad ones. Then there is the real estate market we are in now, which is the worst in 70 years. That was part of the risk, and we lost on that one.

The argument I get for doing the 19 lots is “when we sell all the lots, the project will be paid for”. The estimate is we will make a “profit” of $93,000 when we sell the 19 lots. Using the same cost basis, I estimate that we would have made a profit of $185,000 if we would have only built 15 lots.

When will we sell those lots? Will we get enough from them to offset the project? What about the projects we can’t do now because we spent $345,193 on Stubler when we really needed to do infrastructure projects in the older parts of Buhl? Now we don’t have the money to do those projects. The answer from the council members that supported Stubler is “lets bond for infrastructure”.

UGHHHH! The Stubler Pit Project is a near calamity for Buhl. Buhl doesn’t have a big tax base, and we don’t have a big budget. We must do small projects that we can afford, not take huge bites and gorge ourselves on projects that we will be paying on for years to come.

The State of Minnesota now says that there is a $5.2 billion budget deficit for the next two years. I think that they will cut our local government aid because of the deficit, and I think the cut could be up to $100,000. If we need another $100,000 from Buhl taxpayers in 2010, how will we get it? Maybe we will have to cut at least one fulltime employee. Or maybe we just close the library. There will some kinds of major cuts if our local government aid gets a big cut. And forget about any new infrastructure projects.

What if we still had that $345,193 in the bank? At 3.5% interest, that’s $12,000 a year in interest we have lost.

I hate the stock market right now because I have lost some money in it. But putting money in the stock market was my risk to take. The Stubler Pit project was a risk the City Council took with your money. We should not have done it, and now you will pay the cost out of your pocket.

$595,193 for 19 lots, $290,000 for 15 lots. A profit of $93,000 for 19 lots, or $185,000 for 15 lots. $345,193 up front for 19 lots, or $40,000 up front for 15 lots.

This post has a lot of information, and a lot of dollar values for you to swallow. It took me a while to put it together, so read it a couple of times, and please let me know what you think.


Thursday, December 4, 2008

If the December 2 meeting seemed long to you watching on local cable, you should have been there. We had only one real long discussion, and one other short contentious issue. During these council meeting posts, I’ll try to review the whole meeting.

John Markas began the meeting speaking for Public Works. He mentioned that there will be a sewer rate increase proposal, but it was not ready for this meeting (John spoke again at the end of the meeting).

There was another discussion on the ambulance joint powers/mutual aid agreement with Kinney. Concerned Taxpayer commented on this in my Nov 18 meeting post. It was decided that the Buhl Clerk would set up a meeting with the Buhl lawyer, Kinney lawyer and the other concerned parties (hopefully the ambulance crew), and this issue will get hammered out. The major sticking points are hazy to me, but seem to be all about insurance and possible litigation if there is an accident or incident involving the ambulance crew. This will get finalized.

The Recreation Board decided on the holiday lighting contest, which will be held one night during the week of December 15. The council also okayed the skating crew for the winter, along with their wages. This year there will be a supervisor for the skating crew, other than just a member of the Recreation Board. There was a discussion on who the supervisor would be, with Councilor Swanson voting nay on the hiring of the supervisor.

The first order of business was a longggg discussion on a change to the Buhl code of ordinances. The new ordinance requires all utility billings to be in the name of the property owner. The previous ordinance allowed renters to have the utilities in their names. Two Buhl property owners spoke (one a current landlord, one a past landlord), and both spoke out against the new ordinance. Their main point of contention was that they should not be responsible for a bill that renters create. They argued that the renters used Buhl services, and therefore should be billed for those services. Initially it sounds like a valid point. However, there have been numerous times that renters run up a utility bill, and then leave town without paying that bill. At this time, past renters owe the City of Buhl over $3800.

This is where it gets tough. The State of Minnesota has a law forbidding cities from collecting past due electrical payments from landlords. That means we cannot collect on past due bills, and have to eat the loss. If the State did not tie our hands, then we would not have had to pass a new ordinance. We would just collect from landlords. Instead, we will now treat all property owners the same, and utility bills will be in the property owner’s name.

This will take the burden of collecting delinquent utility bills off of Buhl, and put in on the landlords where I think it belongs. Really, Buhl should not be at risk of loosing money simply because someone rents a home or apartment. The risk should be with the business, not the City. The landlord owns the business, and should own the risk.

Councilor Swanson and Mayor Pulford voted against the new ordinance. Both thought that we could have tried a less extreme step, like increasing deposits for utilities. That is a reasonable step, but would still leave open the possibility that a renter could leave town and leave an unpaid bill for Buhl taxpayers. I believe that we chose the correct solution. What do you think?
Next we adopted a budget for fiscal 2009 of $850,803, an increase of $3000 from last year (about 1/2 %)

Then we set the levy for fiscal 2009 at $256,000. This is an increase of about 4.5%. Since the total value of properties in Buhl increased by about 8%, the Buhl portion of property taxes should remain very stable. However, Buhl does not control the County levy, or the School District portion. We also cannot do anything about a homeowners property value, which the County controls. We can only set the City levy, and it will be very near the same in 2009 as it was in 2008.

We approved a grant that the fire department received from the DNR for $1500. This grant will be used for new radios.

We received the latest financial report for the Stubler Pit project. My next post will go into this in detail.

We transferred 2008 leftover money to Capital funds. This is a normal end of year transfer that takes any money that wasn’t spent in the previous year and puts it towards future capital expenditures. For instance, if the City needs a new dump truck, we would get part (or all) of that money from the capital funds that we set aside.

We paid a change order on the Stubler Pit project of $43.05.

We paid Hammerlund Construction $3680.30 for work completed on the Stubler Pit project.

We paid Jola and Sopp $3952 for work completed on East Monroe Drive.

We approved costs for new City Council members to go to a leadership conference in Nisswa. This conference is put on by the League of Minnesota Cities, and is only for newly elected officials.

We approved a one month note for the Northland Village. This is basically an extension of the previous note to the American Bank of the North that we had already made. The construction is about a month behind, so the Bank required an extension of the interest only note. This is at no cost to Buhl, and Northland Village will open in January instead of December.

Then John Markas talked about getting phone lines to our lift stations in Buhl, so that if a lift station failed there would be an automatic callout of the City Crew to fix it. He also said that we needed some power line upgrades, and MPL would be giving us an estimate soon.

Finally, John told us about the power lines at Stubler that the City recently purchased. I voted no on the purchase of these lines (a couple of meetings ago), because they cost the City $11,000. In my opinion, we paid to own power lines that we didn’t want or need. John came this time to explain that the lines were installed by MPL at a cost of $35,000, but MPL was willing to waive that cost if we purchased the lines for $11,000. Easy figuring there. If I had understood that at the previous meeting, I would have voted to buy the lines.

That was a lot of typing for me. I hope you could follow it. Let me know what you think.