City Council Agenda Packet 01-19-1999 Special
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AGENDA
SPECIAL MEETING - MONTICELLO CITY COUNCIL
Tuesday, January 19, 1999 - 6 p.m.
Mayor: Roger Belsaas
Council Members: Clint Ilerbst, Brian Stumpf, Roger Carlson, Bruee Thielen
1. Call to order.
2. Consideration of motion to hold community center project for possible referendum--
clarification of Council action on January 11, 1999.
3. Adjournment.
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Special Council Agenda - 1/19/99
2.
Consideration of motion to hold community center project for possible refcrendum-
-clarification of Council action on .January 11. 1999. (J.O/K.D.)
A. REFERENCE AND BACKGROUND:
At the regular Council meeting held January 11, 1999, regarding the community center
project, a motion was made and carried to reconsider a previous motion to issue a stop
work order on the community center project and place it as a referendum question at a
special election. During subsequent discussion, it was clarified that at this time it would
be best to put a "hold" on the project as allowed by contract until additional research is
completed regarding the cost of the project to date. In addition, it was indicated that
language for the referendum question should include the cost of the project if it moves
ahead and the cost of the project ifit is stopped at this point in time. However, it was
later discovered that a second vote on the motion that was being reconsidered had not
been taken, which must be formally on the record prior to a letter being issued to the
contractor to put a hold on the project.
The action noted above was not part of the regular agenda and, therefore, specific
information relating to the impact of such action was not available for Council review at
the time the action was contemplated. Subsequent to the Council meeting, City stan:
Mayor Belsaas, and Councilmember Bruce Thielen have been involved in collecting
additional information on the potential effect of holding for referendum or stopping the
project. As a result, Belsaas and Thielen have provided input in preparing a second
alternative to stopping the entire project for a referendum. Following is a summary of the
information- gathering process and a brief outline of some of the important facts
obtained.
As part of the information gathering process, two meetings were conducted on Thursday,
January 14, 1999. The first meeting included Mayor Belsaas, Councilmember Bruce
Thielen, City staff, and consultants along with Donlar Contractors, Brad Larson
representing Arve Grimsmo, and representatives from the National Guard including
General Gary Leblanc. The purpose of this meeting was to gather information on the
impact of holding or stopping the project. Following arc bullet points taken from the
discussion which are incorporated in the resolution. A more complete review of the
content of the meetings can be found in the attached summary.
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Establishment of a fixed, defineable cost of stopping the project is impossible to
determine until after litigation/arbitration, which could take many months after the
action to stop the project. The earlier estimate of a $4 million dollar loss was low.
The Contractor's attorney has issued a report estimating City liability of $5
million (more or less) to the Contractor alone for stopping the project at City
convenience. The architect has noted that this cost could be $3 million at a
minimum. This cost, along with other claims and investments in the site, will
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Special Council Agenda - 1/19/99
result in an estimated financial loss ranging from $6 million to $8.3 million
according to the City Attorney. The cost to hold the project for 30 days is
estimated at $350,000 to $500,000 ($11,600 - $16,600 per day).
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There is no provision within the law that applies to this case that enables a
referendum except for issuance of General Obligation Bonds. If the City wanted
to issue G.O. Bonds, it would take at least 55 days (from January 19, 1999) after
the hold, which would result in an added cost to the project in the neighborhood
of $900,000.
...
It is possible to obtain public input on major portions of the community center
features such as aquatics, wheel park, and climbing wall, and delaying these items
will not interfere with fulfillment of City contractual obligations with the National
Guard, Arve Grimsmo, or the Contractor. In addition, stopping/then starting these
items will not add appreciably to the cost if approved. According to research
done by Deputy City Clerk Karen Doty, the League of MN Cities indicates that
cities cannot hold a referendum for the purpose of receiving input from the public.
The City may conduct a survey by mail to obtain the opinions ofthe residents;
however, the Council is not bound by the results of the survey, and the survey
language cannot indicate a binding commitment from the City Council. The
manner in which the survey is conducted is at the discretion of the Council.
... Monticello City Hall is sold and all contingencies satisfied which, according to
the City Attorney, could result in a court-ordered eviction or relocation of city hall
or, at a minimum, payment of damages associated with development of a funeral
chapel at an alternative location. The cost difference to provide an alternative site
is estimated at $350,000 to $500,000.
... Stopping the project would result in a breach of contract with the National Guard,
which has relied on the City through the agreement to provide facilities necessary
to maintain readiness. Breach of contract would result in repayment of $1.5
million plus interest and potential for payment of additional damages.
... A strategy for financing repayment of the debt will likely require payment via
City reserves. This, along with the act of breach of contract, will, according to the
City's Bond Consultants, result in downgrading of the City's bond rating, which
would result in payment of higher interest rates.
B. ALTERNATIVE ACTIONS:
1.
Motion to put the community center project on hold pending additional
research of proj ect costs to date, and place the question of continuing the
community center project as a referendum question at a special election.
The referendum question is to include the cost of the project ifit moves
ahead and the cost of the project if stopped at this point in time.
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Special Council Agenda - 1/19/99
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This motion is assuming the intended action of the majority of the Council in
reconsidering the defeated motion at the January II meeting. As noted above,
under this alternative, a referendum is only possible if General Obligation Bonds
are issued, which could only occur within 55 days, which would add in the
neighborhood of $900,000 to the cost of the project. On the ballot there could be
no reference to the potential loss, which would not even be close to quantified
within 55 days and estimated between $5.5 and $8.3 million dollars.
2.
Motion to adopt a resolution supporting establishment of a City Council
subcommittee to prepare a survey to identify citizen support or nonsupport of the
aquatics center, wheel park, climbing wall, and children's play area, and to place
on hold development of these community center features until the results of the
survey are known
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This is a resolution prepared jointly by Mayor Belsaas and Councilmember Bruce
Thielen after the completion of the information meetings. Under this alternative,
the basic facility remains intact, thus allowing the City to abide by contracts and
also provides the community the important opportunity to "vote" on certain
project amenities via a scientific survey. Mayor Belsaas and Councilmember
Thielen will be responsible for developing the instrument with the help of a
professional firm. The cost to complete the survey is to be drawn from project
contingency funds. The design of the survey is to be presented to Council prior to
implementation.
C.
STAFF RECOMMENDATION:
It is the recommendation of Mayor Belsaas, Councilmember Bruce Thielen, and City
staff to move forward through adoption of the resolution under alternative #2 based on
the reasons outlined in the resolution formed jointly by Mayor Belsaas and
Councilmember Bruce Thielen.
D. SUPPORTING DATA:
Copy of letter from Donlar Contractors; Meeting minutes from information meeting held
1/14/99; Copy of resolution for adoption; Copy of spreadsheet showing latest estimate of
proj ect "stop" costs.
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RIGGS AND MOI~GAN
2200 FIRST NATIONAL BANK IlUILDlNG
332 MINNESOTA STREET
MINT PAUL, MINNESOTA 55101
TELEPHONE (651) 223-6600
FACSIMILE (651) 22,)-6450
WRITER'S DIRECT DIAL
(651) 223-6577
WRITER'S E-MAIL
January 13, 1999
bisgre@briggs.com
VIA FAX AND MAIL
Mayor Roger Belsaas
City of Monticello
9 Riverside Circle
Monticello, MN 55362
Mr. Jeffery O'Neill
Deputy City Administrator
City of Monticello
Monticello City Hall
250 E. Broadway
P.O. Box 1147
Monticello, MN 55362-9245
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Rc: City of Monticello Community and Training Center Project ("Project")
Ankeny Kell Architects, P. A. Project No. 97093
DOItlar Construction Company Project No. 322
Dear Mayor Belsaas and Deputy City Administrator O'Neill:
Our firm represents Donlar Construction Company ("Donlar") with regard to the
Project. Donlar was informed on January 12, 1999 that the Monticello City Council, at its
January 11, 1999 meeting, indicated a desire to consider stopping the Project either for a
specific period of time' or altogether. It is Donlar's understanding that the City of
Monticello ("City") intends to consider this issue at a City Council meeting on the evening
of January 19, 1999 since no action was taken on the issue on January 11, 1999.
DoniaI' and the City entered into a November 9, 1998 contract ("Contract") for the
constmction of the Project. Prior to the Contract being executed, the City issued a
November 4, 1998 notice to DoniaI' to proceed. The Contract amount is $ 8,204,800.00.
Based on the November 4, 1998 notice to proceed and the Contract, DoniaI' entered
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1014244.1
MINNEAPOLIS OFFICE. IDSCENIHI.. WW\V.BRIGG),CO~1
MEMIlER "" LEX MUNDI, A GLOIL\L i\SS()Clr\l'IUN Uf INDEPENDENT LAW fln\,
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BRIGGS A"'D MORGAN
Mayor Roger Belsaas
Jeffery O'Neill
January 13, 1999
Page 2
into subcontracts or issued purchase orders for the Project. The subcontractors, suppliers
and other vendors presently under contract for the Project total $ 6,920,879.00.
There is no basis for the City to suspend or terminate the Contract for default and the
City is not, to our knowledge, advocating this position. Therefore, the only basis for
suspension or termination of the Contract is for convenience. Donlar recognizes that the
City has the right to suspend or terminate the Contract for convenience. The cost for a thirty
day suspension could be in the range of $350,000 - $500,000 or more based on loss of
production, increased labor costs and an additional winter construction season. The cost
of exercising the right of termination of the Contract at this time is exponentially larger.
Article 8 of the Contract identifies the Contract Documents which includes (at 8.1.2)
the 1997 edition ofthe AlA A20 I General Conditions ("General Conditions"). Termination
for Convenience is set forth at 14.4 of the General Conditions and states as follows:
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TERMINATION BY THE OWNER FOR CONVENIENCE
14.4.1 The Owner may, at any time, terminate the Contract' for the Owner's
convenience and without cause.
14.4.2 Upon receipt of written notice from the Owner of such termination for
the Owner's convenience, the Contractor shall:
.1 cease operations as directed by the Owner in the notice;
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take actions necessary, or that the Owner may direct, for the protection
preservation of the Work: and
and
orders.
.3 except for Work directed to be performed prior to the effective date of
termination stated in the notice, terminate all existing subcontracts and
purchase orders and enter into no further subcontracts and purchase
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BRIGGS AND MORGAN
Mayor Roger Belsaas
Jeffery O'Neill
January 13, 199.9
Page 3
14.4.3 In the case of such termination for the Owner's convenience, the
Contractor shall be entitled to receive payment for Work executed, and costs incurred by
reason of such termination, along with reasonable overhead and profit on the Work
not performed (emphasis added).
Donlar has incurred miscellaneous Project budget items (bonds, insurance, etc.) in
the amount of$ 419,113.00. Donlar is under contract with subcontractors, suppliers and
other vendors in the amount 01'$ 6,920,879.00. There potentially arc very significant costs
involved in the termination of these contractual arrangements. All of these costs (plus
reasonable overhead and profit on work not performed) are recoverable against the City
under 14.4.3 ofthc General Conditions. Predicting the termination costs regarding materials
is somewhat of an inexact science since the status of fabricated items can change daily.
However, the possibility exists that the cost to the City of terminating the Contract for
convenience even at this seemingly early date in Project construction could approach or even
. exceed $ 5,000,000.00.
It is Donlar's understanding that various stakeholders regarding the Project arc
meeting at 1 :30 on January 14. Donlar looks forward to meeting with you to discuss any
issues regarding the Project. We also look forward to participating in the special City
Council meeting on the evening of J anumy 19.
}JS tr:~ lc,u0~-
Gre:fIVa.ttram
GMB:lw lO~ g
cc: Donlar Construction Company (by fax and mail)
Mark Wentzell (by fax and mail)
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COMMUNITY CENTER PROJECT MEETING
January 14, 1999
A meeting was held on Thursday, January 14, 1999 regarding the Community Center Project.
The foIlowing people were present: Mayor Roger Belsaas; Councilmembcr: Bruce Thielen;
City staff members: Jeff O'Neill, Fred Patch, Ollie Koropchak, Karen Doty and Wanda Kraemer;
legal counsel for the City, Tom Olson and Dennis Dalen; Mark Wentzel from Ankeny Kell
Associates; Larry Dotte, Don Kainz and Greg Bistram from Donlar Construction; Gary LeBlanc,
Terrence Palmer, Tom Vesely, John Brossart and Dennis Artnson representing the National
Guard; Bob Murray from the BRA; Pat Campbell, Monticello DAT; Rusty Fifield, Ehlers and
Associates and Bradley Larson representing Arve Grimsmo.
Assistant City Administrator, Jeff O'Neill summarized what had transpired at the City Council
meeting of January 11, 1999 that necessitated calling this meeting on the Community Center
Project. The Council had placed the project on hold until cost data could be collected and a
determination made whether the Community Center Project should be submitted to the voters on
a referendum. The purpose of this meeting was to gather information to determine what has been
invested in the project to date, what future costs the City would expect to incur by putting the
project on hold and establishing what the procedures should be for conducting a referendum.
JefT O'Neill stated that a special meeting of the City Council was set for Tuesday, January 19,
1999 at 6:00 p.m.
Don Kainz, Greg Bistram and Larry Dotte, representatives from Donlar, the general contractor
for the Community Center Project stated that under the contract the City has the right to suspend
or terminate the job. However, determining what the resulting costs would be from suspending
or terminating the project would be difficult to arrive at. Any delay wiIl push the contract into
one more season of winter construction which is very expensive. Since the contract costs cover
only one season of winter construction adding a second season of winter construction would
significantly increase the cost amount. It was their estimate that to suspend the project for 30
days could cost $350,000-$500,000.($1 1,600-$ 16,600/day) If the project was terminated it
could be very expensive for the City because of the Contractor's Bill of Rights. The general
contractor felt that the City could conceivably spend half of the proj ect contract price in the
course of terminating the project. The contractor indicated that the $350,000-$500,000 figure
included the cost of materials that have already been fabricated or manufactured. In addition, a
stop work order may result in a delay of as much as 90-120 days in getting materials back into
production. Extending the job into another year would add extra costs for heat and fuel.
The representatives from Donlar stated that it would be difficult to arrive at an exact cost until
the subcontractors were actually notified of the project suspension or termination. Ifthe
subcontractors moved on to another project it may be some time into their work schedule,
possibly 4-5 months, before they could get back on the Community Center Project. If the project
is extended into another year there may also be wage increases that would have to be dealt with.
The cost of protecting the site during a project suspension would also have to be considered. A
30 day suspension could easily become a delay of 90 days or more and Donlar could not predict
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what the costs of that would be. Don Kainz stated they were dealing with a lot of variables and
that could throw the whole schedule out of whack.
The general contractor was asked if the material being fabricated was unique to the project. They
responded that the items were not items that the manufacturer could stockpile. City attorney
representative, Tom Olson asked how much material has actually been manufactured or
fabricated to this point. The Donlar representatives indicated that they did not know that figure
but stated that the steel frames and bar joists which are being fabricated is a contract cost of
$690,000.00.
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The general contractor stated that if the City terminates the project the cost could run to five
million dollars, more or less. Ifthere are issues that Donlar and the subcontractors are involved
in because of the termination of the project, these costs may likewise be passed onto the City. If
the City cancels the project the City could owe the subcontractor for materials as well as possible
damages because of lost contracts that the firms could not pursue because they thought they had
a job in Monticello. Donlar representatives emphasized the difficulty in coming up with costs
for these items. They informed those present at the meeting that the Letter of Intent, which is a
binding document, had been sent out some time ago to all the subcontractors on the project. The
general contractor repeated that the City can suspend the contract for any length of timc that they
chose but the contractor could not hazard a guess what the costs would be to the City if the
contract was suspended for more than 30 days. They won't know project termination costs until
the City tells them to stop the project. Don Kainz stated that there is the potential for lawsuits on
this and pointed out that if the project is stopped for more than 60 days the contractor has thc
right to terminate the contract. It was indicated that the added costs for suspending the work
may not be totally known until the contract is actually completed.
The National Guard stated that if the project did not materialize thc National Guard would seek
to recover the 1.5 million they had provided the City plus accrued interest. The National Guard
would also hope to recover the cost of additional rent for thc space currently provided at the
schooL There would be other areas of costs such as project development, project design and
relatcd administrative costs at the National Guard end but they didn't havc a dollar figure. Also
the National Guard has workcd the past two years on this project so there would be some
inflation cost for construction if the facility was constructed at a later date whether in the City of
Monticello or elsewhere. Again, the National Guard stated it is difficult to determine a dollar
amount for these costs. 'fhe National Guard pointed out that there were intangible costs as well.
The National Guard felt the City of Monticello was a prime location for the unit. The Army was
providing the unit to the National guard and it was expected that the unit would be ready by a
certain date. Not having the facilities ready at the given date would handicap this in that the
National Guard would not have the unit up to ready status. This, the National Guard felt, was an
example of an intangible cost. When asked if the project was stopped would the National Guard
stay in Monticello, the National Guard responded that they could not answer that. Other
communities have requested the presence ofthe National Guard in their community.
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In response to questions about the cost of the facility needs for the National Guard, they
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responded that the national Guard does not build stand alone facilities but if they did, they felt
the cost would be significantly less because it would be a very austere facility. They estimated a
cost of anywhere from 1.25 million to 3 million for construction. This does not include the land
as the land with utilities is furnished by the community.
Bruce Thielen asked if the National Guard had figures on the economic impact of having a guard
unit in the city. The National Guard responded that this unit would contain 125-153 personnel
which would be in the facility a minimum of one weekend a month. The National Guard did
have information on this but they did not have it with them. They thought a guard unit would
add $125,000 to $150,00 a year to the community. Mark Wentzel noted some additional
intangible benefits that came with the National Guard's presence such as the mentoring, youth
and volunteer programs that the National Guard participates in or sponsors. The National Guard
noted that they didn't anticipate armory construction to pick up and that most additional funding
for the military was geared toward personnel benefits rather than construction projects. On most
armory construction when federal funding is involved there is a 5-7 year cycle from the original
thought to the ribbon cutting. When the land is deeded to the National Guard is when the
community would get in the queue for federal funding. Monticello was the exception. Because
the unit was available, Monticello did not have to proceed through the queue ror funding.
The City then heard from Brad Larson, representing Arve Grimsmo, who summarized Mr.
Grimsmo's dealing with the City. Mr. Grimsmo has an enforceable purchase agreement with the
City for the current city hall facility. Should he have to find a new site and construct a building
he could incur costs of 1.2 million dollars. The cost estimate to upgrade the current city hall
facility to serve as a funeral home was estimated at between $350,000 and $450,000. There is
also in place a purchase agreement for the site that currently houses the PetersonlGrimsmo
Funeral Home. Mr. Grimsmo's options are: 1) If the City proceeds with the facility with no
delays there are no issues; 2) If the City delays in the construction of the facility and this keeps
Mr. Grimsmo from taking possession of the existing city hall site by 1/1 /2000 there would costs
for that delay. This mayor not be major depending on whether or not the holder of the purchase
agreement on the current Grimsmo site suffered damages by not being able to take possession of
the Grimsmo site; 3) If the City terminates the project and looks for a different site for
construction of a city hall, the current facility could still be turned over to Mr. Grimsmo in a
timely fashion. However, if the City retains the current city hall site for their use, there would be
costs incurred by Mr. Grimsmo in finding a new site and constructing a building. Mr. Grimsmo
could also initiate a suit for specific performance which would enforce the terms of the purchase
agreement.
After a brief break, the Mayor, Councilmembers and staff reconvened to review the inrormation
presented. Legal counsel, Torn Olson and Dennis Dalen summarized the legal implications for
the City and statcd that Donlar's position was very defensible. Damage cost will be very clear
costs if there is a termination of the project. Thcy noted that A201 of the General Conditions of
thc contract allows the contractor to claim their overhead, loss of profits and any other costs that
they couldn't avoid incurring. In the attorneys preliminary review of Donlar's agreement with
the subcontractors, the attorneys noted that the general contractor cannot unilaterally cancel the
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subcontractors without incurring some liability and this may be passcd onto the City. Legal
counsel, Tom Olson stated that just because 6.9 million is the signed contract amount does not
mean that the City will be liable to Donlar for that amount. The law provides that the contractor
must make efforts to mitigate its losses but Tom Olson agreed that these costs would be difficult
to quantify.
The attorneys felt the cost could be in the millions but would not speculate on how many million.
Mr. Olson also stated that if the project was terminated the City would have to properly
document the City's notice to the contractor instructing the contractor to take the appropriate
steps to mitigate their losses. The attorneys stated that there are signed agreements with the
National Guard and Mr. Grimsmo. It would be within the court's perogative, if an action for
specific performance was initiated, to deed the property to the funeral home if there are no unmet
contingencies. Roger Belsaas asked whether negotiation rather than litigation would resolve the
issues. Dennis Dalen stated that the City must analyze what they have to negotiate with and
stated that any litigation is costly. The staff questioned whether the City could be liable for any
legal costs incurred by other parties on this project. Legal counsel, Torn Olson responded that
generally that is not the case. The attorneys also noted that the General Conditions incorporated
into the contract is the 1997 version. The version they had received was the 1987 version which
consisted of 24 pages. The 1997 version is 42 pages.
Mark Wentzel noted that the normal procedure is that the contractor would submit claims and
invoices to the architect for review. The architect would review the claim and if approved submit
it to the City for payment. The architect can turn the claims back to the contractor if the architect
has questions with the work done or the value shown for the work. If the owner or contractor
disagrees with the architect's interpretation, the claim would go to arbitration. Mayor Belsaas
asked how much information and expertise the architect had to determine whether a claim
submitted by the contractor was valid or accurate. Mr. Wentzel responded that a consultant
could be hired to review and validate any claims submitted by the contractor. The owner could
also hire a contractor's estimator to render an opinion on the accuracy of a claim.
The discussion of the cost estimate of 4-4.6 million included some recoverable costs. It was felt
that approximately 2.8-3 million is what the contractor could get. There was some discussion on
the material that was already fabricated. Mark Wentzel stated that a consultant could be hired to
give an opinion on what materials were unique to the project. He did feel that to get any
agreement on this, you would have to go line by line through the contract and estimate how
much work was actually done and whether there should be any overhead awarded on that item.
The architect acknowledged that approval of the order of the steel fabrication was done on
12/31/98. The standard at the factory is that approved board drawings are considered a purchase.
Steel is a very customized item and there is little resale value to it.
Dan Greensweig noted there is a provision in the agreement with the National Guard to allow
termination of the agreement if the project is not completed by 2001. The City would then be
obligated to return the 1.5 million. However, when the agreement was drawn up it was not
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envisioned that the City would knowingly terminate the project. It was felt that the National
Guard doesn't care about the amenities of the project so if the water park was taken out it
wouldn't matter to the National Guard and would not be seen as a breach of the agreement. The
delay and if the delay leads to a referendum which they feel would not pass might lead the
National Guard to look around for other options. The funds for the cleanup of the site were
discussed. The attorneys noted that they had not reviewed the conditions of the grant so they
didn't know if the funds were tied to the construction of this specific project or not. JefIO'Neill
was of the opinion that without the specific project construction, the City would not have gotten
the grant funds. Roger Belsaas noted that the comments of the attorneys dealt more with
termination of the project rather than suspension. The attorneys pointed out that the contractor
can terminate the contract after 60 days and is likely to get some damages. Mark Wentzel stated
that the contractor would have higher costs if the project was delayed and the City or its agent
would have to determine if the claim for higher costs was legitimate or not. The costs for
keeping the site heated while the job was suspended and costs of stopping and starting up again
would have to be considered as well. Dan Oreensweig felt that a delay to determine whether
something like the water park should remain would not affect the National Guard's decision but
a delay of the entire project for 50-60 days could cause a problem.
Regarding the potential claim from Arve Grims111o, Dennis Dalen stated that the legal analysis of
Brad Larson was accurate. Mr. Ori111smo could bring legal action whether the project was
delayed or terminated but Mr. Dalen couldn't say whether the cost figures presented by Mr.
Larson were accurate. The question was raised about condemnation action to retain the current
city hall site. The attorney responded that there would be damages that the City would have to
pay even if the courts agreed with condemnation action. The courts could, however, see a
condemnation action by the City as a capricious act and direct the City to find another location.
The City could have damages in the amount of what it would cost Mr. Grimsmo to find another
site and build on it. If there are costs because Mr. Theilman cannot take possession of the
Grimsmo site it is something that the City could end up bearing but that is not a certainty. It
would have to be shown that Mr. Theilman suffered damages in not being able to obtain the site.
Rusty Fifield from Ehlers and Associates spoke regarding the financial impact for the City.
Rusty Fifield stated that it would be useful to see the cost of what has been expended thus far on
the project and what was remaining to be incurred. It is also important to know where the funds
expended to date have been taken from and how those funds would be restored. No debt issue is
authorized that would allow the City to recover the costs for terminating the project. However
bonds can be issued for a judgment. It would also be appropriate for the City to look at how
much of the Community Center property could be utilized for private development, then the City
could determine what land costs would be recoverable. As far as the City's bond rating, Rusty
Fifield indicated that Moody's is watching the situation. If the City delays the project and goes
to a referendum, Moody's would probably delay issuing a bond rating until such time as the
action of the City on the project is known. The City would be downgraded one or two rating
grades. If the project is terminated after it has come so far, it raises questions about the fiscal
management of the City. While the City would not lose its ability to sell bonds, it would be
more costly f(H the City to do so. Rusty Fifield also noted when a city's bond rating goes down
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part of your market goes down because a portion of the market only looks at issues from entities
carrying an A rating. As to whether the City's bond rating could affect the ability of the hospital
and other entities to issue bonds, Rusty Fifield felt it could possibly have an impact but it would
be difficult to detcrmine how much of an impact.
Bruce Thiclen asked if Ehlers could give a comparison on a $120,000 house and what the tax
impact would be if the project proceeded as normal and what it would be if the City has to bond
for the costs of suspending or terminating the project. Rusty Fifield stated that at this time they
didn't have the information to make that kind of comparison. Bob Murray asked if litigation
would impact the City's bond rating. Rusty Fifield responded that this would be a disclosure
issue for future debt. Pending council action on Tuesday night a disclosure statement would
probably need to be made and there may be some kind of on going disclosure requirement.
Bruce Thielen questioned how the City could conduct a referendum when it doesn't know what
the numbers are. It was suggested that a hypothetical number could be used in the referendum.
Bruce Thielen felt that with the lease option the City could show what it would cost the
homeowner but they can't with the referendum. Dennis Dalen stated that even with the project
on hold the City still will not have the numbers it needs before the referendum question goes
out. The major question the City needs to resolve is "What is the referendum question." Dan
Greenswieg stated that the City does not have statutory authority to conduct a referendum on an
issue unless it is something requiring the issuance of bonds. There was some discussion on
whether it was the City's intent to issue bonds on this project. In lieu of a referendum, other
alternatives were discussed such as a non-binding surveyor election. If the City is not going to
issue bonds, then there is no point in discussing a referendum. The question the voters need to
decide is whether to continue with the project or stop the project and that is not a referendum
question. Dennis Dalen asked if the City could do just a portion of the building with general
obligation bonds and the balance under the lease option. Rusty Fifield stated that the lease
agreement which is in place could be revised and that general obligation bonds could be issued
for a portion of the building. It was discussed whether the general obligation bonds would cover
just a percentage of the total cost of the project or whether it should cover the cost of a specific
portion of the building. The feeling was that if it covered a specific portion of the building, the
contractor could continue construction on the balance of the project until the referendum was
completed. Bruce Thielen stated that the National Guard participation in the project dictated the
direction the project took Otherwise, he felt the project would not have come this far in the time
that it did.
The question again came back to what question or questions should be appear on the surveyor
referendum. Karen Doty explained that the 45 day requirement applied only to a referendum and
that a survey could be done at any time. The council can take into consideration the results of the
survey but they are not bound by it. Karen Doty also brought up accuracy issues with conducting
a survey and there followed a discussion on the best method of conducting a survey. Suggestions
included mailing the survey to all registered voters, have the survey available at City Hall for the
residents to complete and conducting a telephone survey.
DA WN/MTG.NTS
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Mark Wentzel noted that in discussions to have a portion of the project covered under general
obligation bonds or to consider eliminating a portion of the project based on a citizen survey, it
was important for the City to be aware of what they were proposing. If it was proposed to
eliminate the aquatics portion of the project, the City should take into consideration that
eliminating a portion of the building would require some building redesign and any redesign
costs should be included in the figures used. Whatever portion of the project the City would
look at eliminating could have ramifications on the building design. He suggested that maybe
the City should look at eliminating equipment which would not require any building redesign.
However he didn't know if they could eliminate enough equipment to come up with onc million
in costs.
There was some concern that if the aquatics portion of the project was eliminated it would be
difficult to sell memberships. There was a suggestion of constructing an seasonal pool. It was
suggested that the vacant space without the equipment could be considered neutral in the sense
that if it is not being used there is not cost to staff it. There was some discussion on what
features arc essential in order to attract members. Rusty Fifield reiterated that it still had to be
determined what questions were going to be asked in the survey and what information does the
City want to get out to the public and in what manner should the information go out. Tom Olson
emphasized the importance of the questions that were going to be asked and wondered how the
information could be put in a meaningful way to the residents. He added that if the question was
part of a referendum for general obligation bonds, the statement "This is the maximum amount
that can be added to your taxes by this question" would have to be included. There was
discussion on how to articulate the question of whether to keep the project for a cost of X dollars
or of suspending or terminating the project at a cost of Y dollars. Mark Wentzel suggested that
the cost of the work continuing while the survey was being done would be less than the shut
down and startup costs of having the project stopped while a survey was conducted.
Mark Wentzel stated that they could come up with an approximate cost, a cost range or even a
worse case situation cost but cautioned that data could be skewed when doing comparisons.
It was suggested by Dennis Dalen that the council, mayor and stafI work out the questions
between now and Tuesday. Bruce Thielen suggested that maybe the management committee that
was proposed could look at the questions to be covered in the survey and how the cost
information could be presented. Roger Belsaas and Bruce Thielen concurred that it could be
difficult in getting the council to come to an agreement on what questions should be asked in the
survey. Those in attendmlce dispersed leaving the Mayor, Councilmember Thielen and Assistant
City Administrator Jeff O'Neill to work out the issue of establishment of a management
committee and other related items for consideration by the council at their next meeting.
DA WN/MTG.NTS
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RESOLUTION 99-
RESOLUTION SUPPORTING ESTABLISHMENT OF A
CITY COUNCIL SUBCOMMITTEE TO PREP ARE A
SURVEY TO IDENTIFY CITIZEN SUPPORT OR NONSlJPPORT
OF THE AQUATICS CENTER, WHEEL PARK, CLIMBING WALL,
AND CHILDREN'S PLAY AREA,
AND TO PLACE ON HOLD DEVELOPMENT OF THESE
COMMUNITY CENTER FEATURES
UNTIL THE RESULTS OF THE SURVEY ARE KNOWN
WHEREAS, establishment of a fixed, defineable cost of stopping the project is impossible to
determine until after litigation/arbitration, which could take many months after the action to stop
the project; and
WHEREAS, the Contractor's Attorney has issued a report estimating City liability for stopping
the project for City convenience at $5,000,000, more or less. This cost, along with other claims
and investments in the site, will result in an estimated financial loss ranging from $6 million to
$8.3 million according to the City Attorney and Architect; and
WHEREAS, there is no provision within the law that applies to this case that enables a
referendum except for issuance of General Obligation Bonds; and
WHEREAS, if the project is placed on hold for a referendum for issuance of General Obligation
Bonds, the estimated earliest that a referendum could be held is 55 days from January 19, 1999.
The cost to place the project on hold for this duration could exceed $900,000; and
WHEREAS, it is important and possible to obtain public input on major portions of the
community center such as aquatics, wheel park, and climbing wall, and delaying these items will
not interfere with fulfillment of City contractual obligations with the National Guard, Arve
Grimsmo, or the Contractor; and
WIIEREAS, Monticello City Hall has been sold and all contingencies satisfied which, according
to the City Attorney, could result in a court-ordered eviction or relocation of city hall or, at a
minimum, payment of damages associated with development of a funeral chapel at an alternative
location; and
WHEREAS, stopping the project would result in a breach of contract with the National Guard,
which has relied on the City through the agreement to provide facilities necessary to maintain
readiness. Breach of contract would result in repayment of $1.5 million plus interest and
potential for payment of additional damages; and
WHEREAS, a strategy for financing repayment of the debt will likely require payment via City
reserves. This, along with the breach of contract, will, according to the City's Bond Consultants,
result in downgrading of the City's bond rating, which would result in payment of higher interest
rates on future city projects; and
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Resolution 99-
Page 2
WHEREAS, the potential costs of delay, stopping, or killing this project are exorbitant and such
action would be fiscally irresponsible; and
WHEREAS, the turmoil caused by the continued deliberation, discussion, and debate would have
a serious detrimental effect on the morale of the community as a whole and, therefore, it is bcttcr
to go ahead with the project now following a logical and practical course of action.
NOW, THEREFORE, LET IT BE RESOLVED that the MonticelIo City Council wishes to form
a City Council subcommittee to develop a scientific survey for the purpose of determining public
support for items such as aquatics, wheel park, and climbing wall, and to place further
development of these features on hold. Motion to include appointment of Mayor 13elsaas and
Councilmember Thielen. Questions on the survey to be developed by an independent third party
with input from the subcommittee. The final survey instrument to be reviewed for approval by
the full City Council.
Adopted this 19th day of January, 1999.
Mayor
ATTEST:
Deputy City Administrator
for the City Administrator
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