Social and Political Commentary

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Park Commissioners seek own financial adviser

... Park Commission expresses need for clear, understandable financial
information in dealing with issues involving Mount Hood's financing of athletic-
field complex.

by Joe Sullivan

Mount Hood golfers enjoy their day.




Park Commissioner John McLaughlin announced at the Commission’s June meeting
that a search would be initiated to select a Certified Public Accountant group
that would report to the Commission. Qualified candidates would have expertise
in dealing with municipal financial issues.

An auditor’s job is to provide an independent review of the city’s accounting
practices. Each auditor is an independent accounting firm hired and compensated
by the city it audits.

The Commission’s initial search involved compiling a list of eighteen auditors
that are retained by neighboring local municipalities. Three of the candidates
were of special interest to the Commissioners because they audit cities that
operate golf courses. These included Stoneham audited by Roselli, Clark; and
Lynn by Melanson & Heath. The third auditor, Powers & Sullivan, audits two
cities with golf courses, Melrose and Peabody.

By the time their July meeting took place the Commissioners concluded that
Powers and Sullivan was the best candidate. The Commission did not pursue the
other two auditing companies.

Powers and Sullivan is currently the outside auditor for the City of Melrose.
It has immediate knowledge of the Mount Hood operation and what the
Commissioners need is timely financial information in a form they can
understand.

The Commission invited Powers & Sullivan to send a representative to its July
meeting to discuss the possibility of the auditor working for the Commission.

Mr. Richard Sullivan, a principal of the company, represented it at the July
meeting at the Mount Hood clubhouse. A small group left over from a two-hour
public meeting concerning dog parks was there to hear the Commissioners discuss
with Mr. Sullivan the possibility of his company working with the Park
Commision.


Possibility of conflict of interest with city auditors discussed.

A significant issue for the Commissioners was the possibility of a conflict of
interest which could arise with the auditor working for both the city’s
financial group at City Hall and the Park Commission. Mr. Sullivan said his
company would be delivering the same story to both entities. If a conflict
developed he would say so.

Some of the Commissioners were animated in expressing a need for better, more
timely information such as with cash flow. The Commissioners want a better
picture of the financial status of Mount Hood, significantly important now that
the Hood must pay for the athletic field complex.

Mister Sullivan said he understood the need and saw no conflict with the city’s
financial officers in delivering it. The meeting ended after a relatively brief
discussion of no more than twenty minutes. The Commissioners left the hiring
issue open for more discussion before they decide.

The question arises will the Commission need the Board of Aldermen to approve
the funds necessary to pay Powers & Sullivan? Auditors are expensive.
Principals like Mister Sullivan are paid close to $200 an hour for their
services. It’s the opinion of the Park Superintendent, Joan Bell, that
aldermanic approval would not be necessary.

City officials claim lots of money available at Mount Hood.

It’s not difficult to understand the concern of the Park Commissioners. The
approval of the Special Legislation allowing the city to take money out of
Mount Hood was accompanied by expressions from some city officials that there
was plenty of money available at Mount Hood to pay for the new athletic field
complex.

As far back as September 2009 city officials were publicly expressing the view
that money was abundant at Mount Hood. On September 14, 2009 the Commission
had called a meeting to discuss the possibility of building an athletic field
at Mount Hood.

This proposal was very unpopular with people living in the Mount Hood
neighborhood and a group of them were there with their Alderman Peter Mortimer
to voice their displeasure.

Alderman Mortimer also brought up a subject unrelated to the athletic field
issue. The issue was about money. The alderman said to the Commissioners, “You
have the money, the city doesn’t. Mount Hood has more money than the city
has.” Related story Melrose Mirror October 2009 edition.

The alderman went on to say that he would get Senator Tom Magee and
Representative Katherine Clark to go to the State Legislature and overturn the
limitation that money earned at Mount Hood stays at Mount Hood.

Another instance of claims that Mount Hood was holding money in abundance came
at the Aldermanic Appropriations Committee when the Committee was being asked
to approve the special legislation that would let the city take money from
Mount Hood to fund sports-related parks and fields.

City Solicitor claims Mount Hood Enterprise Fund has $1 million in
reserves.


According to the minutes of this meeting Attorney Robert Van Campen, the City
Solicitor, said that the Mount Hood Enterprise Fund had $1 million in reserves,
about 16 times more than it should have. Moreover, the expense for the new
athletic field complex would come entirely from “excess money” from the Mount
Hood Enterprise Fund.

It didn’t take much to get the impression that Mount Hood had a reserve fund
that was swimming in cash, and even after all the golf course expenses had been
paid that there would be enough money left over, every year, to cover all the
costs of the new athletic field complex.

The abundant money view began to take a hit when City Auditor Dello Russo,
speaking at the same meeting, said that the fund had $650,000 in committed
reserves. Despite this diminished amount the Auditor went on to say that the
Enterprise Fund could easily support a note which would cost approximately
$300,000 per year, which is the expected cost of the bonds that will finance
the athletic field complex. (The complete minutes of this meeting can be found
on the city’s website.)

Attorney Van Campen’s and Auditor Dello Russo’s amount for the reserve differed
by some $250,000. Whatever the discrepancy the amount of the reserves was
down to $564,365 in January 2011. This was the number given by Auditor Dello
Russo at an Aldermanic Committee meeting when he was recommending that $245,814
be transferred from the city’s free cash account to the reserve fund. This
money was left over after the golf course had paid all of its expenses in 2009.  
When this excess money was added to the $564,365 the new total for the reserve
would be $810,179.

Question: how much money is actually in Mount Hood reserve?

If the reserve was $564,365 in January 2011, how much was in it in October 2010?  
Was it $1 million, or was it $600,000? For sure, the size of the reserve
changed significantly from October to January.

To imply that the reserve is an ongoing  pile of cash of $1 million that can
easily pay for the athletic-field complex does not square with the facts. What
must be recognized is that the size of the reserve changes over time. It goes
up but it also goes down, and if it ever does reach a $1 million it’s not going
to be for long.

Will source of money be golf course surplus or golf course business
operation?


Another clarification is needed regarding the source of the money to pay for
the bonds. There seems to be a difference, too, in the source given by Attorney
Van Campen who said at the October 2010 meeting the Special Legislation will
allow the city to use excess money from the Mount Hood Enterprise Fund and
excess money only.

CFO Dello Russo said in an Alderman’s Committee meeting in January 2011 that
the bond costs be built into the annual operating budget and not come out of
the reserve fund. If the Mount Hood reserve fund is not excess money earned by
the golf course, then what is it?

There is a huge difference between funding the complex costs out of excess
revenues generated by the Mount Hood golf course and making the athletic field
complex part of the golf course operating budget. Making the complex costs
part of the golf course operating budget means money planned to take
care of the golf course can be reduced to accommodate the costs of the
athletic field complex. It's like adding the entire cost of the complex to the
Mount Hood payroll.

Does taking money from golf course operating budget violate a limitation
of the Special Legislation?


This seems to be in clear violation of the Special Legislation which stipulates
“that the amounts appropriated from the Mount Hood Memorial Park and Golf
Course enterprise fund for this purpose shall be in excess of the amounts
required to pay the annual costs of operating and maintaining the Mount Hood
Park and Golf Course, including the payment of any debt service associated
therewith.”

This issue emerged in March when the Mayor insisted that the Park Commission
reinstate to the Mount Hood budget a charge of $62,349 for bond costs for
design work for the new athletic field complex. Park Commission Chairman Michael
Interbartolo had removed it from the 2012 budget because the budget did not show an
excess large enough to cover the $62,349 charge. To accommodate the charge a golf
course budget item, Professional Consulting Services of $105,000, was reduced
to $35,000.

This reduction created an artificial excess to which the bond costs could be
charged. It was clearly a reduction of an expected golf course charge to
accommodate an athletic field cost. It means the athletic field complex is now
part of the Mount Hood golf course operation, it is an expense of the golf
course.

It would be interesting to see how Powers and Sullivan would have regarded what
many would consider a manipulation.

Aldermen approve $5.2 million in bonds for athletic fields projects.


On May 2, 2011 the full Board of Aldermen authorized the City Treasurer, Arthur
Flavin with the approval of the Mayor, to issue bonds or notes totaling
$5,280,000. Of this amount $4,280,000 is to fund the High School field portion
of the athletic-field complex. The remaining $1 million is for the city’s
portion of the Pine Banks track and field project which is part of the
athletic field complex.

It is interesting to note that the Aldermen approved over $5 million in bonds
without including the interest rate cost or the duration of the bonds. Mary-
Rita O’Shea, the City Clerk, who records the minutes of Aldermen meetings, said
in a telephone conversation that this would be done by Arthur Flavin, the City
Treasurer.

Mr. Flavin was not in his office to answer a subsequent call and his secretary
did not know what the interest rate charge or the duration of the bonds.

Aldermen-approved bond for Pine Banks $500,000 less than stated at
Mayor's press conference.


The Park Commissioners are sure to know that the $1 million bond authorized is
$500,000 less than the amount that was given in the Mayor’s press conference on
October 4, 2010.

CFO Dello Russo said at the October 7, 2010 meeting that he expected that the debt
service charge would be approximately $300,000 per year and that the Mount Hood
Enterprise Fund could support it. This would be the principal and interest
charges on the athletic field complex bond.

Golf course can't pay for both athletic field complex and Big Dig damage
bonds at same time.
 

The problem comes when the $300,000 is added to the bond payments for the Big
Dig damage that Mount Hood is paying for now and will continue to pay every
year through 2015. The damage bond payment for 2011 is about $189,000.
Combined, the two bond payments would total $489,000, an amount too big for golf
revenue
to pay.

At the July 2011 Park Commission meeting it was stated that only the interest
would be paid on the $5 million athletic field complex bond until the damage
bond is paid off. Assuming a 2% interest rate, the annual interest rate charge
would be $100,000. This amount when combined with the damage bond charge would
total $289,000 an amount golf course revenues can cover.

This arrangement means that none of the $5 Million principal will be paid until
2015.

Twenty-five years is the longest period allowed to pay off a bond. In 2016 the
city will still owe $5 million, an amount that must be paid over the twenty
years remaining on the original twenty-five year bond. Annual payments for
twenty years on a $5 million bond is $250,000 per year, which means the first
payment for principal and interest will be $350,000. This is significantly
higher than CFO Dello Russo's $300,000 estimate for this annual bond cost.


Once principal payments start the annual costs will be smaller each year.
That’s because interest is paid only on what is actually owed not the original
face value of the bond.

Where is plan that shows golf course can pay for athletic field complex?


There are many financial issues that the Park Commission will be facing in
implementing the program that has Mount Hood paying for the
athletic field complex. The most significant one has yet to be addressed. Where
is the plan that shows that the golf course can pay for the new complex? Up until
now this has only been a contention expressed in a collection of opinions
coming from city officials.

About eleven years ago the city administration claimed that it would be
possible to build a new ball field at Mount Hood at no cost to the taxpayers.
This would be done by utilizing a 70-cents per ton fee that a developer would
pay to the city for dumping Big Dig landfill at Mount Hood.

A contract was signed for a multi-thousand ton delivery of landfill to an area
at Mount Hood where the ball field was supposed to be located. No one ever
checked to see whether this area was large enough to accomodate the amount of
landfill stipulated in the contract.

It wasn’t. The remaining contract requirements could be satisfied only by
dumping the landfill on the golf course which had seen a $2 million upgrade
completed the year before. The result was $1.7 million of damage to Mount Hood
Park and it’s golf course.

The entire cost for this cabal was put on the golf course in the form of a
bond. This is the bond that the golf course wont pay off until 2016. Nothing was
charged to the city even though much of the damage occurred in the park area.

Big Dig dumping calamity could have been avoided.

It should be obvious that the dumping calamity would not have occurred if an
assessment had been made to determine whether Mount Hood Park could accommodate
the thousands of tons of landfill required to fulfill the contract . In
retrospect, it is almost impossible to believe that a city government could have
failed in such an obvious responsibility.

What is needed now is a plan that demonstrates whether Mount Hood golf course
can actually produce the revenue necessary to cover the costs of the athletic
field complex and do so by not pulling away golf revenue that will be necessary
to maintain the golf course.

There is an irony to what is happening now. Ten years ago when it was obvious
that the Mount Hood Park could not hold all of the landfill required to
fulfill the contract it was the Park Commissioners who voted to stop the
dumping. Unfortunately they found out they couldn't stop it. The contract had
to be completed and the remainder of the fill had to be dumped on the only place
available for it, the golf course.

It was a tough time to find out. Let’s hope the retention of outside auditor
Powers and Sullivan will save the Commissioners from being forced to make a
similar decision sometime in the future.      


August 5, 2011

    




                


 

 



 



   

 
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