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