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Paynesville Press - May 1, 2002

Plan for arena financing tabled

By Michael Jacobson

A plan to split the current debt for the Koronis Civic Arena between Paynesville Township and the city of Paynesville was presented to the township's board of supervisors on Monday, April 22, and then tabled for further study.

At the board's first meeting in April, chairman Don Pietsch raised the issue of the arena financing to the board and received the board's permission to talk with the city about working together to solve the problem.

The arena currently has $315,342 in outstanding debt, with $88,571 in a five-year energy loan from Xcel Energy (at 4.9 percent) and $226,771 in a bank loan (currently at 6.5 percent). At present, the township, the city, and the Paynesville-New London-Spicer (PNLS) Hockey Association each contribute $7,000 annually towards the debt and another $5,000 annually towards the operation of the arena, with the hockey association picking up additional operating costs.

Because the loan from Xcel is for only five years, it is being paid off, but right now its payments are being added to the bank loan, Pietsch told the board. By February 2004, the township will owe the total to the bank, at the higher interest rate.

At 6.5 percent interest, the $21,000 yearly contribution from the three entities will barely cover the interest, paying off only $500 in principal per year. Plus, a new interest rate at the bank will also be set in February 2004. Should it go up, the current payment structure might not even cover interest on the debt.

At the end, when the debt is fully paid, the township will have complete ownership of the facility, but paying off $500 in principal per year would take thousands of years to retire the debt.

Pietsch proposed that the city and township would each pay $157,671 to cover half of the outstanding debt right now. The loan to Xcel and to the bank could then be paid off in full, and future interest expense would be eliminated.

In effect, for $160,000 from both the city and the township now, the arena could be paid for. Then the city and township, instead of contributing $12,000 per year, would only pay $1,000 towards the operating cost, reimbursing themselves for their initial investment by saving $11,000 per year (saving themselves $160,000 in just short of 15 years).

The hockey association (which would no longer pay $7,000 per year for debt retirement) would instead pay that money, its current $5,000 for operating costs, and an extra $1,000 for the operation of the arena, making their annual contribution $13,000 instead of $12,000.

Without implementing the plan, said Pietsch, "in the year 2018, we'd still owe $300,000 with no commitment from the hockey association or the city with 100 percent maintenance."

As part of the Mighty Ducks grant, the township is committed to keeping ice in the arena for 40 years. Under Pietsch's proposal, the city and township would split future maintenance costs.

Supervisor John Atwood, who signed the original agreement for the Mighty Ducks grant at the arena, now wondered about the wisdom of the venture, saying in hindsight a pool may have been better.

He also expressed concern about using taxes this way, which prompted responses from the audience that the issue wasn't taxes but whether to use financial sense to pay off a burdensome commitment.

The lack of action on his proposal by the township board perplexed Pietsch, who said he still believes the township's participation in the arena was a good idea. "When you look at it," he told the board of his plan, "it's a no-brainer."

For its investment, the city would get 50 percent ownership in the arena. This part of the plan appealed to several city council members, who discussed this issue at their meeting last week, too, but took no action as well since the township did not act officially.

Right now, the city is contributing financially with no ownership. "We're providing access to recreation for some of our citizens, but it belongs to someone else," said council member Dennis Zimmerman.

Council member Harlan Beek felt the city should not become a banker and said he would prefer to refinance the debt.

Council member Dave Peschong said he would support the proposal if all agreements between the city and township could be tied together.

The township board could address the arena financing again at its next meeting on Monday, May 13.

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