Scott Harrison, treasurer of the Cook County/Grand Marais Joint Economic Development Authority (EDA) appeared before county commissioners on April 22, 2014 and asked commissioners to consider a request by the EDA for the county to issue $2,165,000 general obligation bonds in a tax abatement district, with the proceeds from those bonds loaned to the EDA so that it can finance improvements to the Superior National at Lutsen golf course (SNL).
Voices of support for tax abatement bonds
Four others at the meeting spoke on behalf of the EDA’s request: EDA Board Member Howard Hedstrom, Gunflint Lodge owner Bruce Kerfoot, Jim Boyd of the Cook County Chamber and golf course architect Jeff Brauer of Golfscapes.
Brauer said despite the gloom and doom one hears about the golf industry, management who spend an average of $4 million on a golf course’s renovation have been doing very well nationally. He also said that Superior National is one of the most beautiful public golf courses in the country and that if the course is brought up to speed, it will once again become a destination course that people will come to play golf on.
Kerfoot said that Superior National golf course was one of a half dozen “demand generators” for the county—places or business like Lutsen Mountains or the Grand Portage Lodge and Casino that draw a lot of people—and added that if it were improved, “It distinctly leads to economic growth.”
“I think that if you rise the tide of one of our ‘demand generators’ that rising tide lifts all ships,” Kerfoot said.
Hedstrom said because the county already owns the golf course, it should take care of it. General obligation (GO) bonds would save more than $1 million in interest and principle over the issuance of revenue bonds, he said. Hedstrom said he was speaking as a private citizen and not just an EDA board member when he requested that the county board issue GO bonds to fund golf course improvements.
Why GO bonds?
If the county board approves the request—and no action was taken at this meeting—the $2 million (approximately $165,000 would be used to secure the bonds) in revenue would be pledged to pay for financing a portion of the costs for the estimated $6 million renovation.
The county has already pledged $3.1 million (from the 1 percent local sales/recreation tax) and the Iron Range Resources Rehabilitation Board (IRRRB) has granted $300,000 to the project with the hope that the IRRRB contribute another $300,000 in the near future. It is expected that the EDA would pay the bonds back from revenues from the golf course.
The EDA owns and operates the golf course, and it is in the midst of acquiring four acres of land and renovating nine holes on the Canyon course and nine holes on the River course. Money would also go to increasing the marketing for the golf course, which has been cut by about $50,000 per year from the course’s heydays in the late ’90s and early 2000.
The EDA hired Duluth attorney Bob Toftey to prepare a comparison between GO tax abatement bonds and revenue bonds (RB) with the same 20-year maturity. GO bonds currently have an annual interest rate of 3.7 percent while revenue bonds are 5.67 percent.
The estimated annual payment to the county for GO bonds issued at $2,165,000 over a 20-year pay back period would be $148,793 per year versus $214,788 per year for revenue bonds issued at $2,560,000. If the county board approved sales of GO bonds the EDA would save $1,104,086 in total net principal and interest payments versus issuing rev-enue bonds.
“The general obligation tax abatement bonds provide certainty of a lower interest rate and costs, with minimal risk to the county,” wrote Toftey.
EDA Treasurer Harrison said that the Nelson family—who donated 360 acres for the golf course originally— has said they would subordinate their interest in the 1998 agreements similar to the agreement utilized in connection with the EDA’s 1998 golf course revenue bonds.
The loan agreement would call for the EDA and golf course management to meet with the county board each year to review golf season operations and the annual budget for the next season.
Harrison said the golf course has paid, on average, $182,000 per year in debt service, which is $33,206 more than the projected $148,794 payment for the GO bonds.
A voice of dissent
Commissioner Sue Hakes couldn’t be at the meeting, but she left a letter which stated, “Financing the Superior National renovation project with $2.2 million (or more) Tax Abatement General Obligation (GO) bonds versus Revenue bonds is a significant change from the original financial plan for this project. I understand the benefits of issuing GO bonds over Revenue bonds (lower interest rates, smaller size, lower insurance costs). However, the risk in issuing GO bonds is significantly higher to the county taxpayer, and I cannot support the request as is…”
Hakes suggested that the EDA reduce the scope of the SNL renovation project to $4 million to avoid the need for bonding or that the EDA secure the bonding debt with the existing 2 percent lodging tax from Lutsen/Tofte Schroeder townships.
“Without security, we are repeating the mistake the City of Grand Marais made when they backed the bonding for the EDA’s Cedar Grove Business Park. City taxpayers now bear the burden of that $1.6 million debt because lot sales revenues did not meet plan.
“The golf industry is in serious decline, revenues may not be enough to pay the debt. If this happens, the county will have to levy the necessary taxes on all assessed property to pay the interest and retire the principal of these bonds…
“Until this issue of risk is resolved, I believe it is premature to hold a public hearing on this matter,” wrote Hakes.
Chamber of Commerce support
Speaking for the Chamber, Jim Boyd said it “strongly supports” the proposal for a tax abatement district general obligation bonds.
He said, “More than any county in the state, by triple the state average, the Cook County economy is dominated by tourism. That always will be true, no matter how successful we are at creating greater economic diversity. Tourism is a function of geography; we live in a tourist destination.
“Tourism is a highly competitive economic sector. To compete, we must provide unforgettable experiences that make people want to come, that impress them while they are here and that cause them to want to come back,” said Boyd, noting that Superior National has that potential.
Boyd added, “…Although golfing hasn’t grown in recent years, it remains a vibrant $70 billion industry with 10-15 million core participants to whom golf is a central piece of their lifestyle. Increasingly, it is a sport that is attracting the Y generation, suggesting it has a bright future.”
“We need to make this investment, and we need to make it cost as little as possible…I submit that endorsing the tax abatement district is the most fiscally conservative, most prudent course by which the county board can secure the benefits of this important investment at the least cost—and least risk—to taxpayers.”
Ultimately, Scott Harrison asked the board not to take any action at the meeting because the EDA had a late option to consider. The EDA will return to the board in a couple of weeks with some possible new information on golf course financing, said Harrison.
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