Alerus Center management fees disputed

How much should the city of Grand Forks pay VenuWorks, the company that manages the Alerus Center?

The seemingly simple question, enshrined in the management contract, is causing all kinds of confusion for city leaders, some of whom think VenuWorks owes the city a long overdue reimbursement.

The current contract says the company must give back management fees if the events center loses money, which it essentially did in 2008 after the Neil Diamond concert and this year after the Britney Spears concert.

But Alerus Center commissioners said they'd long ago exempted major concerts and other events that they choose to underwrite so that VenuWorks wouldn't suffer a penalty if the concerts lost money. Had the concerts made money, the company wouldn't get a bigger fee either.

City Council members Doug Christensen and Terry Bjerke questioned that view of the contract and the city attorney's office agreed the contract

doesn't exempt losses from any event.

After learning that, the commission tried Wednesday to modify the contract retroactively back to 2008.

Alerus Center Commission Chairman Curt Kreun said that was just a clarification of existing policy, a policy that's needed because concerts that might be too risky for VenuWorks can have a big economic impact on the city.

Christensen, who chairs the city's Finance Committee, said the committee will inquire about these and other contractual matters next Wednesday. If the money is really owed, he said, then he'd like to know what steps should be taken to get the money back.

At stake

So, how much money is at stake? Not necessarily as large as the losses from the concerts.

According to the contract, the management fee is based on a percentage of Alerus Center revenue and the maximum reimbursement is the entire fee, which could be smaller than the losses.

In 2008, for example, losses from concerts totaled $499,000. VenuWorks' fees totaled $175,000. It received that amount in full because, with the concert losses exempted, the Alerus Center didn't lose any money. Had the concert losses not been exempted, VenuWorks would have to reimburse only $175,000, not the full $499,000.

This year so far, concert losses total $97,000 and other losses are projected to total $123,000. VenuWorks' fees are projected to be $183,000. If concert losses are exempted, the company would give back $123,000 and keep $60,000.

Whether the exemptions are valid or not depends on who you ask.

Commissioners had essentially approved the exemptions by voting on it at some earlier point but without actually modifying the management contract. This they deemed was good enough.

The evidence lies in minutes of a March 25, 2009, meeting that Kreun gave to Assistant City Attorney John Warcup.

Warcup said that's not good enough. In a letter to Kreun dated Thursday, Warcup said only a signed agreement between the Alerus Center commission and VenuWorks is valid. At any rate, he wrote, "the minutes were incomplete and ambiguous" such that he couldn't understand exactly how the contract might have been modified.

The tradeoff

Why did Alerus Center commissioners agree to exempt concert losses?

Kreun said that back in the middle of 2008, the center hadn't gotten a major concert in years and commissioners had to do something to "rejuvenate" the building. It was necessary for the commission to take the risk on concerts away from VenuWorks because there was a disincentive for the company to take that risk itself, he said.

"If their total paycheck is determined on whether they lose money, they aren't going to do anything that loses money," Kreun said. "Then you're going to wind up like the Civic Center and not have the economic impact that the people of Grand Forks expect."

The now-vacant Civic Center was the Alerus Center's predecessor and had lost the city $250,000 a year when it was open, city leaders have said.

Events center commissioners have repeatedly stressed that the only taxes that subsidize the Alerus Center are sales taxes, not property taxes. When there is a big concert event, they say, the number of visitors to town increases as does sales tax revenue, which can then be used to keep property taxes down, pay for streets and sewers and fund economic development.

As of Sept. 30, the Alerus Center calculated that it had made an economic impact of $10.1 million even though at that point it was in the red by $508,000.

Timeline

A key question is when the Alerus Center commission decided to exempt concerts.

The Neil Diamond concert happened in Nov. 22, 2008. Yet, no documentation seems to exist of any decision to exempt concert losses until March 25 of this year. Kreun said the exemption had been discussed and decided before the Neil Diamond concert, but he's not sure in what setting. He does know that the exemption policy was finalized March 25, he said.

When asked if instead of being at a full commission meeting, the decision was made in the Executive Committee, which is made up of a small number of commission members, Kreun said he couldn't recall.

Despite its name, that committee was, until recently, seen by the commission as an informal group that wasn't subject to open meeting laws. Formal government committees have long been required to announce meeting times, locations and agendas in advance.

In other words, commissioners could well have decided to take risks worth well into the six figures without a public notification or the formal approval of the entire commission.

Closed meetings

Commissioners were surprised Wednesday when City Attorney Howard Swanson told them that any group they delegate power to, informal or formal are, in fact, subject to open meeting laws.

Swanson's briefing on the laws came after Bjerke sought his opinion on the legality of the executive committee.

Kreun, too, indicated surprise. He said the practice of convening executive committees on short notice has long been the norm and authorized under city law. The commission, he said, has to act in a "timely manner" whenever a concert opportunity arises.

City law does state that the commission may delegate powers to committees. It also requires records to be kept for all commission meetings, but is silent about committee meetings.

Kreun stressed that this is a committee of volunteers from the business community and they don't always understand how government works. "We're trying the best we can. These are good people trying to do the best they possibly can for the community."

Reach Tran at (701) 780-1248; (800) 477-6572, ext. 248; or send e-mail to ttran@gfherald.com .