Looking for a way to cut its losses, the Vadnais Heights City Council on Monday voted unanimously not to appropriate city money to cover future shortfalls at the financially troubled Vadnais Sports Center.
It also postponed a decision on an in-depth audit to determine why the complex at 1490 E. County Rd. E didn't generate as much revenue as those who championed the $26 million center said it would.
For months, council members have been wrestling with whether to continue to subsidize the arena at the cost to taxpayers of as much as $1 million or more, or to find the least expensive way to get out of the arena business altogether and face whatever consequences would come with it.
Monday's vote might sound like good news to taxpayers who won't see the 30 percent property tax increase next year that had been predicted had the city continued to cover any deficits.
But it means the city will lose everything it has invested in the arena thus far, and opens it to possible lawsuits from bondholders. It also could drop the city's credit rating another notch.
"This is the cheapest way to get out," said Council Member Joe Murphy, who noted that the city will still be responsible for shortfalls until Jan. 1, when the bank is to take over the bonds. That could cost as much as $900,000, city figures show.
Since the sports center opened in November 2010, the city has loaned more than $800,000 to the 220,000-square-foot facility, which has two hockey rinks and three turf athletic fields under the state's second-tallest dome.
It has been a tumultuous couple of weeks for city officials. Last week, the City Council fired the firm hired to run the complex, Sports Facility Development and Management Group, and its CEO, Mark Bigelbach. The council held several workshop sessions and sought advice from Kathy Aho of Springsted Inc., a St. Paul public-sector advisor, before making its decision.
Unless revenue increases dramatically, which is not likely even if every field or rink were used every hour of the day, the arena is expected to see losses of $1 million annually, according to numbers presented this month by Finance Director Bob Sundberg.
The city has a $1.6 million reserve account that the bank will have tap into if it has to cover shortfalls. That should tide the bank over for as long as two years while it decides on a course of action.
Just last month, Standard & Poor's placed the northern St. Paul suburb of 13,000 residents on negative credit watch and dropped its debt rating from AA-minus to A-minus and its general obligation debt rating from AA to A because the arena has not generated enough revenue to cover debt service. That means the city will pay more if it needs to borrow money for future projects. The rating could go down to a BBB, Murphy said.
When the arena was approved, Bigelbach and others said more than $2.3 million in contracts had been signed. That would have been more than enough to pay the debt service. But it appears as if that figure was overstated.
In September, the council will look at approving a forensic audit to find out why. Some of those issues came to light in a recent report that found the arena suffered from myriad problems with operations, including lax recordkeeping and a lack of internal controls.
Tim Harlow • 651-925-5039