HomeMy WebLinkAboutCity Council Minutes 12-12-1995 SpecialMINUTES
SPECIAL COUNCIL MEETING
DECEMBER 12, 1995
A special meeting of the Plymouth City Council was called to order by Mayor Tierney at
6:08 p.m. in the Public Safety Training Room, 3400 Plymouth Blvd., on December 12,
1995.
COUNCIL PRESENT: Mayor Tierney; Councilmembers Wold, Anderson, Lymangood,
and Edson. Councilmembers-elect Black and Preus. Councilmember Granath arrived at
6:25 p.m.
ABSENT: Councilmember Helliwell.
STAFF PRESENT: City Manager Johnson, Assistant Manager Lueckert, Finance
Director Hahn, Park Director Blank, Community Development Director Hurlburt, City
Attorney Knutson, and City Clerk Ahrens.
Manager Johnson presented a list of facilities that are currently proposed for inclusion in a
recreational complex. The facilities include two indoor ice sheets with seating for 800,
eight team rooms, a large leisure pool with play features, a competition pool and diving
well, whirlpool, outdoor leisure pool, carpeted locker rooms, two full gyms, four
racquetball courts, a large fitness area with several hundred machines, daycare area,
aerobics room, small snack bar/eating area, massage room, small meeting room, and
walkway connecting the major areas. He stated that there is an option for a third gym at
an estimated cost of $500,000. Parking is proposed for 600 vehicles. He stated that the
architectural firm of Johnson -Peterson, Inc. has been working with Lifetime Fitness to
prepare conceptual drawings for the facility.
Mayor Tierney asked if a senior citizen center or multi -use center is proposed in the plan.
City Manager Johnson said that a possible 13,000 square -foot multi -use center is shown in
the conceptual plan. A covered walkway is proposed to connect the multi -use area with
the fitness center.
Councilmember Wold asked how many swim lanes are needed by School District 284 for
competition meets and whether the eight proposed lanes are sufficient. Park Director
Blank said that eight competition lanes are sufficient for district -wide meets.
Mayor Tierney asked if wetlands have been identified on this site. Community
Development Director Hurlburt responded yes.
Mayor Tierney asked if shared parking could be considered with uses across the street.
Manager Johnson responded that the fitness club needs 400 parking spaces for their use
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December 12, 1995
Page 2
alone, and 600 spaces does not seem excessive. Park Director Blank estimated that there
could be problems with inadequate parking during large events a few days a year.
Manager Johnson summarized the ownership, operation, and use elements of the proposed
arrangement with Lifetime Fitness. He said the City would own and operate the ice arena,
while Lifetime Fitness would own and operate all other areas including the pools and
gyms. Lifetime Fitness would assume all maintenance costs for all areas except the ice
arenas. He stated that the proposed future multi -use facility would be at full City cost;
however, there is nothing concrete on that proposal at this time. Lifetime Fitness would
be responsible for marketing the entire complex. All City residents would have access to
all areas of the complex at a daily fee rate that would be no higher than the average rate of
comparable community centers. He said that Lifetime Fitness Club members would also
have access to the ice arena during public skating hours.
In response to questions, Park Director Blank explained that ice time is sold in hour
increments at the ice arena. He estimated that ice time would be sold for $125 to $130
per hour. There would also be a charge per person, possibly $2.50 to $3.00, for open
skating.
Manager Johnson explained that the City would name the complex in consultation with
Lifetime Fitness, but the word "Lifetime" must appear in the name. Lifetime Fitness
would provide lifeguards for the leisure and the outdoor pools. The City would plow the
parking lot and maintain the landscaping. Other parking lot repair and maintenance items
would be shared equally by Lifetime Fitness and the City. He said that the Lifetime
Fitness Center would be open 24 hours a day, seven days a week. This is something that
would be difficult for a City -run recreational facility.
Manager Johnson described the financing and construction proposals for the facility. He
stated that the proposal calls for the City to pay for the cost of the two indoor ice arenas
at an estimated cost of $4,800,000, with $800,000 coming from non -City sources. The
City would pay $1,500,000 toward the construction of the indoor and outdoor leisure
pools, in consideration for Lifetime Fitness assuming all operating, maintenance, and
marketing costs, as well as acting as a construction manager for the City, and making the
entire club area accessible to Plymouth residents on a daily fee basis. Any cost overruns
on the club/pool complex would be the responsibility of Lifetime Fitness. Manager
Johnson explained that School District 284 will consider a contribution of $1,500,000
toward the project if the competition pool and diving well are included in the project.
Lifetime Fitness expects to contribute about $5,000,000 to the entire club/pool complex,
including about $4,000,000 in borrowed funds.
Manager Johnson further explained that Lifetime Fitness would provide all site lighting
and signage. The City would pay for all grading costs, including the NURP pond area,
drain tile, site utilities, and landscaping. The City may pay for a low brick or block fence
along Plymouth Boulevard and a traffic circle at 36th Avenue and Plymouth Boulevard.
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December 12, 1995
Page 3
This could be paid out of tax increment financing funds earmarked for Downtown
Plymouth. He stated that Lifetime Fitness has proposed to provide design and
construction management services for the City on the ice arena complex for the cost of 6
percent of the total construction cost. Lifetime Fitness would provide specifications and
advertise for bidding according to applicable public bidding laws. The City would approve
the specifications and award the final bid on the ice arena.
Manager Johnson described the protection of the City's investment in the project. He
stated that a ground lease is proposed whereby the City would lease land to Lifetime
Fitness for 30 years subject to: 1) residential use covenant allowing Plymouth residents to
use all facilities on a daily fee basis no higher than the rates for comparable public
community centers; 2) minimum operating standards to be specified; and 3) compliance
with first mortgage requirements. If these conditions are not met, after notice and
opportunity to resolve, the City will have the opportunity to acquire the entire club/pool
facility subject to the first mortgage. He stated that a debt service reserve of four to six
months would be established to allow time for the City to consider its options. Lifetime
Fitness could not add additional debt on the facility without the permission of the City.
The City will have the right of first refusal to buy the property upon its sale during the 30 -
year lease period.
Councilmember Lymangood asked if Lifetime Fitness could accumulate debt on the
facility over the original debt amount during the life of the mortgage. Manager Johnson
stated that it is proposed that no more than $4,000,000 in principal debt could be
accumulated. Also, the City retains zoning authority over the premises, as well as the
right of condemnation for any public purpose.
Mayor Tierney asked what occurs at the end of the 30 -year ground lease agreement.
Manager Johnson stated that the parties are free to renegotiate or do whatever they wish.
He said that if Lifetime Fitness decides to relinquish the ground lease, they would pay the
City about $100,000. He said that 30 years is the normal life of the building.
Manager Johnson presented a cost summary for the project. He said that the two indoor
ice sheets are estimated at $4,800,000, with a net cost to the City of $4,000,000. The net
cost to the City for the indoor and outdoor leisure pools is $1,500,000. The site
improvements are estimated at $1,100,000, for a total net City cost of $6,600,000 for the
project as currently proposed.
Manager Johnson said that a multi -use room is an option that the Council could consider.
He said that a 5,500 square -foot facility with kitchen catering and furnishings is estimated
to cost about $500,000. He said this multi -use facility could serve several purposes: 1)
allow consolidation and expansion of the existing senior program; 2) provide indoor
space for many City recreation programs; 3) serve as a support facility for the outdoor
amphitheater; and 4) rental to groups for receptions. He said that pending further study,
staff believes that no operating deficit would be incurred on this facility. Manager Johnson
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December 12, 1995
Page 4
said another optional item is adding a third gymnasium in the club area. The guaranteed
cost of this addition, quoted by Lifetime Fitness, is $500,000. This would provide a
separate gym for the City and community use. He estimated that net operating revenues
would be enhanced with the double ice sheet facilities at the ice arena, based on the
experiences of similar facilities.
Manager Johnson compared the cost of the proposed facilities with the cost of public
community centers. He said that Maplewood paid about $12,600,000 including land and
furnishings. The City of Shoreview opened a community center in 1990, paying
6,200,000 not including the land. The community center proposed in Plymouth in 1989
was estimated to cost $12,000,000 not including the land. This facility was proposed at
120,000 square feet, with one indoor ice sheet, leisure pool/lap pool, two gyms,
community meeting center, aerobics room, three racquetball courts, teen room, indoor
playground, and weight/fitness room. He said that cities that have recently constructed a
community center, have paid about $100 per square foot for construction of the facilities.
Lifetime Fitness recently built their Woodbury facility for about $60 per square foot.
Manager Johnson discussed several issues raised by the City Council at a previous study
session on recreational facilities. He said the first question for the Council to decide is
whether the proposal is a good value for the money. He said that for an investment of
1,500,000 to $2,000,000, the City gets access to a full-service recreational complex at
reasonable daily rate fees, marketing, no operating deficits, no maintenance costs,
assistance with construction management, and the possibility of lower costs per square
foot of construction. He compared this with the City's previous community center
proposal in 1989 which estimated an annual deficit of $150,000, provided for little or no
marketing, and would have cost about $12,000,000 with only one indoor ice sheet. He
said that the facility proposed in 1989 was only about 60 percent as large as this proposed
complex.
Manager Johnson stated that the proposal is structured so that each party is doing the
things it does well. Lifetime Fitness would have the major responsibility for construction,
and they have constructed a number of other clubs with many amenities at a low cost.
Lifetime Fitness would also operate, market, and maintain the pool/club area. These are
all activities that Lifetime does on a regular basis and that the City does not have as much
experience in. On the other hand, the City would fund, own, operate, and maintain the ice
facilities. The City would be responsible for the grading of the site, and the City has ready
access to soil borings and NURP pond requirements, and has previously planned a
building on this site. The City would also landscape the grounds through the Forestry
Division.
Manager Johnson addressed the question of whether the City's investment is safe. He said
the agreement with Lifetime Fitness provides for a ground lease under which the City
could take over the entire pool/club complex if the resident use covenant or the operation
standards are not met. He stated that, for example, if the club/pool complex has an
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December 12, 1995
Page 5
8,000,000 value, the estimated construction cost, the City could assume ownership for
the maximum $4,000,000 debt, gaining all of the City's equity back as well as the equity
held by Lifetime Fitness. He said that the agreement provides for debt service reserves
and limits on future debt. Even if the worst case scenario occurred and the City had to
take over the club/pool, the City would have ownership of a 200,000 square -foot complex
for a total net City cost of about $9,100,000. He said this is still $3,000,000 less than the
proposed 1989 community center.
Manager Johnson addressed whether the proposed complex would be family -friendly.
Lifetime Fitness offers free daycare for 1'h hours for each paying patron. They also offer
some youth programming. Lifetime Fitness will allow youth to swim without a parent
being present in the club area, perhaps subject to some time zoning. Lifetime Fitness will
also allow District 284 swim teams to practice and hold official meets if District 284
participates as a partner in construction costs. Lifetime Fitness has indicated that it will
consider lowering initiation fees for seniors, as well as assisting low-income youth with
access to the facilities. Manager Johnson explained that Lifetime Fitness is not required to
assist special populations to the same degree that public agencies must, but they often
voluntarily do so.
Manager Johnson addressed whether the complex will be public in character. He said that
reasonable daily fee access will be required. The City can name the complex, subject to
having the name "Lifetime" in the name. Public activities will be held at the center, such
as school swim meets, city recreation programs, and school hockey games at the ice arena.
Councilmember-elect Preus asked since this would be a joint project between the City and
the Lifetime Fitness, whether all laws that would normally apply to the City, would apply
to Lifetime Fitness in the entire project. Manager Johnson explained that the issue is being
investigated by the City Attorney. He does not believe that all laws would apply since the
City would not actually own or operate the facility, except for the hockey arena, where all
laws would apply.
Manager Johnson presented a possible ballot question for consideration: "Shall the City of
Plymouth be authorized to spend up to $5,000,000 from existing funds in the Community
Improvement Fund, to be combined with other existing funds, for the purpose of
designing, constructing, and equipping indoor ice arena facilities, swimming pool facilities,
and related site improvements?" He noted that the ballot question does not make
reference to possible partnerships. The earliest date an election could be held would be
February 6. He stated that an early election date is critical if the City intends to have the
ice arena operational by the fall of 1996. In its letter of intent, Lifetime Fitness has also
indicated that the project is contingent on a February election process. He noted that
School District 281 is scheduled to conduct a referendum near the end of February.
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December 12, 1995
Page 6
Councilmember Anderson asked if the ballot language could indicate that this will not
result in a tax increase. Manager Johnson stated that the City Attorney has indicated that
legally the City could include that language in the ballot question.
Councilmember Edson suggested that the question indicate that this is not a bond
referendum and, therefore, will not result in a tax increase to pay for bonds for the project.
Manager Johnson stated that if the Council is interested in pursuing this project, the next
step would be to establish the ballot question and election date. The City Council should
also consider whether to accept the letter of intent proposed by Lifetime Fitness. He
suggested that the City adopt a resolution of intent to proceed with Lifetime Fitness as a
partner on the project, if the City is interested in moving ahead.
Councilmember-elect Preus asked if there has been any attempt to determine how
profitable this project will be for Lifetime Fitness. He stated that if the project is not
successful, the City would know how well it could be marketed to another firm. Manager
Johnson responded that Lifetime Fitness has agreed to provide the City with their financial
statements.
Councilmember Granath asked the mechanism for establishing the daily fee rates. He
noted that if the City decides to move ahead with Lifetime Fitness as a partner, it would be
a long-term working relationship. He suggested that very specific provisions be
established in order to structure a successful partnership.
Manager Johnson agreed that there are specific issues yet to be resolved. He stated that
this is establishing a concept, and the next step is to negotiate specific agreements to
ensure a successful partnership.
Councilmember Granath said that his primary concern is that the City needs to ensure it is
fulfilling its public purpose. He suggested that a mechanism for working out conflicts in
the partnership be considered. Manager Johnson stated that there has been discussion of
arbitration/mediation procedures.
Councilmember Granath suggested that the City needs an objective mechanism by which
to set the daily fee rate, with City review of the rate on an annual basis. Councilmember
Wold stated that a formula could be established for setting the daily fee rate, with
approval of a ceiling rate established by the City Council.
Councilmember-elect Preus agreed that a process for resolving conflict needs to be
established. He stated that problems could arise on subjective, but important, issues such
as whether the facility is as friendly to Plymouth residents as the City wants it to be,
whether the facility is kept clean enough, whether employees are polite, etc. He said a
process should be identified to guide resolution to these types of issues.
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December 12, 1995
Page 7
Councilmember Granath stated that he is quite confident that Lifetime Fitness can operate
a good, profitable recreation center. He stated that at issue is whether this will meet needs
that the City is trying to fulfill, and whether the facility will be operated in a manner in
which the City approves. He noted that the City would be in a difficult position to resolve
small problems if there is no authority to deal with them, and if no method for problem
resolution is established.
Councilmember Edson stated that it is in the City's interest to have a facility that generates
enough profit for Lifetime Fitness in order to pay for maintenance items. He said that the
profit motive also maintains quality.
Councilmember Wold stated that the City is not giving Lifetime Fitness tax money in
order to build their facilities. The City is providing Lifetime Fitness with a lease on City
land for $1.00 per year, but Plymouth residents are getting something for it. He stated
that access to a 200,000 square foot facility for a total City cost of $6,600,000 is a
bargain. Manager Johnson said that the Council must balance the loss of City control over
the project with providing substantial facilities to all citizens of all incomes in the City.
City Attorney Knutson arrived at 7:30 p.m.
Manager Johnson suggested that the City Council could accept the letter of intent from
Lifetime Fitness with the condition that the City wants a conflict dispute mechanism
adopted in the final agreement, as well as a formula for establishing the daily fee rate, and
a provision to receive the financial statements.
City Attorney Knutson explained that the letter of intent from Lifetime Fitness contains a
provision on debt which indicates that they could refinance, but shall not exceed their
equity in the project. The City Council indicated that they would prefer an established
maximum of $4,000,000 for debt refinancing. Councilmember Edson suggested a
provision that Lifetime Fitness cannot exceed $4,000,000 without prior approval of the
City Council. He stated that should Lifetime Fitness wish to do future improvements to
the property, the City Council would have flexibility to consider a higher debt limit.
City Attorney Knutson stated that legally the City can include language in the ballot
question that this is not a bond issue and no debt levy will ensue. Councilmember Edson
stated that the City can also indicate that this referendum is required by the Charter in
order to seek citizen input. Attorney Knutson added that if the City did not have a
charter, the Council could not go to the public with this question.
City Attorney Knutson stated that an arbitration provision could be included in the ground
lease agreement. Councilmember Granath stated that he is willing to concede that
Lifetime Fitness has full authority over the facilities; however, he is concerned about
resolving facility conflicts.
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December 12, 1995
Page 8
Manager Johnson described the membership rate structure of Lifetime Fitness. He said
that the intent of Lifetime Fitness is to sell club memberships, and the daily fee rate would
only be available for Plymouth residents.
Councilmember Lymangood stated that this proposed project provides the City with an
opportunity for access to substantial recreational facilities at a reasonable cost. He stated
that he was prepared to vote on whether the project should move forward at the next City
Council meeting. Councilmember Granath agreed that the finances of the project are
compelling, but expressed concern about the unanswered questions relating to the facility
operations. He asked if this will only be a good deal for a Plymouth resident if they buy a
Lifetime Fitness membership.
Park Director Blank stated that he believes this project is a good deal for all Plymouth
residents. The individual or family who visits the facility often will be able to cap their
expenditure by purchasing a membership. Those that go infrequently can pay for only
what they actually use via the daily fee rate.
Mayor Tierney stated that the City Council is approaching a project with possible private
and public partnerships. To her knowledge, this hasn't been done before, and many issues
will need to be addressed. Manager Johnson stated that the City of Maple Grove has
signed a letter of intent with the Northwest club which would provide a similar
public/private partnership. However, Maple Grove residents would only have daily fee
access to the swimming pools.
Mayor Tierney stated that she particularly likes this concept because it gets the City out of
the business of operating a health club.
Councilmember-elect Preus asked the City Attorney whether state and federal laws that
would apply to a city, would apply to this entire project since it's a joint project between
city and private enterprise. He asked whether a potential legal exposure could be created
with things occurring on the premises. City Attorney Knutson stated that, generally, the
City will not own the project. The City would lease the ground to Lifetime Fitness;
Lifetime Fitness would own and operate the business. The City would have no say on
how the business is run, and it would truly be private enterprise. Legal exposure is always
possible, but he believes the City will have minimal risk with the project as structured.
Councilmember-elect Preus asked if Lifetime Fitness will indemnify and hold harmless the
City. City Attorney Knutson stated that an indemnity agreement will be included in the
final documents. City Attorney Knutson explained the ground lease concept. He stated
that the ground lease would be subordinate to the Lifetime Fitness first mortgage. If there
was a default on the first mortgage, the ground lease agreement would be null unless the
City buys out the project. Attorney Knutson advised that the ground lease agreement is
the best protection for the City under this project concept. Attorney Knutson stated that
Lifetime Fitness rejected a proposal for a non -subordinate first mortgage whereby the City
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December 12, 1995
Page 9
would own the facility, giving Lifetime Fitness a 30 -year lease. At the end of the 30 years,
the City would own the facility.
Councilmember Anderson reminded the Council that the community center that was
proposed in 1989 was predicted to experience a $150,000 per year operating deficit. He
stated that the risk to the City of having to buy out the project in the event of a mortgage
default, bankruptcy, or other action, is not that significant compared to a $150,000+
operating loss per year over 30 years.
Councilmember Edson stated that the City Attorney has identified important points that
the Council needs to carefully evaluate. He stated that the City has not yet seen the
financial statements on the company, and even a great company can go into bankruptcy.
In his opinion, having the City in second place behind the first mortgage is not a problem,
because the City has the right to step forward and take the first mortgage if necessary. If
Lifetime Fitness does not operate the facility well, the City has an opportunity to purchase
the facility for a maximum of $4,000,000. Councilmember Anderson agreed that this
project provides a great opportunity for Plymouth residents who will have access to the
facility for a reasonable daily fee or a monthly membership fee basis. The investment of
the City is very reasonable.
Councilmember Wold stated that he is willing to accept the letter of intent from Lifetime
Fitness. He is pleased with how well the negotiations have gone to date and is prepared to
approve a referendum in February.
Councilmember-elect Preus asked if the ice facilities and the club/pool complex would be
clearly separated, so that if problems occur they can be legally addressed. Manager
Johnson stated that the ice facilities and the club/pool complex would be separate legal
parcels with a common wall. There would be no internal connection from the ice facilities
to the pool area.
Councilmember-elect Preus asked if the City will get any revenue from the Lifetime
Fitness operations. Manager Johnson explained that the project proposes that there would
be no revenues or expenditures to the City for the club/pool operations. He stated that
Lifetime Fitness normally installs a small lap pool in their facilities. He believes that the
3,000,000 for additional pool facilities is the actual cost to construct facilities that would
not normally be included in Lifetime Fitness center. Councilmember-elect Preus stated
that Plymouth residents will gain access to facilities that could not have otherwise been
possible with this private/public partnership, and at very little risk to the City. He shared
concerns expressed by Councilmember Granath but balancing all factors, he believes the
benefits to the community and cost savings far out -weigh the potential problems. He
stated that many of the questions raised can be addressed in the final agreements.
Councilmember Granath stated that the price of the facility for the City is reasonable, but
he is still not satisfied with what the City is getting. He has not been convinced that this
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December 12, 1995
Page 10
project will be a good deal for Plymouth residents and is concerned that the ultimate goal
of Lifetime Fitness is to obtain memberships. He also would like an updated memo on the
projected balance of the Community Improvement Fund if the funds are expended for this
project. Manager Johnson stated that the updated information will be provided in the
Information Memo. Councilmember Granath stated that he does not believe the City
Council needs to accept a letter of intent from Lifetime Fitness, but rather should go ahead
and conduct the referendum to hear from citizens.
In response to a question by Mayor Tierney, Attorney Knutson stated that the approved
letter of intent would be nonbinding, but could be used for negotiations of a final contract.
Councilmember Anderson asked what could occur if the City does not accept a letter of
intent at this time. Manager Johnson stated that the West Health Campus is looking for a
fitness club to locate at that site. Lifetime Fitness has advertised that they are coming to
Plymouth in 1996. He believes that Lifetime Fitness will locate at one site or the other.
Mayor Tierney stated that it is exciting to have a fitness club located in Plymouth no
matter where it is sited. It is an additional advantage if the health club could be located in
Downtown Plymouth. Councilmember Anderson stated that the City needs to respond to
Lifetime Fitness on their proposed letter of intent. It would show good faith on the part of
the City that the Council is interested in pursuing the partnership.
Councilmember-elect Black stated that she is a bit hesitant about public/private
partnerships in general, and has some concerns about the insurance liability potentials.
However, she believes the City should move forward and show good faith in accepting the
letter of intent from Lifetime Fitness because many issues may be able to be addressed in
later detailed contracts.
Councilmember Anderson stated that the City Council must move ahead now if it intends
to have ice facilities available by fall, 1996. He stated that the design process on the ice
arena facility is about two months, with six to eight months needed for construction.
Councilmember Granath stated that he does not believe the City Council should move
ahead to accept the letter of intent without addressing the unanswered questions and
issues raised at this meeting. City Attorney Knutson stated that the letter of intent would
have no legal standing, but would have impacts during negotiations. Manager Johnson
stated that he believes the City Council could move ahead to approve the letter of intent
with an amendment to change the amount of allowable debt to $4,000,000 without City
Council prior approval. He believes that a dispute resolution process, the financial
statement review, no -discrimination clauses, and other issues could be negotiated for
inclusion in the final contract documents.
The meeting was adjourned at 8:35 p.m.
Lau 'e Ahrens
City Clerk