Carefree Truth

Issue #320, April 28, 2014

 

 

 

 

The first item discussed was the inclusion of $1.5 to potentially design and build an extension on Carefree's Town Hall at 8 Sundial Circle.  The alternative is renewing the lease on the current space for 5 years in 2016, at a total cost of $250,000 or more in lease payments. 

 

 

 

 

Vice Mayor Les Peterson, who attended a recent meeting with landlord Ray Klemp, said that Mr. Klemp is now interested in utilizing the space for commercial tenants.  With low interest rates still available, the payments on a Town Hall build-out would be the same amount as is now being paid in rent.  At the end of 20 years, the Town would own it, and the loan could be paid down or paid off at any time without a incurring a penalty. Also, the Town will have money coming in from the Carefree Water Company loan repayment in a few years.  He felt the meeting with Mr. Klemp was very possitive.

 

 

 

 

Councilman John Crane pointed out that the lease renewal would have no reduction in space, even though the court was no longer located there, and asked about Mr. Klemp's reaction about the space.  The Vice Mayor responded that Mr. Klemp felt that with the central location, the foot traffic generated by the Post Office, the availability of parking, and the demographics in the area, a restaurant would do well there.  He is also exploring the option of a micro brewery.  Councilman Mike Farrar asked if the room was high enough for a micro brewery, to which Gary Neiss replied that the room has a dropped ceiling and goes up about another 10 feet. It was previously a grocery store, so has plenty of volume.  

 

 

 

 

Mr. Farrar asked if Mr. Klemp would forgive the term of the lease were it to be terminated before the expiration date in 2016.  Vice Mayor Peterson said if Mr. Klemp had a tenant and the Town could vacate within a year, he would terminate the Town's lease for all the space.  Mr. Neiss stated that the design phase for an extension of 8 Sundial Circle would take 6 months and construction would take another 8-12 months.  The Council needed to think ahead and plan now for 2016. 

 

 

 

 

Mayor David Schwan, who also attended the meeting, said Mr. Klemp wants lease income for the space occupied by the Town.  The best way to incentivize a landlord is to take away the money.  If the Town says it will continue to rent, it removes Mr. Klemp's incentive to bring in new businesses.  The Vice Mayor agreed that continuing to pay rent becomes a disincentive to bring in economic drivers which would draw people to Carefree.  Councilman Glenn Miller said Mr. Klemp introduced him to some people there for a meeting during the recent art festival, who were investigating opening a restaurant in the space. 

 

 

 

 

Mr. Farrar asked if the terms on a note and the debt service are about equal.  Mayor Schwan reported that he met with the National Bank of Arizona, a local bank with a policy of supporting local activity, which financed the original purchase of the Town Hall building at 8 Sundial Circle.  They expressed a willingness to again work with the Town.  A 5 year mortgage could be had for an interest rate of 1.59%.  A balloon note, on which interest is front loaded and the principal is back loaded, could be obtained at 2.39% through 2021.  In Fiscal Year 2018/19, the Carefree Water Company begins to repay the loan from the Town, amounting to $414,000 annually.  Vice Mayor Peterson added that there will be no price increase to the Water Company consumers due to this.  Mr. Miller added this is because the original purchase of the bond will have been repaid in 2018.  Mayor Schwan repeated that the bank is willing to work with the Town.  Carefree has a good credit rating, and a loan could be structured in a number of different ways.  Town accountant Jim Keen said that for the $50,000 the Town is paying to lease, they can be making loan payments, and can decide to pay any loan off with no penalty.   Mayor Schwan reminded everyone that they are not making a decision now to build, but are making a decision about putting the numbers in the budget so the options are open. 

 

 

 

 

Councilwoman Melissa Price, who was attending telephonically, felt it was the most important decision the Council would be making.  She asked if the Town were building a space for 501(c)3s to use, or if potential businesses would  develop in this space if the Town vacates it.  She didn't see the need to put that $1.5 million in the budget at this time, and expressed that Cave Creek pays for part of the space vacated by the court for the next 2 years.  She thought they had agreed to invest in infrastructure that would draw shoppers and diners, and said Carefree has had a "pay as you go" philosophy.  She was opposed to budgeting for a Town Hall expansion and calling it economic development.

 

 

 

 

Mr. Crane said he would like a better handle on the $1.5 million figure.  Mayor Schwan said he will be asking the Council for money from the contingency fund in this fiscal year for a conceptual plan created by an architect.  The $1.5 million figure is based on 5000 square feet at $300 per square foot.  The Mayor thought it will be less, but without a conceptual plan the cost is unknown.  He felt it was prudent to include the $1.5 million figure in case the decision was made to proceed.  According to state law, if it is not budgeted, it can't be spent.  A lot of budgeting anticipates possible expenditures. It doesn't mean the money will be spent.  If Mr. Klemp does find tenants, the Town can begin the process to vacate, rather than telling Mr. Klemp "no".  

 

 

 

 

Mr. Farrar asked what notice is required.  Mr. Keen told him the contractual notice is 90 days.  Mr. Farrar asked if the annual payment for a loan is about the same as the one for the lease.  Mr. Keen and Mr. Neiss replied, "Correct."   Mr. Farrar pointed out that there is no way to recapture money spent on a lease, and that Carefree would not own the equity or the asset.  Interest rates now are extremely favorable.  He was hearing that there are demands on Mr. Klemp and demands on inflation possibly causing a rent escalator.  Labor and material costs are rising.  He asked for and received assurance that early loan repayment would not incur a penalty.   

 

 

 

Mr. Farrar said everyone agrees with Ms. Price that economic development is the #1 priority, but this has to be addressed and he didn't see another good option.  The Vice Mayor agreed that if it were a choice between extending the Town Hall vs. economic development, economic development is the priority, however, the Town is talking about doing both.  The money would be spent on a loan or on rent; it simply changes the recipient.  Economic development would not be reduced by this.  Ms. Price asked if Cave Creek were paying for the  space vacated by the court.  Mr. Keen said they are paying for 1/2 of it.  Mr. Miller stated, "I can get that built for $900,000.  You know I can.  It's not really the case that the Town will spend $1.5 million.  We'll get the best numbers we can."

 

 

 

 

Mr. Crane said the key is to maintain the options, and he felt the Town had learned a lot in the past 2 weeks.  They learned that Mr. Klemp wants business tenants.   They will learn what it will cost to build, which will influence how each Council member makes their decision.   There's a big difference between $900,000 and $1,500,000.  Conceptual plans and engineering drawings are necessary.  It will take up to 12 months to build.  

 

 

 

 

Mayor Schwan observed that Ms. Price didn't want that money in the budget, but the other council members in attendance did.  Ms. Price confirmed that was correct.  

 

 

 

 

Mr. Farrar felt that Mr. Crane and Vice Mayor Peterson "nailed it" when saying the Town would simply be keeping the options open.  Approving it for the budget doesn't necessarily mean spending it.  He asked if it would come before the Council for another vote before being spent.  Mayor Schwan confirmed, "I can't sign for a $1.5 million building."  Mr. Farrar thanked him for the clarification.  Mayor Schwan noted that the Town needs to get plans, find the cost, and come back to the Council for a decision.  It will come before the Council two more times before any money is spent on construction, should they decide to proceed. 

 

 

 

 

 

The Mayor also pointed out that putting potential construction money in the budget sends a signal to the landlord that the Town may no longer be renting his space after the first half of 2016, which motivates him to find commercial tenants.  Mr. Farrar said this doesn't detract from economic development, but runs parallel to it.  The Vice Mayor added that if Mr. Klemp does find tenants, the Town could inadvertently discourage the deal with Mr. Klemp's new tenants if the Town was unable to vacate in a timely fashion.  

 

 

 

 

Mr. Farrar questioned whether the money Cave Creek pays for the operation of the combined court goes into a restricted fund.  Mr. Keen answered that it goes into the General Fund .  Mr. Crane asked if Cave Creek will continue to pay should the lease be terminated.  The Mayor explained that the money from Cave Creek is designated to operate the court.  It is part of the IGA contract and won't change.

 

 

https://vimeo.com/93117958

 

 

 

Lyn Hitchon

 

 

 

 

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