Tower council approves changes for charter school loan

City will provide down payment of $100,000 and increase TEDA budget to meet bank rules

Marshall Helmberger

TOWER- The City Council here, on March 21, agreed to make a down payment and dedicate additional funding to the city’s economic development authority to help meet the requirements of a bank loan to fund renovations at the new Vermilion Country charter school. The vote was 4-1, with Councilor Ed Majerle objecting.

The council, earlier this month, voted unanimously to proceed with the renovations and awarded the project to the low bidder, Max Gray. The council, at the time, had expected to secure financing from Frandsen Bank in Tower for the total cost of the project, estimated at $500,000.

But Frandsen Bank officials, during meetings with city officials, said they would require some city participation in the form of a down payment, and also needed some other assurances that TEDA would be properly funded by the city to insure payback on the loan.

The project is complicated by the fact that the building itself is owned by TEDA, which has legal authority to borrow, but has a very limited budget. The city of Tower has substantial assets to back a loan, but is prohibited from borrowing from a private lender, or offering a written guarantee for TEDA.

State lease aid from the charter school will provide TEDA with sufficient cash flow to repay the loan, but bank officials wanted a further guarantee from the city. The council called a special meeting to meet those concerns.

Not everyone was on board, however. TEDA member Brenda Broten asked the council to send the entire issue back to the TEDA board.

“I feel this is a TEDA issue, not a Tower issue,” she said. “TEDA should be doing the financing work.”

Broten also presented information to the council, which she stated was from the TEDA bylaws, asserting this view. But it turned out that the bylaws submitted were not from TEDA, but from another city’s EDA.

Tower Mayor Steve Abrahamson noted Broten’s concerns, but said that the city is responsible for approving the changes for the bank. The city is making the down payment with a $100,000 withdrawal from the city’s forestry fund, and will increase TEDA’s budget, on paper at least, by increasing its revenue to a level sufficient to meet the annual loan repayment cost of approximately $55,000. Those revenues will be provided by the charter school lease, which will be paid to the city and flow through to TEDA. The charter school has committed to a minimum lease payment of $70,000 annually, with $55,000 going to loan repayment, $10,000 to repay the forestry fund, and $5,000 to retain for repairs and maintenance to the building. Higher lease payments, which could run in excess of $100,000 annually depending on student enrollment, would allow the city to repay the bank loan more quickly.

While most council members were comfortable with the arrangement, Councilor Ed Majerle asked why Frandsen Bank hadn’t given final approval for the loan. He said the Mayor, at the previous council meeting, had told the council that the financing deal was in place.

Deputy Clerk Linda Keith noted that the bank was still waiting for the city’s most recent financial statement from the city’s accountant, as well as a vote from the council agreeing to the proposed changes.

“I talked to Diane Meehan [President at Frandsen Bank of Tower] and she said they aren’t ready yet,” Majerle said. “Aren’t we putting the cart before the horse?”

Majerle noted that he supports the charter school project, but was bothered by the fact the financing deal was not yet in place before coming to the council for approval.

Majerle wondered what would happen if the council approves the financing, but the bank then decides not to lend the money to the city.

“Usually you get financing up front, before you buy something,” Majerle noted.

Abrahamson noted that the city is also working with another area bank, and has several backup financing options available.

“We have the collateral and the ability to pay,” Abrahamson said.

Abrahamson noted that the city needs to show the bank they are willing to put up the $100,000 and make the other accounting changes requested, before the bank will approve the loan.

Council members discussed the importance of bringing a grade 7-12 education option back to Tower.

“This will help keep our elementary school open,” said Abrahamson, “and will help attract new families to the area. Being in the real estate business, one of the first thing people look at is the quality of the schools.”

Council member Josh Carlson agreed that the high school option will help keep the elementary school enrollment at a healthy level.

Council member Lance Dougherty noted that once the renovation loan is paid off, the charter school’s lease payments will be a significant revenue source for the city.

Broten asked what would happen if the school “goes down.”

“How do we regenerate this money?” she asked.

Abrahamson said the city council is planning to sell some hunting lands in the Mud Creek area, which could be used, if needed, for the loan repayment, and also as city funding for the harbor restoration. The city owns eight 40-acre parcels in the Mud Creek area.

TEDA member Muriel Scott noted that once the renovations are completed, the building will be up-to-date and suitable for other uses besides the school. The building, prior to renovations, has been appraised at $370,000.

TEDA had not been receiving lease payments on the Powerain building for the last several years. The building construction was originally funded with a loan from the IRRR, and the city had used lease payments to repay the loan. The IRRR forgave the loan to the city last year, so the city could proceed with the renovations for the charter school.

The city is expecting to hear the final decision from the bank any day, and is also negotiating with a bank in Ely for the loan.


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