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051407 CC WS MinCITY OF SHOREWOOD CITY COUNCIL WORK SESSION MAY 14, 2007 MINUTES 1. CONVENE CITY COUNCIL WORK SESSION 5755 COUNTRY CLUB ROAD COUNCIL CHAMBERS 7:30 P.M. or Immediately Following Regular City Council Meeting Mayor Lizee called the meeting to order at 9:15 P.M. A. Roll Call Present. Mayor Lizee; Councilmembers Callies, Turgeon, Wellens, and Woodruff; Administrator Dawson; Attorney Keane; Finance Director Burton; Planning Director Nielsen; Director of Public Works Brown; and Engineer Landini; and Don Swandby, Liquor Operations Manager Absent: None B. Review Agenda Without objection from Council, Mayor Lizee proceeded with the Agenda for the meeting. 2. UPPER LAKE MINNETONKA YACHT CLUB Director Nielsen provided a recap of the actions that led up to the City filing a criminal complaint against the Upper Lake Minnetonka Yacht Club (ULMYC). The ULMYC had applied for a conditional use permit as a sailing club in 1978. The resolution approved in 1978 granting the C.U.P. to the ULMYC did not specify sail boats (it only referred to boats). In 2005 the City began receiving complaints from neighbors of the ULMYC alleging that the ULMYC had been renting slips for power boats. In 2006 the City again received complaints for the same reason from the neighboring residents of the ULMYC. The City had asked the ULMYC to cease renting slips for power boats, but to no avail. The City then took legal action against the ULMYC. At an Apri124, 2007, hearing on the matter, District Court Judge Porter dismissed the matter; it appeared he focused solely on the resolution, which did not specify sail boats. Attorney Keane clarified that a misdemeanor tab charge (basically a citation) was issued against the ULMYC, seeking a charge that the ULMYC was in violation of the City's Ordinance by intensifying an existing nonconforming use by the addition of motor craft in the sailing slips. He stated that slightly over two years ago the City had received a favorable ruling in Federal court with regard to the Shorewood Yacht Club (SYC) matter when a judge concluded that the SYC was in violation of its C.U.P. by renting slips to power boats. Based on that ruling, the decision was made to seek an expedited process of enforcement and a citation was issued with a misdemeanor complaint. Director Nielsen stated the neighboring residents to the ULMYC had concern with slips being rented for power boats because it could result in the ULMYC in effect becoming a marina. Director Nielsen suggested a solution to resolving this matter would be to conduct a public hearing to amend the C.U.P. resolution approved in 1978 to specify sail boats only; that change would be consistent with the application that was submitted. The process that would be followed would be the same as the CITY OF SHOREWOOD WORK SESSION MEETING May 14, 2007 Page 2 of 9 process followed for granting aC.U.P. - a notice of the hearing would be published; residents within 500 feet of the ULMYC would be notified; the Planning Commission would hold a public hearing and make a recommendation to the Council; and the recommendation would come before Council for consideration. Attorney Keane clarified that the action the City took against the SYC was a civil enforcement action. The action taken against the ULMYC was a criminal prosecution which has a much higher standard (beyond reasonable doubt). Director Nielsen noted that the resolution for the SYC was specific to sail boats. Keane stated it was an error of omission in the resolution for the ULMYC not to specify sail boats and to be consistent with the application. Councilmember Wellens stated that the ULMYC had won the case, and it operated consistent with the City's zoning regulations. The City was now considering changing the rules after the fact. Mayor Lizee disagreed because the Council meeting minutes reflected that the C.U.P. was approved for the ULMYC as a sailing yacht club. Councilmember Callies stated usually the applicant requested an amendment to a C.U.P. Attorney Keane stated he did not think there would be an issue if the City initiated the amendment. Councilmember Woodruff stated that although he was not a member of the ULMYC, he did sail out of the ULMYC. He assumed that the ULMYC would challenge the City's desire to amend the C.U.P. In response to questions from Councilmember Woodruff, the following comments were made. Attorney Keane stated that Judge Porter did not specifically say the ULMYC could rent slips for power boats. Director Nielsen stated that the ULMYC claims that when a person pays for a slip rental they become members of the ULMYC, although he did not think that person received all the benefits a regular Club member was entitled to. Woodruff commented that the location of the ULMYC was not in an area that would be suitable for a commercial enterprise. Attorney Keane stated Judge Porter considered the narrow question of the complaint the City filed - would the complaint constitute a violation of the City's Ordinance by virtue of intensifying an existing nonconforming use by converting sailing slips to motor boat slip rentals. Judge Parker stated that the complaint would not satisfy the test of "beyond reasonable doubt". Councilmember Woodruff questioned if it should be Council's intent to restrict the use of the slips to members of the ULMYC. Director Nielsen stated the amendment should reflect the ULMYC's intent in its original C.U.P. application, and that would be consistent with previous resolutions for the ULMYC. Councilmember Wellens questioned if it would be appropriate to allow the ULMYC to use 20% of the slips for power boats -the market for the sailing clubs had changed. Attorney Keane stated that the he did not think the City's Ordinance contained a legal definition of a "club", although there were legal definitions of clubs contained in other ordinances. Councilmember Woodruff stated that he did not think the ULMYC had strict restrictions with regard to Club membership. Attorney Keane stated the City could pursue the civil enforcement path instead because the City would have greater rein as an evidentiary matter to offer the original application, which referenced a sailing yacht club, as well as meeting minutes and staff reports which also referenced a sailing club. If the City amended the C.U.P. resolution the League of Minnesota Cities Insurance Trust would defend the City because it was a regulatory taking. He recommended amending the C.U.P. CITY OF SHOREWOOD WORK SESSION MEETING May 14, 2007 Page 3 of 9 Director Nielsen stated that the ULMYC had tried to have its property rezoned to L-R, Lakeshore Recreational District, but the request was denied. Mayor Lizee stated she would support moving forward with the amendment process. Councilmember Woodruff stated he would support conducting a public hearing with regard to an amendment. Councilmember Callies questioned if the City Attorney's office had done any research with regard to the City requesting an amendment to a C.U.P. that had been granted. She stated the legal question would be if the City had the authority to change the conditions of a C.U.P. it had previously granted. She then stated the City would actually be clarifying the C.U.P. Attorney Keane stated the ordinance was not clear with regard to the City's authority to amend a C.U.P. The Statute was not clear. He stated he could have someone research if there had been any court cases interpreting that question. He then used the following analogy of an applicant changing the use of a C.U.P. - if the City had granted a C.U.P. for gravel operations and the gravel operator wanted to add an asphalt hatching plant, the City would be free to hold a public hearing to consider revocation of the C.U.P. or amend the terms of the C.U.P. in light of the changed use. There was Council consensus to move the amendment process forward following the established Planning Commission process for granting C.U.P.s. Councilmember Wellens stated that Council had not received notice that the City was initiating legal action against the ULMYC. He stated that he wanted to receive similar information in advance in the future. Attorney Keane stated that he recollected that there had been discussion with the Council regarding the complaints the City had received from property owners; and that the City could pursue civil enforcement or legal enforcement, and the City chose to pursue legal enforcement. Director Nielsen stated that he would notify Council of future land use violations resulting in legal action by the City. Director Nielsen questioned if the ULMYC would take legal action against the City to stop an amendment to the C.U.P., or would the ULMYC again rent slips for power boats and wait for the City to take legal action against it which could result in the League of Minnesota Cities Insurance Trust not representing the City in an enforcement action. 3. 5795 COUNTRY CLUB ROAD Administrator Dawson stated that Ascending Praise Church (APC) had not responded to the City's demand letter by April 30, 2007. He then stated at an Apri123, 2007, Council work session it was stated that Attorney Keane would have recommended that the next course of action would be to pursue an expeditious remedy in small claims court. Councilmember Turgeon stated that APC did not exist. Councilmember Woodruff stated an article published in the Sun Sailor stated APC had dissolved last year and Pastor Nyambu now worked for Livingwaters Church. Attorney Keane stated APC was appropriately in existence with the State when the City entered into the original lease in 2005. Administrator Dawson stated that he had received an announcement in August 2006 that APC was "going" with Livingwaters Church, but what that meant was unclear. CITY OF SHOREWOOD WORK SESSION MEETING May 14, 2007 Page 4 of 9 Councilmember Woodruff had two questions - 1) what should be done with the house; and 2) was there any opportunity to recover some of the City's losses. Attorney Keane stated that the City could proceed in small claims court if it sought to recover up to $15,000. Councilmember Woodruff stated the demand letter requested approximately $17,000. Keane stated it would be possible to determine if APC was in existence; anon-profit organization would have to be on file with the Secretary of State. Councilmember Callies stated if APC was in existence it could be a suit in reconciliation court. The City could choose not to partake in a suit because APC entered into the arrangement to help a Hurricane Katrina family. She then stated if the lease arrangement had not been entered into, the City would not have made any profit from the rental of the property. She also stated the Hurricane Katrina family was more irresponsible than APC in this matter. Councilmember Turgeon stated it was APC's obligation to pay the rent. Callies stated because the arrangement was entered into as a charitable deed and that didn't work the way it was intended, it may be appropriate to not pursue legal action. Councilmember Turgeon stated APC made the agreement with the City, and it was APC's responsibility to ensure the family was treating the house with respect. Councilmember Woodruff stated Council owed it to the residents at a minimum to try and recover costs to restore the house to habitable condition. Attorney Keane stated the City insisted the lease be with a sponsoring organization so that organization was responsible for the conduct of the family. There was Council consensus to direct the City Attorney to pursue further legal action. Attorney Keane stated it would be easy to determine if APC was still in existence; he did not think it would be an easy task to determine if APC had any financial resources to go after. He then stated it would be possible to get an injunction against an entity that existed. 4. PAYMENT OF CLAIMS PROCESS Administrator Dawson stated that this issue had been discussed at an April 23, 2007, Council meeting. Councilmember Turgeon had provided information from the League of Minnesota Cities with regard to payment of claims, and she requested comments from the City Attorney and further discussion by Council. Councilmember Woodruff had requested a listing of the claims paid in February, March and April and the associated issued and cleared dates. Dawson then stated that Council had been provided information on the process Staff had used for payment of claims for approximately 15 years; many claims had been paid prior to Council authorization during that time period (e.g. judgments, certain principal or interest obligations, rent, fixed changes determined under previously Council-authorized contracts, and wages). Council had also been provided with comments from the City Attorney with regard to procedures for paying City claims. Councilmember Woodruff stated that from his perspective the policy currently being followed was not in conformance with State Statute. Attorney Keane stated the City may not have previously been in strict conformance with State Statute, but it was currently in conformance with State Statute; once the issue had been raised the City had been adhering to the requirements of the State Statute. Director Burton stated the City was in conformance. She then stated that check number 44133 to the Senior Community Services had been voided. She went on to state that the decision to issue that check had been made because it was believed that it had received prior approval through the budget process and also had been part of a public discussion. A check for an amount of $6,500 was issued as the replacement check for the voided check. CITY OF SHOREWOOD WORK SESSION MEETING May 14, 2007 Page 5 of 9 Councilmember Woodruff stated that he had asked Staff about the process for payment of claims before, and he had been told that Council had the opportunity to remove an item from the list before a check was released. He then stated because a certain process had been followed in the past, it did not make that practice right. Director Burton recommended that the new process would be for Staff to print and hold all checks, with the exception of payroll related checks, until Council had approved the claims. She then stated that was not common practice for cities of similar size. Councilmember Wellens stated he wanted the process to be done the way Council had been told it was done. He did think it was appropriate to release payments for judgments, certain principal or interest obligations, rent, fixed changes determined under previously Council-authorized contracts, and wages prior to Council approval. Councilmember Woodruff agreed with that statement. Director Burton stated there had been previous discussions regarding the fact that some claims that were paid and released prior to Council approval. Councilmember Turgeon stated there were a number of claims that could be paid and released prior to Council approval. She then said that regular bills had also been prepaid. Councilmember Callies stated that Director Burton acknowledged that past practice was to release certain checks prior to Council approval. She agreed with Burton's recommendation for changing the process. There was ensuing discussion with regard to what claims Staff could issue without prior Council approval. There was Council consensus to follow the practice to print and hold all checks, with the exception of payroll related checks, until Council had approved the claims. Attorney Keane respectfully excused himself from the meeting. 5. SHOREWOOD LIQUOR OPERATIONS Administrator Dawson stated the topic of the future of the City's liquor operation business was continued from a March 26, 2007, Council work session. Subsequent to that work session Staff had prepared the following budget projection scenarios and exit scenarios: revised 2007 budgets for each store based on 2006 actual performance, the recent personnel reduction, and activity in 2007; closing the Waterford store on June 30, 2007; aone-store (Shorewood Plaza) operations through December 31, 2008; and operating both stores through December 31, 2008. The exit scenarios also included the exit timeframe(s) needed to vacate the store(s); the disposition of equipment and inventory; and the probable period of time needed to sell the store(s) and a likely range of the sale price for the business(es). Dawson then stated the City had engaged the services of a business valuation consultant. The report that was produced was considered anon-public report because it contained information that could be used to the City's disadvantage during negotiations for the sale of the store(s). He also stated it was assumed that the strip-mall owners would want to continue to have a liquor store as a tenant; that was a key assumption when determining the value of the business(es). Dawson went on to state that discussions had taken place with an owner of the Waterford Center regarding amending the current lease to reduce the month-to-month rent to 110% of the past rent CITY OF SHOREWOOD WORK SESSION MEETING May 14, 2007 Page 6 of 9 (retroactive to the lease expiration date of March 31, 2007), provided the City provided afour-month termination notice. The lease could be continued on a month-to-month basis with the rent increasing to 125% of the past rent with aone-month termination notice. Dawson explained that income net of depreciation for both stores would be positive in 2007. Sales increases would likely be gradual over time. Dawson stated that based on the information gathered and prepared, if the City were to exit from the liquor operations business the City would receive the most value by keeping both stores in operation until they can be sold separately and simultaneously. Mayor Lizee commented that the report from the business valuation consultant stated that 50% of liquor stores sold in 180 days or less, the other 50% took up to 600 days to sell. Councilmember Woodruff stated the budget projection scenarios prepared satisfied his request made at the March 26, 2007, work session. The projection scenarios were then discussed. The following comments and clarifications were made. • Depreciation remaining for the Shorewood Piaza store (Store 2) was approximately $98,000, and it was approximately $5,400 at the Waterford Center store (Store 1). • If Store 1 was closed and the inventory was transferred to Store 2, the inventory would be transferred at the cost of the goods at the time of the closing. • The recently terminated employee had filed for unemployment; those benefits would be paid until that individual found employment or until the unemployment benefit period expired. • The combined net income increased significantly between 2007 and 2008 because of the reduction of one employee and the unemployment expense. • Other Income/Expense amounts for 2007 and 2008 were the same as 2006 actual. • If the 2007 revised budget projection did not include interest income, there would be a significant operating loss. Councilmember Woodruff stated that based on the revised budget projection, the City's liquor operations business was not "much of a business". The business should be making 5% - 8% without interest income; and the City should not be in any business that did not make a significant profit, and preferred the City to be out of the business sooner rather than later. Councilmember Wellens stated that his objection to the City being in the liquor operations business was philosophical; the City should not compete with the private sector. He wanted the City to be out of the business sooner rather than later. Mr. Swandby stated that interest the City would earn, based on the average price the City could expect to receive for the sale of the business, was approximately $26,000. The amount the liquor operations contributed to the bank account was approximately $60,000. There was ensuing discussion with regard to the possibility of synchronizing the lease expiration dates for the two stores, and if that would make sound business sense. There was a State law that did not allow - municipal and off-sale liquor operations to exist in the same city. The stores would have to be sold at the same time and opened simultaneously; or one, if not both, would have to be closed. If the stores were closed before the lease on Store 2 expired, the remaining lease could be paid out of the proceeds or the CITY OF SHOREWOOD WORK SESSION MEETING May 14, 2007 Page 7 of 9 store could be sub-leased to new tenants. Store 2 would have to be put up for sale prior to its lease expiration. Mayor Lizee stated that one of the reasons the City entered into the liquor operations business was to control the point of sale. It would be the best value to sell both stores and sell them at the same time. The viability of the market should influence the possible sale of the businesses. It was stated that the City would be selling the goodwill of the business and the inventory. The City also would have the authority to grant a liquor license to the two new owners; and it could consider restricting the issuance of additional liquor licenses for a to-be-determined time period. It was noted that the consultant's report contained a list of liquor stores that had been sold; but there were a limited number that had been sold in Minnesota. With regard to the lease at Store 1, Mr. Swandby stated the City could consider extending the lease such that it expired at the same time as the Store 2 lease for rent amount equal to or even less than the past rent. To have a lease in place would be an asset for a potential buyer. He then stated if the City intended to sell the stores, they should be put up for sale now. He recommended that the City keep both stores. Councilmember Wellens and Councilmember Woodruff stated they would support an amendment to the lease for Store 1 (110% with a 4-month termination notice) and to put the two stores up for sale. Mayor Lizee stated she did not support selling the liquor operations businesses. She questioned how the City would replace the revenue it received from liquor operations. Councilmember Callies acknowledged that liquor operations did not generate a significant amount of revenue. She stated she did not believe it was the appropriate time to consider exiting the business. She then stated because the decision regarding the future of the City's liquor operations business was such a major decision, she suggested the City re-evaluate this topic in a year. She also suggested that lease expiration dates brought in sync. Councilmember Turgeon stated she was not sure what the best approach to exiting the business would be. She thought the location of Store 1 was not an ideal location. She questioned why the City should not give notice to vacate Store 1 now. Mr. Swandby clarified that for Store 2 approximately $6,000 - $10,000 in profit could be realized in the fourth quarter of 2008 based on the 2008 budget projection. Councilmember Woodruff stated that loss in profit should be considered if the store was to close at the end of September 2008. Council gave direction to Mr. Swandby to research the feasibility of amending the lease for Store 1 to expire on October 31, 2008, and to reduce the rent for that lease period to less than it was in the past. Council would review his findings at a June 25, 2007, Council work session. 6. REVISIT 2007-08 GOALS AND PRIORITIES Administrator Dawson stated that Councilmember Woodruff had requested clarification of what effort should be made on the following April 2007 -March 2008 goals and priorities: item 11 -work on a new design for website and newsletter; item 13 - develop a database for historic/cultural/architectural buildings and features; item 15 -set up a public access/computer kiosk in the front lobby of City Hall; and item 16 -research electronic City Council packets. He explained that those items reflect on-going work of Staff or the commissions. CITY OF SHOREWOOD WORK SESSION MEETING May 14, 2007 Page 8 of 9 Councilmember Callies questioned if it was Councilmember Woodruff's intent to take the items of the list, and if it was she did not agree with that. Councilmember Woodruff stated it was his understanding that efforts would not be expended on those items. He then stated that from a scheduling perspective those four items would be completed before higher ranked items. Councilmember Callies stated some items on the list do not consume the same amount of staff resources as other items; therefore, she did not think it was a problem to leave them on the list even though they may not be completed. Administrator Dawson explained that the website redesign would require staff time only. The historical database was included in the Planning Commission's 2007 work program and would be mainly Staff effort; the kiosk was a low cost item and was budgeted for; and the electronic packets item was a reminder to stay abreast of what technology was available to do that. Councilmember Callies suggested the goals and priorities remain as is. Councilmember Turgeon stated the schedule date should be changed to late in the year. Administrator Dawson stated that the four items would not require any Council activity. Councilmember Woodruff stated the schedule depicted completion dates; he questioned if Staff should be working on those activities. Councilmember Turgeon stated she would not approve the installation of a kiosk until she had been presented with the costs to install and maintain the kiosk. She also wanted cost information for the redesign of the website and newsletter. Councilmember Callies stated Council had discussed the goals and priorities at previous meetings. Councilmember Woodruff stated that a document from Administrator Dawson indicated that some of those four items would be completed in the near future. Councilmember Turgeon stated it was her understanding that there would not be an issue with the items remaining on the list provided that the completion date did not consume resources that should be used to complete higher priority items. Administrator Dawson clarified that the probable Council work session calendar to discuss various items on the goals and priorities list did not include other work sessions. Councilmember Woodruff requested that Staff provide Council with any significant updates to previous assumptions relating to the future of City Hall before the June 11, 2007, Council work session. 7. OTHER There was no other business for discussion. CITY OF SHOREWOOD WORK SESSION MEETING May 14, 2007 Page 9 of 9 8. ADJOURN Mayor Lizee adjourned the City Council Work Session Meeting of May 14, 2007, at 11:17 P.M. RESPECTFULLY SUBMITTED, Christine Freeman, Recorder ATTEST: ,~-,,~ ~ _~ p a_ '-r- -- -- ---- Craig W. - awson, City Administrator/Clerk Christine Lizee, Mayor