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Grand Forks City Council to decide what to do with $872,000 in Alerus Center losses

GRAND FORKS, N.D. - The city of Grand Forks is preparing to write off $872,000 worth of operational losses at the Alerus Center, including what appear to be losses from some concerts earlier this year.

The issue is coming before the City Council's finance committee today because of a recent legal interpretation that essentially cut off a funding source meant for the Alerus Center.

"Nobody did anything wrong here; everything's been accounted for," finance committee Chairman Doug Christensen said.

By this he meant the city already has paid for the losses with the economic development fund, so these are not new losses. But, until recently, city staff thought they would eventually transfer the Alerus Center fund back into the economic development fund.

A little less than two-thirds of the losses occurred before 2008, according to city documents. Of the remaining third, some came from concerts by Neil Diamond, Michael W. Smith and Disturbed.

It's not clear where that money went, though, because it didn't go into the concert fund that the council gave to the Alerus Center to attract big concerts. As of the last report in November, the concert fund, which started the year with $250,000, had only $1,000 in it.

This latest chapter in the Alerus Center saga really began last fall, when a council member wanted to know if the ¾-percent sales tax dedicated to the Alerus Center could be used for anything else -- say, property tax relief.

After some research, city consultants along with City Attorney Howard Swanson determined that both the covenant with the center's bond holders and the city charter forbade such a practice.

This was cause for concern for then-Finance Director John Schmisek. The bond covenant said the ¾-percent sales tax could be used to pay for losses at the Alerus Center. But he learned that the city charter wouldn't allow that.

According to the charter language, which voters approved in 1996, the city may only use the ¾-percent sales tax to make bond payments and pay for building improvements.

Therefore, all the operational losses Schimsek had hoped to make up with the ¾-percent Alerus Center sales tax had to stay in the economic development fund.

From now on, that's what will subsidize all operational losses, which could include losses in the concert fund.

The economic development fund gets its money from the other sales tax, the ½-percent city sales tax. Altogether, the center will get subsidies from the hospitality tax, already going directly into operations -- the ½-percent city sales tax and the ¾-percent Alerus Center sales tax.

That the concert fund might well come out of the economic development fund raises questions about how much risk the city should expose itself to.

The council set up the fund in 2004 because Alerus Center officials said the competitive market for big name concerts require the center to offer financial guarantees. For example, if an artist didn't make a certain profit, the center might have to pay the difference.

The Herald attempted to contact the center's Executive Director Steve Hyman on Monday, but he has not been available. Previously, he had indicated that losses were not surprising because the point of the fund is to allow the center to take such risks.

Asked if big losses were justified, Alerus Commission Chairman and council member Curt Kreun said the policy on how the fund should be used may need change. It's increasingly clear, he said, that the center can make a greater impact to the local economy and its bottom line if it focused more on conventions.

Alerus Center officials have repeatedly pointed out, though, that the impact the center has on the local economy and the sales tax the city fetches justifies a certain level subsidies.

The center recently reported that it had a $20.3 million economic impact in 2008, with $780,000 in sales taxes going into city coffers.

Center officials also point out that the downtown Civic Auditorium, which the center replaced, used to lose $250,000 a year. The Alerus Center reported that it made $67,000 in 2007. 2008 results aren't available yet.