01-0196R

RESOLUTION AUTHORIZING THE TERMINATION OF THE DECC IMPROVEMENT AGREEMENT DATED FEBRUARY 1, 1999.

BY COUNCILOR NESS:

        BE IT RESOLVED, by the city council of the city of Duluth, Minnesota, as follows:
                1.     Findings.
                        1.01     In connection with the $12,000,000 grant received from the state of Minnesota for the purpose of planning, designing, constructing and equipping capital improvements to the Duluth Entertainment Convention Center and the $8,000,000 general obligation DECC improvement bonds, Series 1999A, issued by the city (the "bonds"), the city and the Duluth Entertainment Convention Center authority (the "authority") entered into a DECC improvement agreement dated as of February 1, 1999 (the "DECC improvement agreement"), a copy of which is on file with the clerk as Public Document No. ___________.
                        1.02     The DECC improvement agreement provided that commencing January 1, 2002, $10,000 per month of the sales and excise tax revenues to be disbursed to the authority for support and maintenance of the DECC were to be pledged and appropriated to pay a portion of the principal of and interest on the bonds.
                        1.03     As part of the improvements to be constructed for UMD locker room facilities at the DECC, the authority now requires use of the $10,000 monthly sales and excise tax revenues to pay for a portion of the financing costs for these improvements.
                        1.04     The council and the authority believe the DECC improvement agreement should be terminated, and the sales and excise tax revenues should be made available for the UMD locker room improvements.

                2.     Authorization and approval.
                        2.01     The mayor and the clerk are authorized to execute an agreement which terminates the DECC improvement agreement.



STATEMENT OF PURPOSE:  The purpose of this resolution is authorize the mayor and the clerk to enter into an agreement terminating the DECC improvement agreement dated February 1, 1999. In 1998, the DECC received a $12,000,000 state grant to be used toward its $20,000,000 expansion, parking ramp and other improvements. The grant required that the DECC or city contribute $8,000,000 toward the project which it did in the form of an $8,000,000 City of Duluth general obligation DECC improvement bond with a 15 year term. This bond was to be paid off from two sources: 1.) A 1/2% increase in the food and beverage and the hotel-motel taxes dedicated exclusively to the bond which sunsets when enough funds have been accumulated to retire the bonds early. 2.) A monthly contribution of $10,000 which will be taken from the DECCs mandated 65% of the 3% hotel-motel tax. The DECCs $10,000 contribution was formalized in the "DECC improvement agreement." Because of growth in tourism taxes, it appears that this bond will be paid off in ten years rather than the originally planned 15 year maturity schedule.

It now appears that in order to keep UMD hockey as a DECC tenant, it will be necessary for the DECC to construct $1.9 million of locker room improvements for the UMD mens and womens hockey programs commencing in April 2001. UMD hockey is the DECCs largest tenant and one of downtown and canal parks biggest winter draws to these business areas. In order for the DECC to pay for the $1.9 million improvements, it is beneficial to the city, UMD, and hospitality community to terminate the above described DECC improvement agreement which will allow the DECC to redeploy the $120,000 toward the debt service on the $1.9 million UMD leasehold improvements. This $120,000 amount, along with approximately $50,000 annual interest savings derived from refinancing the DECC Omnimax bond issue will have accumulated $170,000 toward the expected $190,000 annual lease payment on the locker room improvements.