10/14/1986 - City Council Specialm
SPECIAL CITY COUNCIL MEETING
TUESDAY
OCTOBER 14, 1986
6:30 P.M.
I. ROLL CALL
II. CONCEPT REVIEW OF RESIDENTIAL DEVELOPMENT
FOR THE HALL AND ENEBEK PROPERTIES
III. PROPOSED 1987 GENERAL FUND REVISIONS
IV. REVIEW GROUP W SALE TRANSACTION
V. PRESENTATION BY FIRE ADMINISTRATION FOR
PRELIMINARY CONSIDERATION OF FIRE .STATION
NO. 4
VI. OTHER
VII. ADJOURNMENT
MEMO TO: HONORABLE MAYOR AND CITY
FROM: CITY ADMINISTRATOR HEDGES
DATE: OCTOBER 10, 1986
SUBJECT: SPECIAL CITY COUNCIL WORKSHOP
CONCEPT REVIEW OF CHOCK HALL PROPERTY
Originally luncheon meetings were established by Chuck Hall to
meet with the APC on October 17, City Council on October 24 and
Advisory Parks and Recreation Commission on October 31. I
believe he has sent out notices to that effect. Please disregard
the luncheon notice that you are receiving for October 24. Mr.
Hall was notified by this office that he will be given 1 hour
beginning at 6:30 p.m. at the workshop this coming Tuesday to
allow his development team to make a presentation and answer any
questions the City Council might have about his 500 acre plus
residential development.
PROPOSED 1987 GENERAL FUND REVISIONS
Enclosed is a memorandum that addresses the revisions to the
general fund budget as suggested by City Councilmember Ellison.
The City Administrator has provided some background information
and a brief review of each budget item and in many cases the
effect any further reduction would have on the local government
.service or budget program in each department. The public enter-
prise funds were originally scheduled for this Tuesday, however
have been delayed til the next special workshop session allowing
for a final review and consensus regarding the general fund
budget. Approximately two (2) weeks ago the City Administrator
distributed budget sheets with City Councilmember Ellison's
suggested budget reductions. These sheets can be used to follow
the narrative review found in the attached memo.
GROUP W SALES TRANSACTION
Attached is a memorandum that outlines the request for transfer
of ownership and control of cable system as prepared by Ralph
Campbell, Cable Administrator. The City of Burnsville is having
a workshop session on October 14 and will be reviewing the same
memo. Commission Chairman Rick Bertz and Mr. Campbell will be
appearing at the Burnsville workshop session at approximately
7:00 to review and answer any questions the City Council might
have regarding the transfer of ownership and immediately
following that presentation will appear at the Eagan City Council
and answer any questions that might be relevant to the sales
transaction. The resolution attached to the memo will be
scheduled for the October 21 City Council agenda.
PRESENTATION BY FIRE ADMINISTRATION FOR FIRE STATION NO. 4
Acting Fire Chief Schindeldecker and District Chief Southern are
planning to be present at the meeting on Tuesday to review fire
operations and discuss the need and planning effort for Fire
Station No. 4 and acquisition of land for Fire Station No. 5.
The City Administrator has met with both Dick and Ken on several
occasions and prepared a memo that provides some background
information regarding this issue. That memo is attached for your
review.
INFORMATIVE
An MBO update is ready for review by the City Council. Given the
number of items that is scheduled for the workshop on Tuesday the
report will be distributed during the next week and discussed at
a future work session.
City Administrator
Attachment
TLH/cks
MEMO TO: HONORABLE MAYOR AND CITY COUNCILMEMBERS
FROM: CITY ADMINISTRATOR HEDGES
DATE: OCTOBER 8, 1986
SUBJECT: REVIEW OF SUGGESTED BUDGETARY ADJUSTMENTS AS
PRESENTED BY CITY COUNCILMEMBMER ELLISON
A brief review of the recent general fund budget evolution is
important to more effectively focus on the proposed budgetary
adjustments as suggested by City Councilmember Ellison.
During the past several years, the City Administrator and City
Council have practiced a zero base concept while reviewing each
annual budget. Each year the department heads are required to
justify the necessity for each program through review sessions
with the City Administrator and, as a result, the line item
expenses are established according to each program. An example
would be labor and equipment distribution for snow removal.
There are certain items of equipment, necessity for overtime,
equipment parts, motor fuels and other expenses that are taken
into consideration when the snow removal program is evaluated for
budgetary purposes.
It is important to note that most line item accounts vary by two
factors. The first factor is inflation which represents small
percentage adjustments for almost all expenditures. The second
factor is directly related to organizational growth, which in
many cases represents a significant percentage increase for line
item accounts. As the C-ity adds manpower and equipment, the
operating budget increases accordingly. The City is also
experiencing anew tier of local government services such as:
active parkland recreational programs, response to constituent
concerns generating a greater necessity for engineering
technicians and building inspection and in-service training for
all levels of employment. These are a few examples which along
with many special projects as outlined in the MBO, explain why
the level of operating expenses has increased beyond normal
inflation.
As operating budgets continue to increase due to organizational
growth related directly to community growth, the necessity for
the City Council to review and consider ongoing and new programs
is essential. During the past 2 - 3 years, the focus of each
budget review has been existing and new programs. It should be
noted that the City has added very few new programs and struggled
to meet a constant delivery of services with recent budgets.
Most of the budgetary adjustments do impact ongoing or newly
approved programs/governmental services. Given the number of
line items involved in the additional reductions being proposed,
and time constraints, the review of each account within each
department is very brief in the written text. 'The reductions
generally fall into one of the three following categories and
can be analyzed in a general sense prior to the detailed review.
I. Reductions which impact current public policy issues.
Some of the reductions are fairly large in amount and
others are less significant.
II. Reductions of appropriations in 1986 levels in accounts
where there is currently no mechanism or policy to
control the expenditures.
III. Reductions, usually of relatively small amounts, in
accounts where historically expenditures do not
necessarily project current appropriations. The affect
of these reductions will probably not be noticed within
those individual accounts but will increase the
probability that total departmental expenditures will
exceed the budgeted appropriations. The cost of
delivering services in Eagan during this high growth
period is more difficult to control, then at a time
when growth is lower or constant.
The analysis pertains to the budget pages previously distributed
by the City Administrator on behalf of Councilmember Ellison. In
an effort to more clearly present the information those numbers
have not been incorporated within this narrative. The following
is a brief analysis of the impact additional budget reductions
would cause for the operating budget by department.
Mayor and City Council
4360 Insurance - The public officials' liability insurance is
eliminated.
4410 Miscellaneous - This appropriation has been used in the past
for unanticipated expenses as well as offsetting additional costs
incurred for City Councilmembers attending conferences or
schools.
4411 - This reduction impacts an allocation for additional
schooling.
Administration
4210 Office Supplies - The 1984 and 1985 office supplies have
exceeded $750. The increase is due to additional employees and
volume of activity.
4332 Use of Personal Auto - The reduction of $500 would not allow
any funding for use of personal autos by administrative employees
with the exception of the City Administrator.
4350 General Printing and Binding - The reduction of $3,000 will
eliminate one city wide newsletter distribution during 1987.
4411 Conferences in Schools - This reduction would eliminate in-
state travel and training for the Administrative Assistants and
reduce special training for the City Administrator.
4415 - This reduction is hard to evaluate given the uncertainty
of reference materials that may be required in 1987.
Other Cbntractural Services -\The Economic Development Commission
is proposing an advertising brochure and an update of the City
Developers Guide which is estimated at $3,500 and the compost
program/solid waste will require certain expenses of which a
portion is the $1,000 reduction as shown by City Councilmember
Ellison.
Finances
4210 Office Supplies - The bulk of office supplies for the
Municipal Center building are charged to the Finance Division.
With the increased volume of activity, $17,453 was spent in 1985
and it is anticipated that an increase will occur in 1986.
4321 Postage - Legal notices and other required mailings have
increased with the volume of activity requiring an increase in
this account.
4351 Published Legal Notices - The City has an obligation under
ordinance to legal notices which have been increasing each year
due to volume and activity. Actual cost in 1985 was $6,675.
4382 Other Equipment Repair - The City has purchased additional
office equipment which require maintenance contracts. The 1985
actual expense is $14,622. A further reduction from the original
departmental request will cause the removal of maintenance
agreements for certain equipment.
4393 Machinery and Equipment Rental - The City is renting an IBM
copy machine and postage meter and the cost for that equipment is
$2,900.
4410 Misce.l.laneous - The City has filing costs with the Dakota
County Recorder as a result of legislation in 1986. It is
anticipated that these expenses will be approximately $1,200 in
1987.
4411 Conferences and Schools - A reduction of $1,400 would
eliminate certain schooling and training for the City Clerk and
Assistant Director of Finance, as well as, training sessions for
the Director of Finance.
Legal
4311 Professional Services - The Director of Finance has
carefully analyzed expenses for legal services in 1986 and
projected the cost in 1987 to be $180,000. A small reduction of
$5,000 was made by the City Administrator. Another $15,000 will
substantially affect the level of legal service provided to the
City.
Planning and Zoning
4210 Office Supplies — With additional staff and computerization,
office supplies were increased.
4220 Operating Supplies General - This increase is due to City
court enforcement activities and more accurately reflects the
$586 actual expenditure in 1985.
4313 Professional Services Planning, - The City expended
approximately $9,500 in 1985 and it is anticipated that
additional services during these peak growth years will be needed
by outside consulting services.
4350 General Printing and Binding - The Planning Department is
preparing a number of reports for Comprehensive Guide Plans,
Indirect Source Permits and EAW's which require printing and
binding. The actual amount in 1984 was $2,585 which is
considerably higher then the amount budgeted by the department.
4382 Other Equipment Repair - Repairs related to general office
equipment and computer hardware.
4411 Conference and Schools - This reduction would eliminate
specific schooling and specialized training for the Planning
Staff. Additional dollars were budgeted to reflect the increased
personnel in that department.
4412 Dues and Subscriptions - Actual expenditures have averaged
in excess of $600 and with additional personnel the amount was
increased for 1987.
4415 Reference Materials - The exact amount for reference
materials is unknown. however, the $250 appropriation seemed
adequate for costs that might be incurred by the department
relating to special issues such as traffic, commercial and other
growth related issues.
General Government Buildings
4223 Cleaning Supplies - The cleaning supplies for the Municipal
Center Building were itemized at $2,400 for 1987, however,
reduced after further review to $1,800. This cost is tight
considering approximately 35,000 square feet of heavily used
office space.
4224 Uniform Allowance - All maintenance employees receive
uniform allowance with the exception of the custodians. This
amount requests uniforms for two (2j building maintenance
employees.
4230 Repair and Maintenance Supplies - This account has expended
in excess of $1,000 in 1985 for various light bulbs, furnace
filters and many other maintenance supplies to keep the
mechanical, plumbing and electrical systems operating in the
Muncipal Center Building.
4231 Equipment Parts - In 1985, the actual expense was $144. It
is difficult to project what equipment parts may be necessary in
1987.
4371 Electricity - The actual costs in 1985 were $36,579. The
Fire Administration Building was included in that year and
reduced for 1986. However, it is anticipated that the City will
exceed the $26,000 figure in 1986, requiring the additional
appropriation for 1987 as orignally requested.
4383 Building Repair - There are several items considered for
1987 including the installation of a humidifier, the reroofing of
the community room, furnace and air conditioning for the
community room, janitor sink installed and new lighting in the
police dispatch center. The total of all items is estimated at
$8,000. -
4550 Furniture and Fixtures - Two additional tables are required
for the Municipal Center lunch room, a new refrigerator is
required for the lunch room and four electric aircleaners to
remove smoke for employee wellness totalled the amount budgeted.
Police
4210 Office Supplies - The 1985 actual is approximately $4,500.
It appears that number will be exceeded in 1986. The increase is
due to additional manpower, increased police operations and
volume of activity.
4211 Printed Material - Printed material includes investigative
forms, miscellaneous reports and all of the printed material
which has increased substantially due to increased operations.
This amount was reduced to $4,500 by the Administrator.
4220 Operalting Supplies - This account is hard to project,
realizing an expenditure in excess of $8,500 in 1984. The costs
include targets, evidence expenses, photo supplies, flairs,
flashlights, fire extinguishers, oxygen, first aid and many other
related expenses.
4224 Clothing and Personal Equipment - The City has contract
requirements that totalled $20,150. This reduction is not
possible without reducing the clothing allowance benefit through
union negotiations.
4225 Shop Materials - This account is used for cleaning solvent,
antifreeze, windshield solvent, oil paint and other supplies in
the garage area to maintain vehicles.
4230 Repair and Maintenance Supplies - This amount is hard to
control realizing a $500 expenditure i•n 1984 and a $1,300
expenditure in 1985. This account is used for air filters, light
bulbs, gas pumps, security system, garage doors and many other
related supplies for the Police Department.
4233 Building Repairs - The police are proposing repairs to their
heating, air conditioning, locks, video, electrical, plumbing,
generator repair and other related expenses. This amount has
varied from $1,400 in 1984 to $82 in 1985.
4240 Small Tools - The Police Department uses this account for
all items less than $100, including door lock openers, etc.
4381 Automotive Equipment Repair - With the fleet of vehicles'
potential cost for transmission, wheels, general repair,
electronic testing and other vehicular needs is significant. The
amount for repair has, varied from $6,800 in 1984 to $12,000 in
1985.
4393 Machinery and Equipment Rental - These are fixed rental
costs for service contracts totalling the $1,400 figure.
4411 - The Police Department is required to have all police
officers and dispatchers certified in 1987. Also the
Administrative Captain has been approved for the'FBS academy.
With those expenditures, 'investigation seminars, child abuse,
animal control and an annual chief's conference, there are no
dollars to be reduced from the $20,000 appropriation.
4412 Dues and Subscriptions - The City Administrator can supply a
list of all the subscriptions and dues that are paid by the
Police Department which are fixed at the $1,200 figure.
4570 Other Equipment - The City Council had reviewed capital
equipment and reduced this amount to $13,920. This -reduction has
eliminated computer needs and other equipment. Another
reduction w -i 11 eliminate other equipment that was highly
prioritized by the Chief of Police for 1986.
Fire
4210 Office Supplies - The 1984 office supplies were
approximately $600. An expenditure that was reduced to
approx-imately $270 in 1985. Current forecasts indicate that this
account will be exceeded in 1986.
4221 Motor Fuels - Due to the number of fires and emergencies
that increase proportionate to population, this number has
increased each year with an actual expenditure of $6,100 in 1985.
Any additional cut could impair operations.
4222 Lubricants and Additives - The budget amount is based on
service requirements for the number of heavy equipment items used
by the Fire Department.
4224 Clothing and Personal Equipment - Any reduction to this
account would not allow equipment or personal alarms for new
firefighters. There is also an ongoingreplacement due to damage
taken from this account,.
4230 Repair and Maintenance Supplies - It is difficult to
forecast this account given an actual expenditure of $2,200 in
1984 and $1,300 in 1985. Repairs are always anticipated given
the nature of the service.
4350 General Printing and Binding - Direction route books,
section maps, operations manuals, public safety leaflets and
procedural manuals are proposed. for printing in 1987. Any
reduction will cause some of this printing to be eliminated.
4371 Electricity - The cost for electricity has been increasing
each year for all the Fire Departments and Fire Administration
Building. The cost in 1984 was $7,400 while in 1985 it increased
to $8,300. With the cost of living adjustment, the $8,500
original budget amount seemed appropriate.
4383 Building Repair -'Their were a'number of items sited for
building repair in the original budget.. Overhead door
maintenance, heating and cooling system maintenance, replacement
of a furnace at Station $2, painting fire stations and several
other repairs. This amount was substantially reduced by the City
Administrator and City Council in the original adjustments.
Another $3,000 will eliminate the painting of Fire Stations 1 and
3.
4411 Conference and Schools - The Fire Department has always
attended the sectional schools which is their statewide training
each calendar year. The cost for sending volunteers is
approximately $5,000. The Minnesota State Fire Department
Association Convention and all other training seminars represent
the remaining amount of dollars budgeted. Any reduction will
eliminate some training for the Fire Administration.
4412 Dues and Subscriptions - There are a number of periodicals
that the Fire Department subscribes to for tr.aining and
professional development. The 1985 actual expenditure was
$1,000.
4415 Reference Materials - This item represents many of the
training materials which are used by the Fire Department. The
City Administrator has already cut a portion of the reference
materials and any additional cut will impact training aids such
as pumper training officers, hydraulics and other programs
essential to professional development.
Protective Inspections
4211 Printed Material - This account has ranged from $1,000 in
1984 to $2,400•in 1985. Due to the volume of building permit
activity, there is a requirement to print forms each calendar
year.
4220 Operating Supplies General - This budget item is used to
purchase general code books, photo supplies and other materials.
4221 Motor Fuels - Motor fuels were in excess of $3,•000 in 1985
and it is anticipated that with the activity in 1986 and proposed
1987, that this cost will be increased by 208 over 1984.
4222 Lubricants and Additives - This amount is used to service
the fleet of inspection cars.
4224 Clothing and Personal Equipment - The Building Inspections
Department is proposing to purchase safety shoes, hats and
rainwear. There were eight units budgeted at $125 each.
4231 Equipment Parts - Historically, $700 was expended in 1984,
$695 in 1985. The $7.00 budget amount seemed accurate.
4240 Small Tools - The Building Inspections Department is
purchasing tapes, rules, levels, guages and other small hand tool
items periodically to assist their work performance.
4332 Use of Personal Auto - At times when all the inspector cars
are in use, personal autos are used for inspections. They are
also used for training and outstate conferences.
4411 Conferences and Schools - Each calendar year the inspectors
are required to attend schooling on recertification and uniform
building code changes. These training conferences,, in addition
to special training for the Fire Marshal and Chief Building
Inspector, have resulted in increasing expenses due to additional
employees during the past three years.
4412 Dues and Subscriptions - This amount is used for certain
periodicals and it is difficult to determine what references or
subscriptions might be useful during 1987.
ks and Recreation
4210 Office Supplies - The 1985 office supplies have exceeded
$1,000 and 1986 office supplies are espected to. The increase is
due to the volume of activity.
4211 - The increase of funds requested for printed materials is
due to a new labor distribution form for seasonal and full-time
staff.
4220 Operating Supplies - This year's request is nearly $2,400
less than actual 1985 expenditures of $6,400. The amount
budgeted is a conservative estimate.
4221 Motor Fuels - Declining motor fuel costs have been offset by
the addition of area to be mowed and maintained in the winter.
4222 Lubricants and Additives - The increase in funds requested
is due to the addition of equipment and vehicles as well' as an
improved fleet maintenance operation.
4223 Cleaning Supplies - With the addition of five new park
shelters, there is a need to start up and stock a cleaning
maintenance program.
4224 Clothing and Personal Equipment - The amount of funds to be
spent is set in the union contracts, the cost also includes
uniform, shirts for the seasonal part-time employees.
4225 Shop Materials - Increase in the budget request is due to
the increase in the amount of equipment which must be maintained.
4231 Equipment Parts - The increase requested under equipment
parts is due to more pieces of equipment and on a preventative
maintenance program.
4236 Signs and Striping Material - The increase in developed park
land requires the additional signage. A need is seen for
uniformity and consistency which will require replacement of some
signs which are old, worn and in need of replacement/
refurbishment.
4237 Recreation Supplies - An increase in $3,000 is due to the
expansion for programs and the number'of people participating.
4240 Small Tools - The increase is based on staff recommendation
that each Parks employee be equipped with a tool box which he/she
would be responsible for.
4319 Professional Services Instructors - This line item is used
for the payment of umpires and officials in the City'ssports and
recreation programs. This cost is recouped through fees
administration.
4322 Telephone - The increase from 1986 is due to an increase in
nearly all phases of the department's operations, particularly
the recreation supervisor positions.
4332 Use of Personal Auto - The increase from 1986 is due to an
increase in nearly all phases of the department's operations,
particularly the recreation supervisor positions.
4350 General Printing and Binding - The increased request is due
to the addition of a trail brochure as well as the expansion
that is planned for the calendar to include 12 months instead of
nine.
4371 Electricity - Increase is due to the addition of service for
all park shelter buildings, hockey rinks, Rahn Park tennis
courts, new parks and athletic fields.
4376 Gas Service - The increase in costs is due to the need to
provide propane for two additional structures in 1987.
4379 Waste Removal - The increase of $300 from last year is due
to the increase of site locations which require trash pick up.
4381 Automotive Equipment and Repair - The amount requested was
determined by historical data. There is an increase in the amount
due to the amount of new equipment being added to the department.
4382 Other Equipment - The increase in park land to be maintained
has increased the need for equipment.
4393 Rental Equipment - There is a need foreseen to rent a High
Ranger for light re -aiming, as well as a field weed sprayer and
other miscellaneous pieces of equipment which are not deemed
practical to purchase at the present time.
4410 Miscellaneous - The Parks Department is interested in
beginning a volunteer recognition program and training for
departmental staff.
4411 Conferences/Schools - A reduction of $1,500 would eliminate
certain schooling and tr-a.ining for the Park, Director and
Superintendent of Parks as well as the recreation supervisors.
4415 Reference Materials - A reduction in the amount funded for
reference materials will limit staff subscriptions and training
materials which are used in the development of programs and
operations.
Public Works/Engineering
4211 Printed Material - $400 is requested for temporary "No
Parking" signs and $100 for miscellaneous MnDOT forms.
4221 Motor Fuels - An increase of $200 is requested for 1987 due
to the increase in the number of vehicles and the increased
number of field inspections.
4415 Reference materials - An increase of $100 is requested in
order to update outdated reference materials.
4430 Other Contractual Service - $3,600 is requested for the
PAVER annual user fee.
Public Works/Streets and Highways
4224 Clothing and Personal Equipment - The uniform allowance is
set by union contracts. The increase is due to the number of
personnel and includes T-shirts for the seasonal personnel.
4225 Shop Materials - An increase is expected due to the number
of vehicles requiring repair.
4230 Repair and Maintenance Supplies - The amount requested for
198:7 of $2,000 is less than the 1985 actual and the 1986 year to
date.
4234 Street Maintenance Materials - The increase requested is due
to the increased number of miles of streets that must be
maintained.
4240 Small Tools - An increase of $500 is due to small tools
which are needed for the fleet maintenance operation.
4321 Postage - An increase of $150 is due to mailed notices for a
boulevard obstruction enforcement program.
4322 Telephone - The increase of $930 is due to $400 for an extra
line into the new maintenance facility and $500 for the
department's share of annual lease payment for the new phone
system.
4372 Electricity - Street Lights - An increase of $1,000 is
requested because of the increase in the number of street light
installations.
4373 Electricity - Signal Lights - The increase is due to the new
signals along 35E and the new county road improvements. As more
street lights are installed, costs for operation will go up.
4374 Electricity - Lift Station - An increase of $3,000 is
expected due to an increase for the O'Neil Pond lift station and
more runoff from the new development in lift station districts.
4379 Waste Removal - The City has experienced an increase in
right-of-way trash pick up of hazardous waste, barrels, tires,
etc.
4384 Street Repair - There,is-an increased number of street miles
which must be maintained'and repaired.
4386 Communications System Maintenance - An increase of $1,000 is
anticipated in 1987 due to the new radio acquisitions in 1986 and
1987.
4393 Machinery and. Equipment Rental - The amount of $3,000
requested in 1987 is less than the amount of $5,500 that has been
spent in 1986 to date. Machinery rental is necessary as it is
not always practical to purchase infrequently used items.
4412 Dues and Subscriptions - If the amount is reduced, certain
professional memberships will have to be eliminated for
department supervisors.
Summary
City department heads have prepared more detailed information
regarding all line items of the budget. For example, each of the
conferences and training sessions proposed for 1987 are listed in
detail in the worksheets presented by each department head. The
same is true with service contracts for equipment rental and many
other examples. At the risk of preparing a lengthy text in
response to budget reductions or the original budget
presentations, this information is not included for review.
However, the City Administrator is happy to provide any of that
information either verbally or in writing upon request by the
City Council.
Aside from a detailed analysis of each account, it seems
important to realize that budgeting is not a science. Budgets
are prepared as a financial guideline. While expenditures may be
easy to forecast for personnel and. other contractual items, it is
difficult to anticipate for items such as motor fuels, equipment
repair and many other types of expenditures. The City has
experienced a savings in many accounts at year end while other
accounts may exceed budget guidelines established for that
calendar year. Historically, the City Administrator, department
heads and City Council have looked at the bottom line of each
departmental budget at the time of preparation at the year end
audits. Each budgetary account requires some flexibility 'given
the growth and uncertainties of providing governmental services
in the next calendar year. During 1985, with the contingency
taken into consideration, the budget approved for that calendar
year was $5,121,640. The actual expenditures were $5,149,755.
The budget was off by $28,000. At the same time the City
budgeted revenues for $5,121,640 but the actual revenues
collected due to building permits and high growth activities was
$6,047,908. In 1984 the actual expenditures were $64,643 less
than the operating budget with the contingency. During 1984,
revenues exceeded the actual budget by $.334,457.
It is possible to reduce some accounts;; however, there may be a
shortfall caused within a departmental budget due to a necessity
to exceed an expenditure such as equipment repair, motor fuels or
some other account that may be vital to a service delivery.
Certain programs such as the City-wide newsletter, public
officials liability insurance and other related expenses are
public policy decisions and can be reduced and the effect will be
,on our delivery of service not the actual operating budget. The
City Administrator will be, happy to provide any additional
information at the budget workshop session on Tuesday.
p
City Administrator
Attachments
TLH/jeh
Burnsville/Eagan Cable Communications Commission
TO: Linda Barton, City Manager, City of Burnsville
Tom Hedges, City Administrator, City of Eagan
FROM: Rick Bertz Chair, and Board of Directors, Burnsville/Eagan Cable
Communications Commission
SUBJECT: Request for Transfer of Ownership and Control of Cable System
DATE: Thursday, 9 October 1986
RECOMMENDATION
The Board of Directors of the Burnsville/Eagan Cable Communications
Commission recommends that the city councils of Burnsville and Eagan
consent to the proposed transfer of ownership and control of the
Burnsville/Eagan cable system.
RECEIPT OF NOTICE
On 21 July 1986, the Commission received officialnotice from North Central
Cable Communications Corporation (North Central) requesting consent from
the cities of Burnsville and Eagan for a transfer of ownership and.control of
Group W of Burnsville/Eagan, Inc. (Group W -B/E), to North Central. Similar
Burnsville/Eagan Cable Communications Commission
EXECUTIVE SUMMARY: Request for Transfer of Ownership and Control
of Cable System
Thursday, 9 October 1986
letters were received by all Group W Cable, Inc. systems in the Twin Cities
metropolitan area.
Documents furnished by North Central indicate that.the proposed transfer
would be a transfer of Group W Cable, Inc. stock from a consortium of five
cable operators to a new corporation, called North Central Cable
Communications Corporation. This new corporation has two stockholders:
Hauser Cable of Minnesota, Inc. (Hauser) 50%
Continental Cablevision of Minnesota, Inc. (Continental) 50%
Hauser Cable of'Minnesota is a holding company owned by Hauser
Communications, Inc., which is the 29th largest U.S. cable operator with
approximately 307,000 totalsubscribers in three systems' located in
Northwest Hennepin County, Minnesota; Arlington, Virginia; and
Montgomery County, Maryland. Continental Cablevision of Minnesota, Inc.,
Is a holding company owned by Continental Cablevision, Inc. which is the
7th largest U.S. cable operator with approximately 1,300,000 total
subscribers in systems located throughout the U.S..including St. Paul and
Northern Dakota County, Minnesota.
FINANCIAL ASPECTS
North Central proposes to pay $61,215,000 to purchase and operate the six
Twin Cities metropolitan cable systems presently owned by Group W Cable,
Inc. To obtain this amount, North Central has arranged for $50,000,000 in
senior debt from the First National Bank of Boston, $7,660,000 in equity
from Daniels & Associates, Inc., $10,000,000 in equity from Continental
Page 2 of 6
Burnsville/Eagan Cable Communications Commission
EXECUTIVE SUMMARY: Request for Transfer of Ownership and Control
of Cable System
Thursday, 9 October 1986
Cablevision, Inc., and $5,400,000 in deferred taxes. The Commission has
received assurances from North Central, Continental and the First National
Bank of Boston that additional money will be available to cover all
foreseeable operating and capital costs that exceed revenues.
North Central represents that this financing is sufficient to purchase and
operate.the Twin Cities metropolitan area Group W cable systems, including
the Burnsville/Eagan system, and proposes no changes to the franchise.
On 2 October 1986,.following an evaluative process as required by the
Cable Communications Ordinance, the Commission's Board of Directors
voted to recommend that the city councils of Burnsville and Eagan adopt a
resolution approving this request.
Although the cities' consent to the proposed transfer cannot be
unreasonably withheld, the Cable Communications Ordinance requires the
cities and Commission to consider four standards of review regarding=North
Central's-suitability to own and operate the cable system. These standards
are as follows:
1) Technical ability of North Central to operate the:system
2) Legal and character qualifications of North Central
3) Financial stability of North Central
4) Other appropriate factors as determined -by the cities or Commission
North Central has been found to meet the standards of review according to
the information provided to the Commission as of the close of its public
hearing regarding this matter. The Commission finds that no reasonable
grounds to withhold consent for this transfer request exist.
Page 3 of 6
Burnsville/Eagan Cable Communications.Commission
EXECUTIVE SUMMARY: Request for Transfer of Ownership and Control
of Cable System.
Thursday, 9 October 1986
The Commission closely analyzed the financial proformas and other
financial information provided by North Central. This analysis resulted in
requests for clarification from North Central regarding these proformas and
other financial information. The clarifications received from North Central
are as follows:
1) North Central acknowledged that it accepts all provisions of the cable
franchises of Burnsville and Eagan and that it will comply with the
terms and conditions of these franchises. Additionally, North Central
specifically confirmed that it will comply with the line extension
provisions of the franchises. North Central also stipulated that it will
not inititate discussions of changes in the local programming
requirements of the franchises until June 1987, if ever.
2) North Central confirmed that its obligations under the franchises are
guaranteed by the existing $200,000 (per city) performance bonds and
the $30,000 (per city) letters of credit.
3) Continental guaranteed that it will provide to North Central, in addition
tothe $10,000,000 of equity capitalization, $3,000,000,.if required for
the purchase -of additional capital stock or for other business purposes.
4) North Central and the First National Bank of Boston jointly confirmed
that, if additional funding is required, North Central expects to have
additional borrowing capacity available arising from North Central's
expectation that it will be able to obtain senior credits over and above
the basic $50,000,000 credit provided by the First National Bank of
Boston.
5) North Central confirmed that, if it requires additional funding, it will
--first endeavor to utilize any available equity and additional borrowing
Page 4 of 6
Burnsville/Eagan Cable Communications Commission
EXECUTIVE SUMMARY: Request for Transfer of Ownership and Control
of Cable System
Thursday, 9 October 1986
capacity before initiating any discussions:of franchise changes with
respect to the institutional network.
6) North Central and the First National Bank. of Boston confirmed that the
senior debt to annualized operating cash flow ratios reflected in North
Central's financial projections are in compliance with the loan
commitment letter from the -First National Bank of Boston to North
Central -which describes the terms and conditions of the senior debt
loan.
Further clarification in areas not directly related to the grounds for
approving or denying the transfer were also provided by North Central to
the Commission's satisfaction.
In addition, North Central forgave one-half of the obligations of the cities to
repay advanced franchise fees on the condition that the cities act to
approve the transfer no later than 31 October 1986.
If the city councils decide to adopt the Commission's recommendation to
consent to this request for transfer of ownership and control, they may do
so by means of the attached resolution. Please refer to the attached.legal
opinion and resolution. Following council action to approve, the cities must
properly notify the Minnesota Department of Commerce that the transfer
has been approved by the cities.
If the city councils decide to deny the request, they may wish to direct the
Commission to prepare findings of fact supporting such denial.
Page 5 of 6
Burnsville/Eagan Cable Communications Commission
EXECUTIVE SUMMARY: Request for Transfer of Ownership and Control
of Cable System
Thursday, 9 October 1986
MORE INFORMATION
The information in this summary is presented in more detail in the
enclosed memorandum entitled Request for Transfer of Ownership and
Control of Cable System and attachments.
Page 6 of 6
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CROWILLIAM •}••
MEMORANDUM
TO: Tom Hedges, City Administrator - Eagan
Linda Barton, City Manager - Burnsville
FROM: Thomas D. Creighton, Legal Counsel
DATE: October 8, 1986
RE: Transfer of Ownership and Control of Group W Cable
of Burnsville/Eagan, Inc.
As you- are aware, Group W Cable, Inc., by and through
Group W Cable of the Burnsville/Eagan, Inc., requested the
Cities' consent to the transfer of ownership and control in
Group W of Burnsville/Eagan, Inc., to North Central Cable
Communications Corporation ("North Central"). Group,W is
obligated to receive the Cities' approval for this transac-
tion under the Franchise Ordinance.
The Burnsville/Eagan Cable Communications Commission has
undertaken an analysis of the legal, technical, and finan-
cial qualifications of North Central in the transaction. At
its meeting on October 2, 1986, the Commission determined to
recommend to its member cities the approval of the transfer
of ownership of Group W Cable of Burnsville/Eagan, Inc. to
North Central. I have enclosed a copy of the Commission's
resolution.
The complexity of the transaction and the.specific
analysis which was undertaken by the Commission, on behalf
of its member cities, cannot be fully described)in this
memorandum. I have included a copy of a memorandum which
16
explains in detail the transaction. This memorandum was
presented to the Commission and formed a basis for their
recommendation of approval. I have enclosed this memorandum
for your information and for the information of your Council
members.
I have prepared a Resolution for your City Council which
will effectively approve the 'transaction consistent with the
Commission's recommendation. No ordinance amendment is
required. I would ask that you place this matter on your
next Council agenda. If you would like a representative of
the Commission to be present at your Council meeting, please
contact Ralph Campbell, Cable Administrator, at 454-8100.
Additionally, if you should' have any questions concerning _
this transaction, you may contact either Mr. Campbell or
myself.
Following the Council's adoption of the enclosed Resolu-
tion, I would ask that you promptly return it to me at the
above address. Note: North Central has requested that the
attached Resolution be certified according to your regular
procedures for such certification. Please return a signed
copy of this Resolution and the certification to my office
as soon as possible.
Thank you for your cooperation in this matter.
cc: Ralph Campbell
- 2 -
I
0
STATE OF MINNESOTA
COUNTY OF
CITY OF
RESOLUTION NO. APPROVING
THE TRANSFER OF OWNERSHIP
OF GROUP W CABLE OF BURNSVILLE/EAGAN., INC.
WHEREAS, Group W Cable, Inc., a New York Corporation
(hereinafter "Group W Cable"), by and through Group W Cable
of Burnsville/Eagan, Inc.., a wholly-owned subsidiary, owns,'
operates and maintains a cable television system in the City
pursuant to the terms and conditions of City Ordinance No.
(hereinafter "Cable Communications Franchise,
Ordinance"); and
WHEREAS, Group W Cable desires to sell and otherwise
transfer all of the issued and outstanding shares of the
capital stock of Group W Cable of Burnsville/Eagan, Inc. to
North Central Cable Communications Corporation (hereinafter
"North Central") and thereby transfer control of Group W
Cable of Burnsville/Eagan, Inc., to North Central; and
WHEREAS, Group W Cable has requested the consent from
the City to a change in ownership and control of Group W
Cable of Burnsville/Eagan, Inc., to North Central; and,
WHEREAS, the Burnsville/Eagan Cable Communications Com-
mission (hereinafter "Commission") has been delegated the
authority and responsibility to coordinate, administer and
enforce the Cable Communications Franchise Ordinance on
behalf of City pursuant to the terms of a Joint and Coopera-
•
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tive Agreement for the Administration of a Cable Television
Franchise; and
WHEREAS, the Commission has held a public hearing on
behalf of City and has reviewed the legal, technical, and
financial qualifications of North Central and finds no rea-
sonable basis to deny the request for transfer as a result
of said review; and
WHEREAS, the Commission has recommended to City approval
of the transfer of control of Group W Cable of
Burnsville/Eagan, Inc. to North Central subject to the
actual closing of the stock sale; and
WHEREAS,.the Commission has also..recommended approval of
a request by North Central to permit the pledge as security
to its lenders the stock and assets of North Central, and
its subsidiaries, which includes Group W Cable of
Burnsville/Eagan, Inc.;
WHEREAS, the City does not object to such security
interest in the stock and assets.
NOW THEREFORE, BE IT RESOLVED by the City Council of the
City of
1. That the City hereby approves the sale by Group W
Cable, Inc. of all of the issued and outstanding shares of
the capital stock of Group W Cable of Burnsville/Eagan, Inc.
and the transfer of control of Group W Cable of
Burnsville/Eagan, Inc. to North Central subject to an actual
closing of the stock sale transaction on or before December
- 2 -
31, 1986 pursuant to the terms and conditions as evidenced
by the Notice of Transfer to said Commission and City and
all written representations from North Central association
therewith.
2. The City approves the pledge by North Central as
security to its lenders the stock and assets of North
Central and Group W of Burnsville/Eagan, Inc.
The above listed resolution was moved by Council Member
, and duly seconded by Council Member
The following Council Members voted ir the affirmative:
The
The following Council Members voted it the negative:
Passed and adopted this _ day of , 1986.
ATTEST:
Mayor
City Adminis_rator
- 3 -
El
The undersigned, the (Title) of the
(City) , Minnesota, does hereby certify that
attached hereto is a true and correct copy of Resolution No.
, which Resolution was duly adopted by the City Council
on (Date) 1986 and is in full force and effect on
the date hereof.
Name:
Title:
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O'CONNO.R & HANNAN
ATTORNEYS AT LAW
Directors of the Burnsville/Eagan Cable
Communications Commission
Thomas D. Creighton and Mark J. Ayotte,
Legal Counsel
September 10, 1986
Group W Cable, Inc. 'Request for Approval of Trans-
fer of Ownership and Control
Please find below a summary and analysis of the proposed
transaction -regarding a request from Group W Cable, Inc., to
the Member Cities of the Burnsville/Eagan Cable Communica-
tions Commission to approve the sale and transfer of all of
the issued and outstanding shares of the capital stock of
Group W Cable of Burnsville/Eagan, Inc. to North Central
Cable Communications Corporation.
The purpose of this report is to provide the Commission
with an understanding of the transaction and the standard.
for reviewing whether to approve it.
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MEMORANDUM
Directors of the Burnsville/Eagan Cable
Communications Commission
Thomas D. Creighton and Mark J. Ayotte,
Legal Counsel
September 10, 1986
Group W Cable, Inc. 'Request for Approval of Trans-
fer of Ownership and Control
Please find below a summary and analysis of the proposed
transaction -regarding a request from Group W Cable, Inc., to
the Member Cities of the Burnsville/Eagan Cable Communica-
tions Commission to approve the sale and transfer of all of
the issued and outstanding shares of the capital stock of
Group W Cable of Burnsville/Eagan, Inc. to North Central
Cable Communications Corporation.
The purpose of this report is to provide the Commission
with an understanding of the transaction and the standard.
for reviewing whether to approve it.
I. INTRODUCTION
The Member Cities of the Commission had been requested
to approve the sale of stock in Group W Cable of Burns-
ville/Eagan, Inc. to North Central Cable Communications
Corporation. This request arises out of the previous denial
of Transaction #2 wherein the Commission and the Member
Cities disapproved,the sale of stock in your system from
Group W to North Central Cable Communications Company,
L.P. It is important to note that 'although the process and
factors to be considered by the Commission in this request
for approval are similar to the earlier process, this re-
quest is separate and distinct. The Commission should not
rely upon earlier information or previous per-ceptions. The
parties to this request for approval and the information
provided is slightly different from that which the Com-
mission previously considered
This memorandum analyzes the
current proposed transaction before the Commission.
II. DESCRIPTION OF TRANSACTION
A. Background.
Before considering this transaction, the Commission
should be aware of the current structure of Group W Cable,
Inc. The earlier Transaction #1 involving the sale and
transfer of all of.the issued and outstanding shares of the
capital stock of Group W Cable, Inc. from Westinghouse
Broadcasting and Cable, Inc. to the consortium of five
Buyers closed on June 19, 1986. Group W is now supervised
- 2 -
by a Board of Directors designated by the new Buyers. Each
Buyer has primary operational responsibility for the group
of cable systems which iE,had agreed to subsequently pur-
chase or dispose of pursuant to the Buyer's purchase agree-
ment.
The six suburban Minnesota systems had been designated
by the Buyers to be purchased by Daniels & Associates, Inc.
("Daniels"). Daniels had assigned its interests to Daniels
Hauser Holding Company ("D.H. Holdings"), a Colorado general
partnership. Furthermore, D.H. Holdings has assigned its
rights to acquire a number of systems, including the Minne-
sota systems, to North Central Cable Communications, L.P.,
("North Central-L.P.") a Minnesota limited partnership.
Finally, the right to acquire each specific system has been
assigned to North Central Cable Communications Corporation
("North Central"), to whom the present request for transfer
approval is pending. Since the close of the earlier trans-
action, the management of each Minnesota system was immedi-
ately undertaken by North Central-L.P., as agreed by the
Buyers pursuant to a management agreement with Hauser Com-
munications, Inc. This change in management of each system
could legally occur without Commission approval.
B. Proposed Transaction.
The proposed transaction involves a number of different
entities and organizations with a series of assignments of
an interest to acquire the Minnesota cable systems. Note
3 -
that each assignment of the interest to purchase each system
is not a transfer of ownership of the system.
The proposed transaction involves the following primary
entities:
1. Daniels & Associates, Inc. ("Daniels") -- a
Delaware Corporation.
2. Daniels - Hauser Holding Company ("D -H Hold-
ings") -- a Colorado general partnership con-
sisting of Daniels & Associates, Inc. and
North Central Cable Communications, L.P. as
general partners.
3. North Central Cable Communications, L.P.
("North Central - L.P.") -- a Minnesota
limited partnership consisting of Hauser Cable
Communications Inc. as general partner, and
R.E. Hauser, Inc. as limited partner.
4. Hauser Cable of Minnesota, Inc. ("Hauser -
MN") -- a Minnesota corporation.
5. Continental Cablevision of Minnesota, Inc.
("Continental Inn") -- a Minnesota corpora-
tion.
6. North Central Cable Communications Corporation
("North Central") -- a Delaware corporation.
We have reviewed the necessary documentation to conclude
that each of the entities is duly organized and in exis-
tence. The organizational existence of Daniels has been
certified by the Buyers. We have reviewed a Certification
and Joint Venture Agreement regarding'D.H. Holdings, which
constitutes the partnership agreement of D -H Holdings. We
have also reviewed a Certificate of Formation issued by the
Minnesota Secretary of State and Limited Partnership Agree-
ment creating North Central - L.P. We have additionally
been presented with the articles of incorporation and bylaws
•
4
of Continental -MN and Hauser -MN
We have reviewed the
necessary restated articles of incorporation issued by the
Delaware Secretary of State and an Application of Foreign.
Corporation for a Certificate of Authority to Transact
Business in Minnesota, with an acknowledgment of acceptance
by the Minnesota Secretary of State, on behalf of North
Central. The most significant entity for our analysis is
North Central, which is designated as the Transferee. North-
Central is duly organized and is authorized to own and
operate a cablesystem-. The genuineness of all documents and
authenticity of all signatures has been presumed.
To facilitate an understanding of the transaction, it
should be kept in mind that each ofr.the aforementioned
organizations is a separate and distinct entity. D -H
Holdings, North Central L.P., Hauser -MN, Continental -MN, and
North Central are entities which have been created for the
purpose of accomplishing this transaction. A graph setting,
forth the proposed transaction and transition process is
appended to the end of this report.
From the information we have reviewed, it appears that
Daniels is an original member of the Buyer group which
acquired the stock in Group W Cable, Inc. from Westinghouse
Broadcasting and Cable, Inc. in the earlier Transaction
#1. The Purchase Agreement allowed Daniels to assign its
rights to purchase stock in each system to other entities..
We have reviewed a certification indicating that Daniels has
- 5 -
assigned its rights and obligations in the earlier trans-
action to D -H Holdings.
North Central-L.P. has been assigned by D.H. Holdings
the right to acquire the six Minnesota systems by a Joint
Venture Agreement dated June 13, 1986. North Central-L.P.
has further assigned its interest in the Minnesota systems
to North Central by letter dated June 18, 1986. Thus, it is
North Central which will ultimately own the stock in each
specific Minnesota cable system.
From the information we have reviewed, North Central is
a newly createdcorporation which is owned equally by Con-
tinental Cablevision of Minnesota, Inc. and Hauser Cable of
Minnesota, Inc. The Commission should note that both Con-
tinental Minnesota and Hauser -Minnesota are also stated to
be newly created corporations.
III. STANDARD OF REVIEW
The Commission's task in this process is to review the
information provided regarding the transaction and to recom-
mend to its Member Cities approval or denial of the transfer
of stock from Group W, Inc. to North Central. The Cities
must make the ultimate determination. The franchise and
state statute provides the Cities with the express right, to
approve or disapprove the transfer of ownership in their
franchise and system
The standard of review is that the
Cities' consent shall not be unreasonably withheld. For the
purpose of determining whether it will consent to the change
- 6 - 6
in control and transfer of the stock, the Commission has
made inquiry into the legal, technical, and.financial quali-
fications of North Central, as well as other appropriate
factors.
In analyzing the transaction, the Commission must con-
sider whether North Central meets all of the criteria orig-
inally considered in initially granting the franchise to
Group W. Note, however, that this analysis is not a
comparison between Group W and North Central to determine
which is more qualified. Rather, the analysis is an appli-
cation of factors to determine whether North Central satis-
fies the standards to the reasonable satisfaction of the
City.
The .Commission should consider the following factors in
determining whether to recommend approval or denial of the
transfer to North Central:
1) Legal and character qualifications of North
Central;
2) Technical ability of North Central;
3) Financial stability of North Central; and
4) Other appropriate factors.
IV. ANALYSIS
The sources of information used in examining the legal,
technical, and financial abilities of North Central include
the Municipal Request For Information and other supplemental
information provided by Group W, Continental, and North Cen-
tral. Any subsequent transfers to Continental in the years
7 -
to come are not the subject of this analysis and will not be
approved by any response by the Cities: to this request.
A. Legal Qualifications
The legal qualifications standard relates primarily to
an analysis of whether the entities involved in the transac-
tion are duly organized and authorized to own the cable
system and franchise. Certain entities, such as certain
television broadcasting stations, national television net-
works, and certain telephone companies, are prohibited by
Federal law from owning, operating, or controlling a cable
television.system. We have reviewed the Federal cross -
ownership prohibitions and have determined them to be in-
applicable, although these restrictions are primarily a
concern of the companies involved. Moreover, we have been
provided with the necessary documentation which shows that
each of the entities is duly organized and authorized to own
a cable system and franchise as described above.
The character qualifications of North Central, as well
as the principals of the organization, are satisfactory.
Since North Central is a newly created entity, it is appro-
priate to review the character qualifications of its prin-
cipals. North Central has provided information showing that
neither it nor any principal has ever been convicted in a
criminal proceeding of any crimes against character.
Although Continental Cablevision, Inc., the parent company
of Continental -MN', was previously involved in proceedings
8 -
before the Federal Communications Commission, no violation
of FCC regulations was adjudicated.
Based upon our review of the information provided, it
would appear that the Commission or Cities could not reason-
ably withhold approval of the transfer based upon the legal
or character qualification of North Central or its prin-
cipals.
B. Technical Abili
The technical ability factor relates to the technical
expertise and experience in operating. and maintaining a
,cable system. This analysis focuses upon the current and
former experience of the proposed Transferee. Since North
Central is a newly -created entity, it has not directly owned
or operated any cable systems. Therefore, the ability of
its managing principals must be reviewed. Information has
been provided concerning such other individuals' and enti-
ties' experience in owning, operating, and managing cable
systems.
Hauser Cable of Minnesota, Inc., as one-half owner of
North Central, will be primarily responsible for the manage-
ment of North Central by virtue of its control of two
directors' seats of North Central. Moreover, North Central
has stated that it intends to enter into a standard manage-
ment agreement with Hauser Communications, Inc. ("HC") to be
responsible for the day-to-day supervisory management of
North Central and the cable systems.
•
- 9 -
The information which we have reviewed indicates that
Mr. Gustave M. Hauser, Mr. John Evans, as the primary in-
dividuals of North Central., and HC,, as the primary organiza-
tion involved in management, have extensive cable management
capability and experience sufficient to satisfy the tech-
nical ability factor as applied to each respective cable
system. Mr. Hauser is Chairman and Chief Executive Officer
of HC, Arlington Cable Partners, and Suburban Cablevision
Company. He formerly served as Chairman and Chief Executive
Officer of Warner Amex Cable Communications, Inc. He has
been involved in cable television and other electronic com-
munications since the early 1960's.,
Mr. Evans, as,President of HC and Arlington Cable Part-
ners, has 13 years of management experience in the cable
television industry. He manages a 34,000 subscriber cable
system in Arlington, Virginia and a 33,000 subscriber system
in Brooklyn Park, Minnesota. He has also served as System
and Regional Manager for over 90,000 subscribers in .
Columbus, Ohio, for American Television and Communications.
Hauser Communications, Inc., which will be the manager
of each Minnesota cable system, has experience in managing.
the Arlington System, Brooklyn Center system, and is in-
tending to acquire a.23,000 subscriber system in Montgomery
County, Maryland.
The inclusion of Continental -MN, a wholly-owned sub-
sidiary of Continental Cablevision, Inc., should not be
- 10 - 0
considered as directly bringing any additional technical
capability to the operation of your system. Although
Continental -MN owns one-half of the stock of North Central,
the agreement.between Continental and Hauser allows Hauser
to control two of the three seats on the Board of
Directors. It would appear that Continental's involvement
is primarily as an investor in the system. Although Con--
tinental Cablevision, Inc. has extensive exper.ience in the
cable industry which could be brought to the management of
your cable system, since it does not control the management
of the corporation, its experience is subject to the de-
cision of. Hauser.
Based upon our review of the information provided, it
would appear that neither the Commission nor Cities could
reasonably withhold approval of the transfer based upon the
technical ability of the transferee.
C. Financial Stability
The financial stability factor relates to whether North
Central.has the financial resources available or committed
to not only acquire the system, but also to meet the exist-
ing franchise requirements. The Commission has engaged Mr.
Kevin P. Cattoor, Financial Communications Consultant, to
undertake a review of this factor. Mr. Cattoor has prepared
an independent report of his analysis, and the Commission is
referred thereto.
D. Other Relevant Factors
Other appropriate factors which have been reviewed for
the purpose of determining whether to approve or deny this
transaction are contained in the Municipal Request For In-
formation. The most significant factor to be considered is
whether the cable franchise will be transferred. intact and
whether North Central will agree to comply with all existing
franchise requirements.
The information which we have reviewed indicates that
North Central is not currently requesting any franchise
modificatio'n's as a condition of the transfer. Moreover,
under the terms of the original purchase agreement of the
consortium, North Central is prohibited from requesting any
franchise modifications as part of this transfer. In other
words, all systems are to be sold and transferred "as -is".
Consequently, North Central will agree to receive transfer
of the franchise intact.
With respect to the franchise requirements regarding the
existing service area and line extensions, North Central has
indicated that it will comply with the existing franchise
requirements and obligations. The construction practices of
North Central regarding aerial and underground installation
and standards will also conform to existing franchise re-
quirements, including the burial of snow -drops at no charge
to the subscriber in the spring. North Central has not
proposed any modifications to the.channel capacity or system
- 12 -
design (both subscriber and institutional network) and will
assume all existing franchise obligations regarding future
activation of channel capacity and upstream capabilities,
interconnection, performance,testing and system maintenance
policies. North Central has stated that its personnel will
assist current users of the institutional network.
Moreover, Nor,,th Central has agreed to assume all obli-
gations regarding the resolution of customer complaints. We
can take notice of the fact that HC, as current manager. of
the system has already implemented improvements to the cus-
tomer service obligations by extending office hours- North
Central does not propose any addition or deletion of any
programming services.
In ,the area of local programming and public access,
North Central will agree to assume all existing franchise
commitments, including equipment, facilities, staff, and
funding. North Central will not agree to forego modifica-
tions of the local programming/public access commitments in
the future. North Central does not propose any additions to
the access commitments.
With respect to proposed rates, North Central is not
proposing any changes in the applicable franchise require-
ments and will operate consistent with federal law in set-
ting rates. North Central's expected rates are detailed on
a rate schedule contained in the financial information. For
those rates which are.deregulated under federal law, North
- 13 - 0
Central is permitted to charge whatever it desires. Any
regulated rate will remain the same.
North Central has also indicated that it will comply
with all federal, state, and local laws relating to discrim-
ination, equal opportunity employment programs and affirma-
tive action programs. Moreover, North Central will abide by
all existing franchise 'requirements relating to staff posi-
tions and managers, to the extent these issues are subject
to the Commission's control.
North Central has agreed to execute the existing fran-
chise between Group W and the franchising authority, and to
comply with all terms and conditions of the franchise.
Additionally, North Central proposes that it will guarantee
the performance of the franchise. North Central states that
it is -fully capitalized and has substantial assets, which
includes the other five neighboring Group W systems. In
addition, North Central states that it has arranged for the
existing performance bonds and letters of credit previously
established by Group W Cable, Inc. to remain in place and be
guaranteed by Continental Cablevision, Inc. and Hauser
Communications, Inc. North Central has taken the position
that neither Hauser Communications, Inc. .nor Continental
Cablevision, Inc. are required to guarantee the performance
of the existing franchises.
The franchise provides that if the grantee is a sub-
sidiary or wholly-owned corporate entity of a parent corpo-
- 14 -
;1.1n • �.1�. .11,
ration, performance of the franchise must be secured by
guarantees of the parent corporation "in form and substance
acceptable to city, . . .". In this case, North Central
states that the oricinal grantee, Group W Cable of Burns-
ville/Eagan, Inc., will remain in place as a subsidiary
corporate entity of a parent corporation, North Central.
The question before the Commission and the cities is
whether North Central's guarantee of the performance of the
franchise is "acceptable in form and substance". If not
acceptable, the offering of an unacceptable guarantee would
be a violation of the franchise and more probably than not,
would be a reasonable basis for the withholding of approval
of the transfer. If not, the Commission and cities must de-
cide whether the guarantee of either Hauser or Continental
or both would be acceptable. The question of the guarantee
is related to the amount of equity, the negative cash flows
in the first five years indentified for not only your
system, but also for the neighboring Group W systems and the
fact that the assets of the other systems are pledged as
security to the Bank of Boston. Mr. Cattoor's report
addresses these factors more specifically. North Central
has stated that Hauser and Continental are reluctant to
guarantee the franchise based upon common industry practice
and the reluctance to show the guarantee as a liability on
the corporate books. The Commission should consider these
arguments in light of the perceived need for the guarantee.
- 15 -
Based upon our review of the information constituting
other appropriate factors, and recognizing the uncertainty
as to judicial interpretations of the 1984 Federal Cable
Act, it does not appear that there is any legally justifi-
able reason to withhold approval of the transfer to North
Central in the areas of legal or technical.
The area of financial ability to perform the franchise
commitments appears to be the only remaining question for
the Commission's consideration, albeit an extremely signifi-
cant consideration. Depending upon the policy determination
regarding the viability of the financial plan and.the
associated guarantee of performance, or lack thereof, Com-
mission staff is prepared to prepare the necessary documen-
tation to approve or deny the transfer of ownership.
•
- 16 -
3uC-svlliei Normi Vorctt ;mid ?a:c�.,ey/
Fagan, L:c. Central, Lnc `libisbe, 3hc Cities, Inc. Wash. , Inc. HiL�p, Lac
1001 1001 1009
GROUP'W, I?NC.
AMERIC.IN =11SICN AND CCbM.YICATICNS C' -::P.
TEE-Ca4AL 7ICATIGNS, LNC.
MC.ZSr CI?M RATION i
Oi NMLS s ASSOCIATES, IVC.
=41LW SCUrWEST CABLE TM VISICN, INC.
Transition (1)� — _-------___—_ ---------
Process.:
Louisiana/.California
Systems
DANIELS-FFAUSER HOLDINGS
DANIELS S.ASSOCIATES,I
PROPOSED:
CONTII`FE?rAL CABLEVISICN
OF MINNE.ATA, zNc.
(2)
Minnesota -Systems
e •� as �• : «« �• « �
(3)1 Assignment
NORTH CENTRAL CABLE
COMMUNICATIONS
CORPORATION
1 MAfC,GE�r
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Fil[SER
CCt+LTNICATICNS,.
IVC.
HAGSER CABLE OF
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1001 1001' 1009 100! 1001 319
KEVIN P. CATTOOR
FINANCIAL COMMUNICATIONS CONSULTANT
2224 73rd COURT NORTH
MINNEAPOLIS. MN 55441
Hua (612)-370-0686
Rn. (612)-566-5294
TO: Directors of the Burnsville/Eagan Cable
Communications Commission
FROM: Kevin P. Cattoor, Financial Communications Consultant
DATE: September 11, 1986
RE: Financial Analysis of Group W Transfer
I have been engaged by your Commission to perform a fi-
nancial analysis of the financial pro formas submitted by the
North Central Cable Communications Corporation (North Central)
forthepurpose of purchasing the six Group W cable systems
in the Minneapolis/St. Paul metro area. The purpose of per-
forming the financial analysis on North Central's pro formas
is to determine whether the assumptions used in preparing
the financial pro formas are reasonable in comparison with
current industry experience. Additionally, it is important
to assure that the assumptions made in the pro formas are con-
sistent with the information presented in the Request For
Information. This is particularly important as it relates
to the documents supporting the financing commitments.
To date, the financial analysis has surfaced two major
concerns.
First, North Central has projected that the cash on hand
necessary to finance system acquisition and subsequent operation
goes into a negative $2.9 million in the year 1993. Review of
the Request For Information indicated the existence of no other
financing commitments that would cover this shortage. Addition-
ally, North Central has assumed that $8.5 million of additional
senior debt would be obtained in the year 1992. There is no
evidence of this commitment in the Request For Information.
Second, review of the loan commitment letter from the
Bank of Boston for the $50,000,000 senior debt calls for cer-
tain financial ratios to be met in order for North Central
to maintain its loan balance with the Bank of Boston. The
loan commitment letter indicates that the total debt to oper-
ating cash flow ratio in each of the years one and two must
be no higher than 6.5 to 1 and 5.75 to 1 respectively. In
performing these calculations on North Central's pro formas
included in the Request For Information, it is noted that
ratios of 8.0 to 1 in year one and 5.87 to 1 in year,two
k'
Directors of the Burnsville/Eagan Cable
Communications Commission
Page Two
September 11, 1986
exist. This indicates based upon the pro formas that after
years one and two North Central will not be in compliance
with the loan commitment with'the Bank of'Boston. Addition-
ally, the operating cash flow to debt service ratio is also
not met in year one when the ratio is required to be at ,least
1.1 to 1. North Central's ratio of operating cash flow to
debt service in year one is 1.07 to 1. This indicates, again,
that North Central would not be in compliance with the fi-
nancial tests as described in the Bank of Boston loan commit-
ment letter.
In performing a financial analysis of these pro formas,
it is necessary to review all of the assumptions used in
developing the pro formas. However, the fact that North
Central in their pro formas as submitted is generating nega-
tive cash flows which exceed the cash invested into the sys-
tem simply indicates that the plan as proposed is not eco-
nomically viable. At this date, even if a detailed review
were performed to determine that the revenues, expenses and
other assumptions were reasonable, the overall financial
plan proposed by North Central would still not be viable.
At this time if the analysis were to be completed with-
out further discussion with North Central's management it
would be my opinion that North Central's financial plan is
not viable. This conclusion is reached on the basis that
therms is not enough cash invested to fund the acquisition
and operation of the system and due to the fact that the
pro formas as submitted would not comply with the financial
tests required in the Bank of Boston loan commitment letter.
KPC:abg
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DIRECT DIAL NUMBER
O'CONNOR & HANNAN
ATTORNEYS AT LAW
3800 IDS CENTER
80 SOUTH EIGHTH STREET
MINNEAPOLIS, MINNESOTA 55402-2,254
16121 341-3800
TELEX 29-0584
TELECOPIER 16121 343-1256
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TO: Directors of
municatiothe Burnsville/Ea
Commission Burnsville/Eagan Cable Com -
FROM: Thomas D. Creighton, Legal Coun
Kevin P. CattOOr, Financial Communi /
tant �cT
cations Consul -
DATE: October 1, 1986 �vi
RE: �!� Group�
W Transfer of Ownership
BurnpviPle�of
his Memorandum is to
sionof /Eagan Cable Communications uCoate the
on the status of the request
to the member 4 fromission ("Cois-
and transfer of'ties of the Commission Group W Cable
the Ca ital all Of the issued tO approve the ' Inc.
Inc, to North Centralck Of W CableoftheOutstanding Burnsviilleareslof
L Central"). This le Communications
mndum s tions Cor
the concerns memorandum s Porationagan,
as stated expressed by Mr, CattoorPecificall
in his memorandum s fin I' addresses
the reasons for continuing issued September11,analysis
the public hearing, , 1986 and
As noted in Mr. Cattoor's memorandum dated
1986[ the financial analysis had surfaced
concerns: September 11,
the following
I• BACKGROUND
First, North Central has
on hand necessary to financelocted
cable systems that the cumulative cash
in the operation of the six
Minneapolis/St, Group W
Paul
area goes into a
•
.:1 Mr
Fire r� if i' �; i[ '� '`S' •+ L }*•aYr K s
negative $2.9 million in the year 1993. Also projected by
North Central was an additional $8.5 million of senior debt
financing that would be obtained in the year 1992. A review
of the Request For Information indicated the existence of no
financing commitments that would cover the $2.9 million
shortage in cumulative cash flow nor the $8.5 million of
additional senior debt financing (total cash shortage of
$11.4 million).
Second, a review of the loan commitment letter from the Bank
of Boston for the $50 million senior debt investment calls
for certain financial ratios or tests to be met in order for
North Center to maintain its loan balance with the Bank of
Boston. The loan commitment letter indicates that the total
debt to operating cash flow ratio in each of the years one
and two must be no higher than 6.5 to l and 5.75 to 1,
respectively. In performing these calculations on North
Central's pro formas included -in the Request For Informa-
tion, it is noted that ratios of 8:0 to 1 in year one and
5.87 to 1 in year two exist. This indicates, based upon the
pro formas, that in year one and two North Central will not
be in compliance with the loan commitment with the Bank of
Boston. Additionally, the operating cash flow to debt ser-
vice ratio is also not met in year one when the ratio is
required to be at least 1.1 to 1.0. North Central's ratio
of operating cash flow to debt service in year one is 1.07
to 1. This indicates, again, that North Central would not
be in compliance based upon our understanding of the finan-
cial test as described in the Bank of Boston loan commitment
letter.
It should be understood by the Commission that the above
concerns result in the conclusion that the financial pro
formas as presented by North Central do not represent an
economically viable plan. To this previous conclusion, Mr.
Hauser took exception based on insufficient communication of
North Central's future borrowing capacity to meet the per-
ceived revenue shortfalls and an alleged misapplication of
the Bank of Boston financial ratios. The Commission subse-
quently continued the public hearing and directed its staff
to further investigate North Central's claims. The follow-
ing is a summary of our investigation as determined through
direct conversations with North Central management and fur-
ther documentation supplied by North Central.
First, in response to the September 11, 1986 memorandum
concluding that the financial pro formas as presented do not
represent an economically viable plan, North Central manage-
ment has taken the position that despite the pro formas
.indicating cash shortfalls,.significant borrowing ability
will exist in the future based upon the level of operating
cash flows generated from the systems. North Central has
- 2 -
attempted to demonstrate and confirm the additional borrow-
ing capacity by a letter from Phillip Hogue, President,
Investment Banking of Daniels & Associates, Inc. and a let-
ter from the First Bank of Boston which conclude that North
Central should have available additional borrowing capacity
far in excess of its cash requirements.
Second, North Central management has obtained confirmation
that the financial ratios used to test the compliance of
North Central's borrowings from First Boston are in fact
applied a year later than that discussed in Mr. Cattoor's
September 11, 1986 memorandum.
To date, the financial analysis has revealed the following: ,
II. RATIOS
Based upon North Central's response regarding the financial
ratios test as it pertains to the First Bank of Boston loan
commitment, there is still ambiguity as to when the finan-
cial tests are applied. As indicated in the Bank of Boston
letter, "if the closing were to occur on or about January 1,
1987, no tests would be applicable in 1987, and the first
year of the tests would be 1988." It appears that there is
still a possibility that the financial tests could be
applied on January 1, 1988.
However, our concern with the ratio issue is based on the
pro formas presented by North Central. As stated earlier,
the assumptions of the pro formas we have received have not
been challenged in our analysis. A modification of the
assumptions in such areas as interest rates, penetrations,
cash flow, etc., could effect the ratio question. The Bank
of Boston has informed Mr. Cattoor that they reviewed other
pro formas from their own sensitivity analysis and have made
a loan commitment based upon all of the information they had
available to them. Therefore, it is our conclusion that the
ratio question is irrelevant to any further analysis of the
transfer in that our concern was based upon one set of pro
formas which have been discredited.
III. ECONOMIC VIABILITY OF FINANCIAL PLAN
With the objective of determining whether the financial plan
as presented to the Commission is viable, it is concluded
that the pro formas do not support an economically viable
plan. North Central has indicated to the Commission that
their borrowing plan as presented is dependent upon addi-
tional borrowings if the pro formas did in fact become
reality. North Central has indicated that they have borrow-
ing capacity of approximately 5.5 times the operating cash
flow being generated from their systems. As it relates to
C]
- 3 -
industry standards North Central's claim regarding their
borrowing capacity in terms of the 5.5 factor times oper-
ating cash flow is reasonable. However, the borrowing
capacity of North Central will be highly dependent upon the
level of operating cash flows being generated from their
cable systems at such time North Central would seek to bor-
row additional funds. The accuracy of the cash flow projec-
tions of North Central cannot be determined without an
indepth analysis of revenues and expenses as presented.
Nevertheless, assuming the cash flow projections of North
Central are reasonable, Mr. Cattoor can conclude that the
borrowing capacity is more than sufficient to meet the pro-
jected $11.4 million shortfall. Additionally, North Central
has confirmed that should it find additional funding to be
necessary, it will endeavor to first utilize any available
equity or credit facility before initiating any discussions
with the Commission or its member cities with regard to
franchise or system modifications.
IV. OTHER COMMITMENTS
North Central has also documented other commitments and
assurances which address the questions and concerns raised
at the Commission public hearing. Specifically, North
Central has acknowledged that it understands and accepts all
of the provisions of the franchise and affirms that it will
comply with the same. Additionally, North Central has
agreed it will not initiate with the Commission or its mem-
ber cities discussions of changes in the community program
requirements of the franchises prior to one year from June
1986, if ever. North Central has also confirmed that its
obligations under the franchise are guaranteed by the per-
formance bonds and letters of credit now in place, which
bonds and letters of credit are in turn guaranteed 50-50 by
Continental Cable Vision, Inc. and Hauser Communications,
Inc. Finally, North Central has 'provided evidence from
Continental Cable Vision, Inc. that it will utilize its best
efforts to borrow an additional $3 million for other busi-
ness requirements.
It should be understood by the Commission that to date no
detailed analysis of the North Central pro formas (revenue=_,
expenses, capital expenditures and other items) has been
performed. It can only be concluded at this point that the
amount of funds necessary to acquire the system appear to be
in place supported by a loan commitment from First Bank of
Boston for $50 million, and equity investments from Conti-
nental for $13 million and Daniels & Associates for $7.6
million.
4 -
V. CONCLUSION
The area of financial ability as part of the Commission's
consideration of this Request For Approval, appears to be
the only remaining issue, albeit an extremely significant
factor. The question of the financial ability of North
Central at this stage of our investigation results in a
policy determination for the Commission and its member
cities. It has been concluded that the financial pro formas
of North Central as presented do not represent a financially
viable plan. However, North Central has endeavored to sup-
port its financial plan by the commitments and assurances
stated above. It can be concluded that North Central's
financial plan based upon the information we have reviewed
does present a risk to Mr. Hauser. While the risk to the
Commission, its member cities and the franchise commitments
is aoP licy decision for the Commission, it would be my
opinion that, based upon the totality of the circumstances,
the Commission could not reasonably deny the transfer to
North Central. To this end, it would be my opinion that if
the Commission or its member cities were to deny the trans-
fer based upon the information provided, a court would
likely conclude that the denial was unreasonable.
- 5 -
MEMO TO.: HONORABLE. MAYOR 6 CITY COUNCILMEMBERS
FROM: CITY ADMINISTRATOR HEDGES
DATE: OCTOBER 7, 1986
SUBJECT: PROPOSAL FOR FIRE STATION #4
For the past five (5) years, a planning committee of the Fire
Department has met with the City Planner and the City's planning
consultant to review future fire station locations. All fire
station locations were based on demographic studies considering
future population and housing units. The initial report proposed
nine (9) locations for fire stations throughout the City. After
City Council review and additional consideration by the Planning
Committee, it was determined that nine (9) fire stations was high
and that the number of stations should be reduced to more
accurately reflect the ability to pay, staff and operate stations
strategically located throughout the community. The Fire
Department has reexamined the number of sites and it is their
opinion that with the present three (3) fire stations, an
additional three (3) stations and possible addition to the Fire
Administration Building to, provide for one or two operating and
storage bays is adequate to serve fire protection for the
community.
The Fire Department proposed as part of the 1987 operating budget
and capital improvements budget for the same calendar year, the
acquisition of sites for Fire Stations #4 and #5 and also the
construction of Fire Station #4. The 1987 budget presented by
the Fire Department Administration did include a request for land
acquisition for both fire station sites #4 and #5, construction
of Fire Station #4 and equipment to operate that station. It was
determined by the City Council that capital expenditures for the
new fire station should be funded through a bond referendum. The
City's costs were also proposed as a part of the capital
improvements program budget that was presented' earlier this
summer. During a budget work session at the time of CIP review,
it was suggested that Fire Station #4 be combined with a park
referendum later in the 1980's --either 1988 or 1989.
Since the Capital Improvements Program and further analysis of
the budget requests for fire station locations and Fire Station
#4, it appears that Fire Station #4 is critical for an adequate
fire response time in the new growth area of Eagan. Since the
last fire station was constructed, Fire Station #3, the
population has increased by 16,800 from 20,700 to a current
population of 37,500. The number of housing units constructed
since the completion of Fire Station #3 is 6,585 units. These
new units represent 47.7% of all housing units within the City.
The number of fire.calls at the time Fire Station #3 was
completed averaged 21 calls per month which is considerably less
than the 35 calls per month recorded in 1986. Many of the units
have been constructed in southeast Eagan and according to the
.4.
Planning Department, most of the new development will occur in
that part of the City during the next several years. The issue
of response time and lack of trunk water and water hydrant.
availability in east Eagan has created a necessity for a new fire
station in that area.
The site being considered for Fire Station #4 is a location
north of Wilderness Run Road and south of Diffley Road on Dodd
Road. The site that is most agreed upon by City staff, including
Fire Administration, is a location on the southeast corner of
Diffley and Dodd Road. The ,site for Fire Station #5 would be the
possible Tatsuda property between Astleford and Zilla at a
general location on Galaxie and I -35E. Fire Station #6 would be
considered at a location north of Yankee Doodle Road in the
general vacinity of Lone Oak Road and Pilot Knob Road. With the
ultimate addition of,a bay or two at the Fire Administration
Building, this should adequately serve fire station needs within
the City of Eagan.
In regard to manpower, the Fire Department has received applica-
tions from residents residing in the general area proposed for
Fire Station #4. Each time a new fire station is constructed,
some manpower shifts from an existing station. Both Acting Chief
Schindeldecker and District Chief Southorn feel manpower would be
available for day and night shifts to adequately serve the needs
for Fire Station #4.
The estimated cost for acquiring land and construction of Fire
Station #4 is shown follows:
Fire Station #4:
Building Construction $225,000
Land (Fire Stations #4 & #5) 100,000
Pumper 150,000
Tanker 70,000
Manpower Vehicle 25,000
Turn -Out Gear (20 sets) 12,000
Hose 7,000
Breathing Appartus 5,000
Compressor 5,000
Other Equipment 20,000
$619,000
Both Dick and Ken will be present at the meeting on October 14 to
review this information, present additional data and answer any
questions the City Council might have regarding the proposal to
construct Fire Station #4 in 1987. Staff has targeted specific
sites for Stations #4 and #5 and would like to discuss and
receive authorization to begin negotiations with the property
owners on City Council concurrence. If a referendum were, held in
1987, and the fire station constructed during that calendar year,
it would be necessary to have a special referendum in the late
spring, early summer, to allow for late summer/fall construction.
A referendum with the municipal election in November of 1987
would delay occupancy of Fire Station #4 until the summer of
1988.
This information is presented as a brief needs analys;is and
should be used as an.outli.ne for City Council review and
discussion.
City Administrator
TLH/kf
m
SPECIAL CITY COUNCIL MEETING
TUESDAY
OCTOBER 14, 1986
6:30 P.M.
I. ROLL CALL
II. CONCEPT REVIEW OF RESIDENTIAL DEVELOPMENT
FOR THE HALL AND ENEBEK PROPERTIES
III. PROPOSED 1987 GENERAL FUND REVISIONS
IV. REVIEW GROUP W SALE TRANSACTION
V. PRESENTATION BY FIRE ADMINISTRATION FOR
PRELIMINARY CONSIDERATION OF FIRE .STATION
NO. 4
VI. OTHER
VII. ADJOURNMENT
MEMO TO: HONORABLE MAYOR AND CITY
FROM: CITY ADMINISTRATOR HEDGES
DATE: OCTOBER 10, 1986
SUBJECT: SPECIAL CITY COUNCIL WORKSHOP
CONCEPT REVIEW OF CHOCK HALL PROPERTY
Originally luncheon meetings were established by Chuck Hall to
meet with the APC on October 17, City Council on October 24 and
Advisory Parks and Recreation Commission on October 31. I
believe he has sent out notices to that effect. Please disregard
the luncheon notice that you are receiving for October 24. Mr.
Hall was notified by this office that he will be given 1 hour
beginning at 6:30 p.m. at the workshop this coming Tuesday to
allow his development team to make a presentation and answer any
questions the City Council might have about his 500 acre plus
residential development.
PROPOSED 1987 GENERAL FUND REVISIONS
Enclosed is a memorandum that addresses the revisions to the
general fund budget as suggested by City Councilmember Ellison.
The City Administrator has provided some background information
and a brief review of each budget item and in many cases the
effect any further reduction would have on the local government
.service or budget program in each department. The public enter-
prise funds were originally scheduled for this Tuesday, however
have been delayed til the next special workshop session allowing
for a final review and consensus regarding the general fund
budget. Approximately two (2) weeks ago the City Administrator
distributed budget sheets with City Councilmember Ellison's
suggested budget reductions. These sheets can be used to follow
the narrative review found in the attached memo.
GROUP W SALES TRANSACTION
Attached is a memorandum that outlines the request for transfer
of ownership and control of cable system as prepared by Ralph
Campbell, Cable Administrator. The City of Burnsville is having
a workshop session on October 14 and will be reviewing the same
memo. Commission Chairman Rick Bertz and Mr. Campbell will be
appearing at the Burnsville workshop session at approximately
7:00 to review and answer any questions the City Council might
have regarding the transfer of ownership and immediately
following that presentation will appear at the Eagan City Council
and answer any questions that might be relevant to the sales
transaction. The resolution attached to the memo will be
scheduled for the October 21 City Council agenda.
PRESENTATION BY FIRE ADMINISTRATION FOR FIRE STATION NO. 4
Acting Fire Chief Schindeldecker and District Chief Southern are
planning to be present at the meeting on Tuesday to review fire
operations and discuss the need and planning effort for Fire
Station No. 4 and acquisition of land for Fire Station No. 5.
The City Administrator has met with both Dick and Ken on several
occasions and prepared a memo that provides some background
information regarding this issue. That memo is attached for your
review.
INFORMATIVE
An MBO update is ready for review by the City Council. Given the
number of items that is scheduled for the workshop on Tuesday the
report will be distributed during the next week and discussed at
a future work session.
City Administrator
Attachment
TLH/cks
MEMO TO: HONORABLE MAYOR AND CITY COUNCILMEMBERS
FROM: CITY ADMINISTRATOR HEDGES
DATE: OCTOBER 8, 1986
SUBJECT: REVIEW OF SUGGESTED BUDGETARY ADJUSTMENTS AS
PRESENTED BY CITY COUNCILMEMBMER ELLISON
A brief review of the recent general fund budget evolution is
important to more effectively focus on the proposed budgetary
adjustments as suggested by City Councilmember Ellison.
During the past several years, the City Administrator and City
Council have practiced a zero base concept while reviewing each
annual budget. Each year the department heads are required to
justify the necessity for each program through review sessions
with the City Administrator and, as a result, the line item
expenses are established according to each program. An example
would be labor and equipment distribution for snow removal.
There are certain items of equipment, necessity for overtime,
equipment parts, motor fuels and other expenses that are taken
into consideration when the snow removal program is evaluated for
budgetary purposes.
It is important to note that most line item accounts vary by two
factors. The first factor is inflation which represents small
percentage adjustments for almost all expenditures. The second
factor is directly related to organizational growth, which in
many cases represents a significant percentage increase for line
item accounts. As the C-ity adds manpower and equipment, the
operating budget increases accordingly. The City is also
experiencing anew tier of local government services such as:
active parkland recreational programs, response to constituent
concerns generating a greater necessity for engineering
technicians and building inspection and in-service training for
all levels of employment. These are a few examples which along
with many special projects as outlined in the MBO, explain why
the level of operating expenses has increased beyond normal
inflation.
As operating budgets continue to increase due to organizational
growth related directly to community growth, the necessity for
the City Council to review and consider ongoing and new programs
is essential. During the past 2 - 3 years, the focus of each
budget review has been existing and new programs. It should be
noted that the City has added very few new programs and struggled
to meet a constant delivery of services with recent budgets.
Most of the budgetary adjustments do impact ongoing or newly
approved programs/governmental services. Given the number of
line items involved in the additional reductions being proposed,
and time constraints, the review of each account within each
department is very brief in the written text. 'The reductions
generally fall into one of the three following categories and
can be analyzed in a general sense prior to the detailed review.
I. Reductions which impact current public policy issues.
Some of the reductions are fairly large in amount and
others are less significant.
II. Reductions of appropriations in 1986 levels in accounts
where there is currently no mechanism or policy to
control the expenditures.
III. Reductions, usually of relatively small amounts, in
accounts where historically expenditures do not
necessarily project current appropriations. The affect
of these reductions will probably not be noticed within
those individual accounts but will increase the
probability that total departmental expenditures will
exceed the budgeted appropriations. The cost of
delivering services in Eagan during this high growth
period is more difficult to control, then at a time
when growth is lower or constant.
The analysis pertains to the budget pages previously distributed
by the City Administrator on behalf of Councilmember Ellison. In
an effort to more clearly present the information those numbers
have not been incorporated within this narrative. The following
is a brief analysis of the impact additional budget reductions
would cause for the operating budget by department.
Mayor and City Council
4360 Insurance - The public officials' liability insurance is
eliminated.
4410 Miscellaneous - This appropriation has been used in the past
for unanticipated expenses as well as offsetting additional costs
incurred for City Councilmembers attending conferences or
schools.
4411 - This reduction impacts an allocation for additional
schooling.
Administration
4210 Office Supplies - The 1984 and 1985 office supplies have
exceeded $750. The increase is due to additional employees and
volume of activity.
4332 Use of Personal Auto - The reduction of $500 would not allow
any funding for use of personal autos by administrative employees
with the exception of the City Administrator.
4350 General Printing and Binding - The reduction of $3,000 will
eliminate one city wide newsletter distribution during 1987.
4411 Conferences in Schools - This reduction would eliminate in-
state travel and training for the Administrative Assistants and
reduce special training for the City Administrator.
4415 - This reduction is hard to evaluate given the uncertainty
of reference materials that may be required in 1987.
Other Cbntractural Services -\The Economic Development Commission
is proposing an advertising brochure and an update of the City
Developers Guide which is estimated at $3,500 and the compost
program/solid waste will require certain expenses of which a
portion is the $1,000 reduction as shown by City Councilmember
Ellison.
Finances
4210 Office Supplies - The bulk of office supplies for the
Municipal Center building are charged to the Finance Division.
With the increased volume of activity, $17,453 was spent in 1985
and it is anticipated that an increase will occur in 1986.
4321 Postage - Legal notices and other required mailings have
increased with the volume of activity requiring an increase in
this account.
4351 Published Legal Notices - The City has an obligation under
ordinance to legal notices which have been increasing each year
due to volume and activity. Actual cost in 1985 was $6,675.
4382 Other Equipment Repair - The City has purchased additional
office equipment which require maintenance contracts. The 1985
actual expense is $14,622. A further reduction from the original
departmental request will cause the removal of maintenance
agreements for certain equipment.
4393 Machinery and Equipment Rental - The City is renting an IBM
copy machine and postage meter and the cost for that equipment is
$2,900.
4410 Misce.l.laneous - The City has filing costs with the Dakota
County Recorder as a result of legislation in 1986. It is
anticipated that these expenses will be approximately $1,200 in
1987.
4411 Conferences and Schools - A reduction of $1,400 would
eliminate certain schooling and training for the City Clerk and
Assistant Director of Finance, as well as, training sessions for
the Director of Finance.
Legal
4311 Professional Services - The Director of Finance has
carefully analyzed expenses for legal services in 1986 and
projected the cost in 1987 to be $180,000. A small reduction of
$5,000 was made by the City Administrator. Another $15,000 will
substantially affect the level of legal service provided to the
City.
Planning and Zoning
4210 Office Supplies — With additional staff and computerization,
office supplies were increased.
4220 Operating Supplies General - This increase is due to City
court enforcement activities and more accurately reflects the
$586 actual expenditure in 1985.
4313 Professional Services Planning, - The City expended
approximately $9,500 in 1985 and it is anticipated that
additional services during these peak growth years will be needed
by outside consulting services.
4350 General Printing and Binding - The Planning Department is
preparing a number of reports for Comprehensive Guide Plans,
Indirect Source Permits and EAW's which require printing and
binding. The actual amount in 1984 was $2,585 which is
considerably higher then the amount budgeted by the department.
4382 Other Equipment Repair - Repairs related to general office
equipment and computer hardware.
4411 Conference and Schools - This reduction would eliminate
specific schooling and specialized training for the Planning
Staff. Additional dollars were budgeted to reflect the increased
personnel in that department.
4412 Dues and Subscriptions - Actual expenditures have averaged
in excess of $600 and with additional personnel the amount was
increased for 1987.
4415 Reference Materials - The exact amount for reference
materials is unknown. however, the $250 appropriation seemed
adequate for costs that might be incurred by the department
relating to special issues such as traffic, commercial and other
growth related issues.
General Government Buildings
4223 Cleaning Supplies - The cleaning supplies for the Municipal
Center Building were itemized at $2,400 for 1987, however,
reduced after further review to $1,800. This cost is tight
considering approximately 35,000 square feet of heavily used
office space.
4224 Uniform Allowance - All maintenance employees receive
uniform allowance with the exception of the custodians. This
amount requests uniforms for two (2j building maintenance
employees.
4230 Repair and Maintenance Supplies - This account has expended
in excess of $1,000 in 1985 for various light bulbs, furnace
filters and many other maintenance supplies to keep the
mechanical, plumbing and electrical systems operating in the
Muncipal Center Building.
4231 Equipment Parts - In 1985, the actual expense was $144. It
is difficult to project what equipment parts may be necessary in
1987.
4371 Electricity - The actual costs in 1985 were $36,579. The
Fire Administration Building was included in that year and
reduced for 1986. However, it is anticipated that the City will
exceed the $26,000 figure in 1986, requiring the additional
appropriation for 1987 as orignally requested.
4383 Building Repair - There are several items considered for
1987 including the installation of a humidifier, the reroofing of
the community room, furnace and air conditioning for the
community room, janitor sink installed and new lighting in the
police dispatch center. The total of all items is estimated at
$8,000. -
4550 Furniture and Fixtures - Two additional tables are required
for the Municipal Center lunch room, a new refrigerator is
required for the lunch room and four electric aircleaners to
remove smoke for employee wellness totalled the amount budgeted.
Police
4210 Office Supplies - The 1985 actual is approximately $4,500.
It appears that number will be exceeded in 1986. The increase is
due to additional manpower, increased police operations and
volume of activity.
4211 Printed Material - Printed material includes investigative
forms, miscellaneous reports and all of the printed material
which has increased substantially due to increased operations.
This amount was reduced to $4,500 by the Administrator.
4220 Operalting Supplies - This account is hard to project,
realizing an expenditure in excess of $8,500 in 1984. The costs
include targets, evidence expenses, photo supplies, flairs,
flashlights, fire extinguishers, oxygen, first aid and many other
related expenses.
4224 Clothing and Personal Equipment - The City has contract
requirements that totalled $20,150. This reduction is not
possible without reducing the clothing allowance benefit through
union negotiations.
4225 Shop Materials - This account is used for cleaning solvent,
antifreeze, windshield solvent, oil paint and other supplies in
the garage area to maintain vehicles.
4230 Repair and Maintenance Supplies - This amount is hard to
control realizing a $500 expenditure i•n 1984 and a $1,300
expenditure in 1985. This account is used for air filters, light
bulbs, gas pumps, security system, garage doors and many other
related supplies for the Police Department.
4233 Building Repairs - The police are proposing repairs to their
heating, air conditioning, locks, video, electrical, plumbing,
generator repair and other related expenses. This amount has
varied from $1,400 in 1984 to $82 in 1985.
4240 Small Tools - The Police Department uses this account for
all items less than $100, including door lock openers, etc.
4381 Automotive Equipment Repair - With the fleet of vehicles'
potential cost for transmission, wheels, general repair,
electronic testing and other vehicular needs is significant. The
amount for repair has, varied from $6,800 in 1984 to $12,000 in
1985.
4393 Machinery and Equipment Rental - These are fixed rental
costs for service contracts totalling the $1,400 figure.
4411 - The Police Department is required to have all police
officers and dispatchers certified in 1987. Also the
Administrative Captain has been approved for the'FBS academy.
With those expenditures, 'investigation seminars, child abuse,
animal control and an annual chief's conference, there are no
dollars to be reduced from the $20,000 appropriation.
4412 Dues and Subscriptions - The City Administrator can supply a
list of all the subscriptions and dues that are paid by the
Police Department which are fixed at the $1,200 figure.
4570 Other Equipment - The City Council had reviewed capital
equipment and reduced this amount to $13,920. This -reduction has
eliminated computer needs and other equipment. Another
reduction w -i 11 eliminate other equipment that was highly
prioritized by the Chief of Police for 1986.
Fire
4210 Office Supplies - The 1984 office supplies were
approximately $600. An expenditure that was reduced to
approx-imately $270 in 1985. Current forecasts indicate that this
account will be exceeded in 1986.
4221 Motor Fuels - Due to the number of fires and emergencies
that increase proportionate to population, this number has
increased each year with an actual expenditure of $6,100 in 1985.
Any additional cut could impair operations.
4222 Lubricants and Additives - The budget amount is based on
service requirements for the number of heavy equipment items used
by the Fire Department.
4224 Clothing and Personal Equipment - Any reduction to this
account would not allow equipment or personal alarms for new
firefighters. There is also an ongoingreplacement due to damage
taken from this account,.
4230 Repair and Maintenance Supplies - It is difficult to
forecast this account given an actual expenditure of $2,200 in
1984 and $1,300 in 1985. Repairs are always anticipated given
the nature of the service.
4350 General Printing and Binding - Direction route books,
section maps, operations manuals, public safety leaflets and
procedural manuals are proposed. for printing in 1987. Any
reduction will cause some of this printing to be eliminated.
4371 Electricity - The cost for electricity has been increasing
each year for all the Fire Departments and Fire Administration
Building. The cost in 1984 was $7,400 while in 1985 it increased
to $8,300. With the cost of living adjustment, the $8,500
original budget amount seemed appropriate.
4383 Building Repair -'Their were a'number of items sited for
building repair in the original budget.. Overhead door
maintenance, heating and cooling system maintenance, replacement
of a furnace at Station $2, painting fire stations and several
other repairs. This amount was substantially reduced by the City
Administrator and City Council in the original adjustments.
Another $3,000 will eliminate the painting of Fire Stations 1 and
3.
4411 Conference and Schools - The Fire Department has always
attended the sectional schools which is their statewide training
each calendar year. The cost for sending volunteers is
approximately $5,000. The Minnesota State Fire Department
Association Convention and all other training seminars represent
the remaining amount of dollars budgeted. Any reduction will
eliminate some training for the Fire Administration.
4412 Dues and Subscriptions - There are a number of periodicals
that the Fire Department subscribes to for tr.aining and
professional development. The 1985 actual expenditure was
$1,000.
4415 Reference Materials - This item represents many of the
training materials which are used by the Fire Department. The
City Administrator has already cut a portion of the reference
materials and any additional cut will impact training aids such
as pumper training officers, hydraulics and other programs
essential to professional development.
Protective Inspections
4211 Printed Material - This account has ranged from $1,000 in
1984 to $2,400•in 1985. Due to the volume of building permit
activity, there is a requirement to print forms each calendar
year.
4220 Operating Supplies General - This budget item is used to
purchase general code books, photo supplies and other materials.
4221 Motor Fuels - Motor fuels were in excess of $3,•000 in 1985
and it is anticipated that with the activity in 1986 and proposed
1987, that this cost will be increased by 208 over 1984.
4222 Lubricants and Additives - This amount is used to service
the fleet of inspection cars.
4224 Clothing and Personal Equipment - The Building Inspections
Department is proposing to purchase safety shoes, hats and
rainwear. There were eight units budgeted at $125 each.
4231 Equipment Parts - Historically, $700 was expended in 1984,
$695 in 1985. The $7.00 budget amount seemed accurate.
4240 Small Tools - The Building Inspections Department is
purchasing tapes, rules, levels, guages and other small hand tool
items periodically to assist their work performance.
4332 Use of Personal Auto - At times when all the inspector cars
are in use, personal autos are used for inspections. They are
also used for training and outstate conferences.
4411 Conferences and Schools - Each calendar year the inspectors
are required to attend schooling on recertification and uniform
building code changes. These training conferences,, in addition
to special training for the Fire Marshal and Chief Building
Inspector, have resulted in increasing expenses due to additional
employees during the past three years.
4412 Dues and Subscriptions - This amount is used for certain
periodicals and it is difficult to determine what references or
subscriptions might be useful during 1987.
ks and Recreation
4210 Office Supplies - The 1985 office supplies have exceeded
$1,000 and 1986 office supplies are espected to. The increase is
due to the volume of activity.
4211 - The increase of funds requested for printed materials is
due to a new labor distribution form for seasonal and full-time
staff.
4220 Operating Supplies - This year's request is nearly $2,400
less than actual 1985 expenditures of $6,400. The amount
budgeted is a conservative estimate.
4221 Motor Fuels - Declining motor fuel costs have been offset by
the addition of area to be mowed and maintained in the winter.
4222 Lubricants and Additives - The increase in funds requested
is due to the addition of equipment and vehicles as well' as an
improved fleet maintenance operation.
4223 Cleaning Supplies - With the addition of five new park
shelters, there is a need to start up and stock a cleaning
maintenance program.
4224 Clothing and Personal Equipment - The amount of funds to be
spent is set in the union contracts, the cost also includes
uniform, shirts for the seasonal part-time employees.
4225 Shop Materials - Increase in the budget request is due to
the increase in the amount of equipment which must be maintained.
4231 Equipment Parts - The increase requested under equipment
parts is due to more pieces of equipment and on a preventative
maintenance program.
4236 Signs and Striping Material - The increase in developed park
land requires the additional signage. A need is seen for
uniformity and consistency which will require replacement of some
signs which are old, worn and in need of replacement/
refurbishment.
4237 Recreation Supplies - An increase in $3,000 is due to the
expansion for programs and the number'of people participating.
4240 Small Tools - The increase is based on staff recommendation
that each Parks employee be equipped with a tool box which he/she
would be responsible for.
4319 Professional Services Instructors - This line item is used
for the payment of umpires and officials in the City'ssports and
recreation programs. This cost is recouped through fees
administration.
4322 Telephone - The increase from 1986 is due to an increase in
nearly all phases of the department's operations, particularly
the recreation supervisor positions.
4332 Use of Personal Auto - The increase from 1986 is due to an
increase in nearly all phases of the department's operations,
particularly the recreation supervisor positions.
4350 General Printing and Binding - The increased request is due
to the addition of a trail brochure as well as the expansion
that is planned for the calendar to include 12 months instead of
nine.
4371 Electricity - Increase is due to the addition of service for
all park shelter buildings, hockey rinks, Rahn Park tennis
courts, new parks and athletic fields.
4376 Gas Service - The increase in costs is due to the need to
provide propane for two additional structures in 1987.
4379 Waste Removal - The increase of $300 from last year is due
to the increase of site locations which require trash pick up.
4381 Automotive Equipment and Repair - The amount requested was
determined by historical data. There is an increase in the amount
due to the amount of new equipment being added to the department.
4382 Other Equipment - The increase in park land to be maintained
has increased the need for equipment.
4393 Rental Equipment - There is a need foreseen to rent a High
Ranger for light re -aiming, as well as a field weed sprayer and
other miscellaneous pieces of equipment which are not deemed
practical to purchase at the present time.
4410 Miscellaneous - The Parks Department is interested in
beginning a volunteer recognition program and training for
departmental staff.
4411 Conferences/Schools - A reduction of $1,500 would eliminate
certain schooling and tr-a.ining for the Park, Director and
Superintendent of Parks as well as the recreation supervisors.
4415 Reference Materials - A reduction in the amount funded for
reference materials will limit staff subscriptions and training
materials which are used in the development of programs and
operations.
Public Works/Engineering
4211 Printed Material - $400 is requested for temporary "No
Parking" signs and $100 for miscellaneous MnDOT forms.
4221 Motor Fuels - An increase of $200 is requested for 1987 due
to the increase in the number of vehicles and the increased
number of field inspections.
4415 Reference materials - An increase of $100 is requested in
order to update outdated reference materials.
4430 Other Contractual Service - $3,600 is requested for the
PAVER annual user fee.
Public Works/Streets and Highways
4224 Clothing and Personal Equipment - The uniform allowance is
set by union contracts. The increase is due to the number of
personnel and includes T-shirts for the seasonal personnel.
4225 Shop Materials - An increase is expected due to the number
of vehicles requiring repair.
4230 Repair and Maintenance Supplies - The amount requested for
198:7 of $2,000 is less than the 1985 actual and the 1986 year to
date.
4234 Street Maintenance Materials - The increase requested is due
to the increased number of miles of streets that must be
maintained.
4240 Small Tools - An increase of $500 is due to small tools
which are needed for the fleet maintenance operation.
4321 Postage - An increase of $150 is due to mailed notices for a
boulevard obstruction enforcement program.
4322 Telephone - The increase of $930 is due to $400 for an extra
line into the new maintenance facility and $500 for the
department's share of annual lease payment for the new phone
system.
4372 Electricity - Street Lights - An increase of $1,000 is
requested because of the increase in the number of street light
installations.
4373 Electricity - Signal Lights - The increase is due to the new
signals along 35E and the new county road improvements. As more
street lights are installed, costs for operation will go up.
4374 Electricity - Lift Station - An increase of $3,000 is
expected due to an increase for the O'Neil Pond lift station and
more runoff from the new development in lift station districts.
4379 Waste Removal - The City has experienced an increase in
right-of-way trash pick up of hazardous waste, barrels, tires,
etc.
4384 Street Repair - There,is-an increased number of street miles
which must be maintained'and repaired.
4386 Communications System Maintenance - An increase of $1,000 is
anticipated in 1987 due to the new radio acquisitions in 1986 and
1987.
4393 Machinery and. Equipment Rental - The amount of $3,000
requested in 1987 is less than the amount of $5,500 that has been
spent in 1986 to date. Machinery rental is necessary as it is
not always practical to purchase infrequently used items.
4412 Dues and Subscriptions - If the amount is reduced, certain
professional memberships will have to be eliminated for
department supervisors.
Summary
City department heads have prepared more detailed information
regarding all line items of the budget. For example, each of the
conferences and training sessions proposed for 1987 are listed in
detail in the worksheets presented by each department head. The
same is true with service contracts for equipment rental and many
other examples. At the risk of preparing a lengthy text in
response to budget reductions or the original budget
presentations, this information is not included for review.
However, the City Administrator is happy to provide any of that
information either verbally or in writing upon request by the
City Council.
Aside from a detailed analysis of each account, it seems
important to realize that budgeting is not a science. Budgets
are prepared as a financial guideline. While expenditures may be
easy to forecast for personnel and. other contractual items, it is
difficult to anticipate for items such as motor fuels, equipment
repair and many other types of expenditures. The City has
experienced a savings in many accounts at year end while other
accounts may exceed budget guidelines established for that
calendar year. Historically, the City Administrator, department
heads and City Council have looked at the bottom line of each
departmental budget at the time of preparation at the year end
audits. Each budgetary account requires some flexibility 'given
the growth and uncertainties of providing governmental services
in the next calendar year. During 1985, with the contingency
taken into consideration, the budget approved for that calendar
year was $5,121,640. The actual expenditures were $5,149,755.
The budget was off by $28,000. At the same time the City
budgeted revenues for $5,121,640 but the actual revenues
collected due to building permits and high growth activities was
$6,047,908. In 1984 the actual expenditures were $64,643 less
than the operating budget with the contingency. During 1984,
revenues exceeded the actual budget by $.334,457.
It is possible to reduce some accounts;; however, there may be a
shortfall caused within a departmental budget due to a necessity
to exceed an expenditure such as equipment repair, motor fuels or
some other account that may be vital to a service delivery.
Certain programs such as the City-wide newsletter, public
officials liability insurance and other related expenses are
public policy decisions and can be reduced and the effect will be
,on our delivery of service not the actual operating budget. The
City Administrator will be, happy to provide any additional
information at the budget workshop session on Tuesday.
p
City Administrator
Attachments
TLH/jeh
Burnsville/Eagan Cable Communications Commission
TO: Linda Barton, City Manager, City of Burnsville
Tom Hedges, City Administrator, City of Eagan
FROM: Rick Bertz Chair, and Board of Directors, Burnsville/Eagan Cable
Communications Commission
SUBJECT: Request for Transfer of Ownership and Control of Cable System
DATE: Thursday, 9 October 1986
RECOMMENDATION
The Board of Directors of the Burnsville/Eagan Cable Communications
Commission recommends that the city councils of Burnsville and Eagan
consent to the proposed transfer of ownership and control of the
Burnsville/Eagan cable system.
RECEIPT OF NOTICE
On 21 July 1986, the Commission received officialnotice from North Central
Cable Communications Corporation (North Central) requesting consent from
the cities of Burnsville and Eagan for a transfer of ownership and.control of
Group W of Burnsville/Eagan, Inc. (Group W -B/E), to North Central. Similar
Burnsville/Eagan Cable Communications Commission
EXECUTIVE SUMMARY: Request for Transfer of Ownership and Control
of Cable System
Thursday, 9 October 1986
letters were received by all Group W Cable, Inc. systems in the Twin Cities
metropolitan area.
Documents furnished by North Central indicate that.the proposed transfer
would be a transfer of Group W Cable, Inc. stock from a consortium of five
cable operators to a new corporation, called North Central Cable
Communications Corporation. This new corporation has two stockholders:
Hauser Cable of Minnesota, Inc. (Hauser) 50%
Continental Cablevision of Minnesota, Inc. (Continental) 50%
Hauser Cable of'Minnesota is a holding company owned by Hauser
Communications, Inc., which is the 29th largest U.S. cable operator with
approximately 307,000 totalsubscribers in three systems' located in
Northwest Hennepin County, Minnesota; Arlington, Virginia; and
Montgomery County, Maryland. Continental Cablevision of Minnesota, Inc.,
Is a holding company owned by Continental Cablevision, Inc. which is the
7th largest U.S. cable operator with approximately 1,300,000 total
subscribers in systems located throughout the U.S..including St. Paul and
Northern Dakota County, Minnesota.
FINANCIAL ASPECTS
North Central proposes to pay $61,215,000 to purchase and operate the six
Twin Cities metropolitan cable systems presently owned by Group W Cable,
Inc. To obtain this amount, North Central has arranged for $50,000,000 in
senior debt from the First National Bank of Boston, $7,660,000 in equity
from Daniels & Associates, Inc., $10,000,000 in equity from Continental
Page 2 of 6
Burnsville/Eagan Cable Communications Commission
EXECUTIVE SUMMARY: Request for Transfer of Ownership and Control
of Cable System
Thursday, 9 October 1986
Cablevision, Inc., and $5,400,000 in deferred taxes. The Commission has
received assurances from North Central, Continental and the First National
Bank of Boston that additional money will be available to cover all
foreseeable operating and capital costs that exceed revenues.
North Central represents that this financing is sufficient to purchase and
operate.the Twin Cities metropolitan area Group W cable systems, including
the Burnsville/Eagan system, and proposes no changes to the franchise.
On 2 October 1986,.following an evaluative process as required by the
Cable Communications Ordinance, the Commission's Board of Directors
voted to recommend that the city councils of Burnsville and Eagan adopt a
resolution approving this request.
Although the cities' consent to the proposed transfer cannot be
unreasonably withheld, the Cable Communications Ordinance requires the
cities and Commission to consider four standards of review regarding=North
Central's-suitability to own and operate the cable system. These standards
are as follows:
1) Technical ability of North Central to operate the:system
2) Legal and character qualifications of North Central
3) Financial stability of North Central
4) Other appropriate factors as determined -by the cities or Commission
North Central has been found to meet the standards of review according to
the information provided to the Commission as of the close of its public
hearing regarding this matter. The Commission finds that no reasonable
grounds to withhold consent for this transfer request exist.
Page 3 of 6
Burnsville/Eagan Cable Communications.Commission
EXECUTIVE SUMMARY: Request for Transfer of Ownership and Control
of Cable System.
Thursday, 9 October 1986
The Commission closely analyzed the financial proformas and other
financial information provided by North Central. This analysis resulted in
requests for clarification from North Central regarding these proformas and
other financial information. The clarifications received from North Central
are as follows:
1) North Central acknowledged that it accepts all provisions of the cable
franchises of Burnsville and Eagan and that it will comply with the
terms and conditions of these franchises. Additionally, North Central
specifically confirmed that it will comply with the line extension
provisions of the franchises. North Central also stipulated that it will
not inititate discussions of changes in the local programming
requirements of the franchises until June 1987, if ever.
2) North Central confirmed that its obligations under the franchises are
guaranteed by the existing $200,000 (per city) performance bonds and
the $30,000 (per city) letters of credit.
3) Continental guaranteed that it will provide to North Central, in addition
tothe $10,000,000 of equity capitalization, $3,000,000,.if required for
the purchase -of additional capital stock or for other business purposes.
4) North Central and the First National Bank of Boston jointly confirmed
that, if additional funding is required, North Central expects to have
additional borrowing capacity available arising from North Central's
expectation that it will be able to obtain senior credits over and above
the basic $50,000,000 credit provided by the First National Bank of
Boston.
5) North Central confirmed that, if it requires additional funding, it will
--first endeavor to utilize any available equity and additional borrowing
Page 4 of 6
Burnsville/Eagan Cable Communications Commission
EXECUTIVE SUMMARY: Request for Transfer of Ownership and Control
of Cable System
Thursday, 9 October 1986
capacity before initiating any discussions:of franchise changes with
respect to the institutional network.
6) North Central and the First National Bank. of Boston confirmed that the
senior debt to annualized operating cash flow ratios reflected in North
Central's financial projections are in compliance with the loan
commitment letter from the -First National Bank of Boston to North
Central -which describes the terms and conditions of the senior debt
loan.
Further clarification in areas not directly related to the grounds for
approving or denying the transfer were also provided by North Central to
the Commission's satisfaction.
In addition, North Central forgave one-half of the obligations of the cities to
repay advanced franchise fees on the condition that the cities act to
approve the transfer no later than 31 October 1986.
If the city councils decide to adopt the Commission's recommendation to
consent to this request for transfer of ownership and control, they may do
so by means of the attached resolution. Please refer to the attached.legal
opinion and resolution. Following council action to approve, the cities must
properly notify the Minnesota Department of Commerce that the transfer
has been approved by the cities.
If the city councils decide to deny the request, they may wish to direct the
Commission to prepare findings of fact supporting such denial.
Page 5 of 6
Burnsville/Eagan Cable Communications Commission
EXECUTIVE SUMMARY: Request for Transfer of Ownership and Control
of Cable System
Thursday, 9 October 1986
MORE INFORMATION
The information in this summary is presented in more detail in the
enclosed memorandum entitled Request for Transfer of Ownership and
Control of Cable System and attachments.
Page 6 of 6
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CROWILLIAM •}••
MEMORANDUM
TO: Tom Hedges, City Administrator - Eagan
Linda Barton, City Manager - Burnsville
FROM: Thomas D. Creighton, Legal Counsel
DATE: October 8, 1986
RE: Transfer of Ownership and Control of Group W Cable
of Burnsville/Eagan, Inc.
As you- are aware, Group W Cable, Inc., by and through
Group W Cable of the Burnsville/Eagan, Inc., requested the
Cities' consent to the transfer of ownership and control in
Group W of Burnsville/Eagan, Inc., to North Central Cable
Communications Corporation ("North Central"). Group,W is
obligated to receive the Cities' approval for this transac-
tion under the Franchise Ordinance.
The Burnsville/Eagan Cable Communications Commission has
undertaken an analysis of the legal, technical, and finan-
cial qualifications of North Central in the transaction. At
its meeting on October 2, 1986, the Commission determined to
recommend to its member cities the approval of the transfer
of ownership of Group W Cable of Burnsville/Eagan, Inc. to
North Central. I have enclosed a copy of the Commission's
resolution.
The complexity of the transaction and the.specific
analysis which was undertaken by the Commission, on behalf
of its member cities, cannot be fully described)in this
memorandum. I have included a copy of a memorandum which
16
explains in detail the transaction. This memorandum was
presented to the Commission and formed a basis for their
recommendation of approval. I have enclosed this memorandum
for your information and for the information of your Council
members.
I have prepared a Resolution for your City Council which
will effectively approve the 'transaction consistent with the
Commission's recommendation. No ordinance amendment is
required. I would ask that you place this matter on your
next Council agenda. If you would like a representative of
the Commission to be present at your Council meeting, please
contact Ralph Campbell, Cable Administrator, at 454-8100.
Additionally, if you should' have any questions concerning _
this transaction, you may contact either Mr. Campbell or
myself.
Following the Council's adoption of the enclosed Resolu-
tion, I would ask that you promptly return it to me at the
above address. Note: North Central has requested that the
attached Resolution be certified according to your regular
procedures for such certification. Please return a signed
copy of this Resolution and the certification to my office
as soon as possible.
Thank you for your cooperation in this matter.
cc: Ralph Campbell
- 2 -
I
0
STATE OF MINNESOTA
COUNTY OF
CITY OF
RESOLUTION NO. APPROVING
THE TRANSFER OF OWNERSHIP
OF GROUP W CABLE OF BURNSVILLE/EAGAN., INC.
WHEREAS, Group W Cable, Inc., a New York Corporation
(hereinafter "Group W Cable"), by and through Group W Cable
of Burnsville/Eagan, Inc.., a wholly-owned subsidiary, owns,'
operates and maintains a cable television system in the City
pursuant to the terms and conditions of City Ordinance No.
(hereinafter "Cable Communications Franchise,
Ordinance"); and
WHEREAS, Group W Cable desires to sell and otherwise
transfer all of the issued and outstanding shares of the
capital stock of Group W Cable of Burnsville/Eagan, Inc. to
North Central Cable Communications Corporation (hereinafter
"North Central") and thereby transfer control of Group W
Cable of Burnsville/Eagan, Inc., to North Central; and
WHEREAS, Group W Cable has requested the consent from
the City to a change in ownership and control of Group W
Cable of Burnsville/Eagan, Inc., to North Central; and,
WHEREAS, the Burnsville/Eagan Cable Communications Com-
mission (hereinafter "Commission") has been delegated the
authority and responsibility to coordinate, administer and
enforce the Cable Communications Franchise Ordinance on
behalf of City pursuant to the terms of a Joint and Coopera-
•
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tive Agreement for the Administration of a Cable Television
Franchise; and
WHEREAS, the Commission has held a public hearing on
behalf of City and has reviewed the legal, technical, and
financial qualifications of North Central and finds no rea-
sonable basis to deny the request for transfer as a result
of said review; and
WHEREAS, the Commission has recommended to City approval
of the transfer of control of Group W Cable of
Burnsville/Eagan, Inc. to North Central subject to the
actual closing of the stock sale; and
WHEREAS,.the Commission has also..recommended approval of
a request by North Central to permit the pledge as security
to its lenders the stock and assets of North Central, and
its subsidiaries, which includes Group W Cable of
Burnsville/Eagan, Inc.;
WHEREAS, the City does not object to such security
interest in the stock and assets.
NOW THEREFORE, BE IT RESOLVED by the City Council of the
City of
1. That the City hereby approves the sale by Group W
Cable, Inc. of all of the issued and outstanding shares of
the capital stock of Group W Cable of Burnsville/Eagan, Inc.
and the transfer of control of Group W Cable of
Burnsville/Eagan, Inc. to North Central subject to an actual
closing of the stock sale transaction on or before December
- 2 -
31, 1986 pursuant to the terms and conditions as evidenced
by the Notice of Transfer to said Commission and City and
all written representations from North Central association
therewith.
2. The City approves the pledge by North Central as
security to its lenders the stock and assets of North
Central and Group W of Burnsville/Eagan, Inc.
The above listed resolution was moved by Council Member
, and duly seconded by Council Member
The following Council Members voted ir the affirmative:
The
The following Council Members voted it the negative:
Passed and adopted this _ day of , 1986.
ATTEST:
Mayor
City Adminis_rator
- 3 -
El
The undersigned, the (Title) of the
(City) , Minnesota, does hereby certify that
attached hereto is a true and correct copy of Resolution No.
, which Resolution was duly adopted by the City Council
on (Date) 1986 and is in full force and effect on
the date hereof.
Name:
Title:
- 4 -
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O'CONNO.R & HANNAN
ATTORNEYS AT LAW
Directors of the Burnsville/Eagan Cable
Communications Commission
Thomas D. Creighton and Mark J. Ayotte,
Legal Counsel
September 10, 1986
Group W Cable, Inc. 'Request for Approval of Trans-
fer of Ownership and Control
Please find below a summary and analysis of the proposed
transaction -regarding a request from Group W Cable, Inc., to
the Member Cities of the Burnsville/Eagan Cable Communica-
tions Commission to approve the sale and transfer of all of
the issued and outstanding shares of the capital stock of
Group W Cable of Burnsville/Eagan, Inc. to North Central
Cable Communications Corporation.
The purpose of this report is to provide the Commission
with an understanding of the transaction and the standard.
for reviewing whether to approve it.
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MEMORANDUM
Directors of the Burnsville/Eagan Cable
Communications Commission
Thomas D. Creighton and Mark J. Ayotte,
Legal Counsel
September 10, 1986
Group W Cable, Inc. 'Request for Approval of Trans-
fer of Ownership and Control
Please find below a summary and analysis of the proposed
transaction -regarding a request from Group W Cable, Inc., to
the Member Cities of the Burnsville/Eagan Cable Communica-
tions Commission to approve the sale and transfer of all of
the issued and outstanding shares of the capital stock of
Group W Cable of Burnsville/Eagan, Inc. to North Central
Cable Communications Corporation.
The purpose of this report is to provide the Commission
with an understanding of the transaction and the standard.
for reviewing whether to approve it.
I. INTRODUCTION
The Member Cities of the Commission had been requested
to approve the sale of stock in Group W Cable of Burns-
ville/Eagan, Inc. to North Central Cable Communications
Corporation. This request arises out of the previous denial
of Transaction #2 wherein the Commission and the Member
Cities disapproved,the sale of stock in your system from
Group W to North Central Cable Communications Company,
L.P. It is important to note that 'although the process and
factors to be considered by the Commission in this request
for approval are similar to the earlier process, this re-
quest is separate and distinct. The Commission should not
rely upon earlier information or previous per-ceptions. The
parties to this request for approval and the information
provided is slightly different from that which the Com-
mission previously considered
This memorandum analyzes the
current proposed transaction before the Commission.
II. DESCRIPTION OF TRANSACTION
A. Background.
Before considering this transaction, the Commission
should be aware of the current structure of Group W Cable,
Inc. The earlier Transaction #1 involving the sale and
transfer of all of.the issued and outstanding shares of the
capital stock of Group W Cable, Inc. from Westinghouse
Broadcasting and Cable, Inc. to the consortium of five
Buyers closed on June 19, 1986. Group W is now supervised
- 2 -
by a Board of Directors designated by the new Buyers. Each
Buyer has primary operational responsibility for the group
of cable systems which iE,had agreed to subsequently pur-
chase or dispose of pursuant to the Buyer's purchase agree-
ment.
The six suburban Minnesota systems had been designated
by the Buyers to be purchased by Daniels & Associates, Inc.
("Daniels"). Daniels had assigned its interests to Daniels
Hauser Holding Company ("D.H. Holdings"), a Colorado general
partnership. Furthermore, D.H. Holdings has assigned its
rights to acquire a number of systems, including the Minne-
sota systems, to North Central Cable Communications, L.P.,
("North Central-L.P.") a Minnesota limited partnership.
Finally, the right to acquire each specific system has been
assigned to North Central Cable Communications Corporation
("North Central"), to whom the present request for transfer
approval is pending. Since the close of the earlier trans-
action, the management of each Minnesota system was immedi-
ately undertaken by North Central-L.P., as agreed by the
Buyers pursuant to a management agreement with Hauser Com-
munications, Inc. This change in management of each system
could legally occur without Commission approval.
B. Proposed Transaction.
The proposed transaction involves a number of different
entities and organizations with a series of assignments of
an interest to acquire the Minnesota cable systems. Note
3 -
that each assignment of the interest to purchase each system
is not a transfer of ownership of the system.
The proposed transaction involves the following primary
entities:
1. Daniels & Associates, Inc. ("Daniels") -- a
Delaware Corporation.
2. Daniels - Hauser Holding Company ("D -H Hold-
ings") -- a Colorado general partnership con-
sisting of Daniels & Associates, Inc. and
North Central Cable Communications, L.P. as
general partners.
3. North Central Cable Communications, L.P.
("North Central - L.P.") -- a Minnesota
limited partnership consisting of Hauser Cable
Communications Inc. as general partner, and
R.E. Hauser, Inc. as limited partner.
4. Hauser Cable of Minnesota, Inc. ("Hauser -
MN") -- a Minnesota corporation.
5. Continental Cablevision of Minnesota, Inc.
("Continental Inn") -- a Minnesota corpora-
tion.
6. North Central Cable Communications Corporation
("North Central") -- a Delaware corporation.
We have reviewed the necessary documentation to conclude
that each of the entities is duly organized and in exis-
tence. The organizational existence of Daniels has been
certified by the Buyers. We have reviewed a Certification
and Joint Venture Agreement regarding'D.H. Holdings, which
constitutes the partnership agreement of D -H Holdings. We
have also reviewed a Certificate of Formation issued by the
Minnesota Secretary of State and Limited Partnership Agree-
ment creating North Central - L.P. We have additionally
been presented with the articles of incorporation and bylaws
•
4
of Continental -MN and Hauser -MN
We have reviewed the
necessary restated articles of incorporation issued by the
Delaware Secretary of State and an Application of Foreign.
Corporation for a Certificate of Authority to Transact
Business in Minnesota, with an acknowledgment of acceptance
by the Minnesota Secretary of State, on behalf of North
Central. The most significant entity for our analysis is
North Central, which is designated as the Transferee. North-
Central is duly organized and is authorized to own and
operate a cablesystem-. The genuineness of all documents and
authenticity of all signatures has been presumed.
To facilitate an understanding of the transaction, it
should be kept in mind that each ofr.the aforementioned
organizations is a separate and distinct entity. D -H
Holdings, North Central L.P., Hauser -MN, Continental -MN, and
North Central are entities which have been created for the
purpose of accomplishing this transaction. A graph setting,
forth the proposed transaction and transition process is
appended to the end of this report.
From the information we have reviewed, it appears that
Daniels is an original member of the Buyer group which
acquired the stock in Group W Cable, Inc. from Westinghouse
Broadcasting and Cable, Inc. in the earlier Transaction
#1. The Purchase Agreement allowed Daniels to assign its
rights to purchase stock in each system to other entities..
We have reviewed a certification indicating that Daniels has
- 5 -
assigned its rights and obligations in the earlier trans-
action to D -H Holdings.
North Central-L.P. has been assigned by D.H. Holdings
the right to acquire the six Minnesota systems by a Joint
Venture Agreement dated June 13, 1986. North Central-L.P.
has further assigned its interest in the Minnesota systems
to North Central by letter dated June 18, 1986. Thus, it is
North Central which will ultimately own the stock in each
specific Minnesota cable system.
From the information we have reviewed, North Central is
a newly createdcorporation which is owned equally by Con-
tinental Cablevision of Minnesota, Inc. and Hauser Cable of
Minnesota, Inc. The Commission should note that both Con-
tinental Minnesota and Hauser -Minnesota are also stated to
be newly created corporations.
III. STANDARD OF REVIEW
The Commission's task in this process is to review the
information provided regarding the transaction and to recom-
mend to its Member Cities approval or denial of the transfer
of stock from Group W, Inc. to North Central. The Cities
must make the ultimate determination. The franchise and
state statute provides the Cities with the express right, to
approve or disapprove the transfer of ownership in their
franchise and system
The standard of review is that the
Cities' consent shall not be unreasonably withheld. For the
purpose of determining whether it will consent to the change
- 6 - 6
in control and transfer of the stock, the Commission has
made inquiry into the legal, technical, and.financial quali-
fications of North Central, as well as other appropriate
factors.
In analyzing the transaction, the Commission must con-
sider whether North Central meets all of the criteria orig-
inally considered in initially granting the franchise to
Group W. Note, however, that this analysis is not a
comparison between Group W and North Central to determine
which is more qualified. Rather, the analysis is an appli-
cation of factors to determine whether North Central satis-
fies the standards to the reasonable satisfaction of the
City.
The .Commission should consider the following factors in
determining whether to recommend approval or denial of the
transfer to North Central:
1) Legal and character qualifications of North
Central;
2) Technical ability of North Central;
3) Financial stability of North Central; and
4) Other appropriate factors.
IV. ANALYSIS
The sources of information used in examining the legal,
technical, and financial abilities of North Central include
the Municipal Request For Information and other supplemental
information provided by Group W, Continental, and North Cen-
tral. Any subsequent transfers to Continental in the years
7 -
to come are not the subject of this analysis and will not be
approved by any response by the Cities: to this request.
A. Legal Qualifications
The legal qualifications standard relates primarily to
an analysis of whether the entities involved in the transac-
tion are duly organized and authorized to own the cable
system and franchise. Certain entities, such as certain
television broadcasting stations, national television net-
works, and certain telephone companies, are prohibited by
Federal law from owning, operating, or controlling a cable
television.system. We have reviewed the Federal cross -
ownership prohibitions and have determined them to be in-
applicable, although these restrictions are primarily a
concern of the companies involved. Moreover, we have been
provided with the necessary documentation which shows that
each of the entities is duly organized and authorized to own
a cable system and franchise as described above.
The character qualifications of North Central, as well
as the principals of the organization, are satisfactory.
Since North Central is a newly created entity, it is appro-
priate to review the character qualifications of its prin-
cipals. North Central has provided information showing that
neither it nor any principal has ever been convicted in a
criminal proceeding of any crimes against character.
Although Continental Cablevision, Inc., the parent company
of Continental -MN', was previously involved in proceedings
8 -
before the Federal Communications Commission, no violation
of FCC regulations was adjudicated.
Based upon our review of the information provided, it
would appear that the Commission or Cities could not reason-
ably withhold approval of the transfer based upon the legal
or character qualification of North Central or its prin-
cipals.
B. Technical Abili
The technical ability factor relates to the technical
expertise and experience in operating. and maintaining a
,cable system. This analysis focuses upon the current and
former experience of the proposed Transferee. Since North
Central is a newly -created entity, it has not directly owned
or operated any cable systems. Therefore, the ability of
its managing principals must be reviewed. Information has
been provided concerning such other individuals' and enti-
ties' experience in owning, operating, and managing cable
systems.
Hauser Cable of Minnesota, Inc., as one-half owner of
North Central, will be primarily responsible for the manage-
ment of North Central by virtue of its control of two
directors' seats of North Central. Moreover, North Central
has stated that it intends to enter into a standard manage-
ment agreement with Hauser Communications, Inc. ("HC") to be
responsible for the day-to-day supervisory management of
North Central and the cable systems.
•
- 9 -
The information which we have reviewed indicates that
Mr. Gustave M. Hauser, Mr. John Evans, as the primary in-
dividuals of North Central., and HC,, as the primary organiza-
tion involved in management, have extensive cable management
capability and experience sufficient to satisfy the tech-
nical ability factor as applied to each respective cable
system. Mr. Hauser is Chairman and Chief Executive Officer
of HC, Arlington Cable Partners, and Suburban Cablevision
Company. He formerly served as Chairman and Chief Executive
Officer of Warner Amex Cable Communications, Inc. He has
been involved in cable television and other electronic com-
munications since the early 1960's.,
Mr. Evans, as,President of HC and Arlington Cable Part-
ners, has 13 years of management experience in the cable
television industry. He manages a 34,000 subscriber cable
system in Arlington, Virginia and a 33,000 subscriber system
in Brooklyn Park, Minnesota. He has also served as System
and Regional Manager for over 90,000 subscribers in .
Columbus, Ohio, for American Television and Communications.
Hauser Communications, Inc., which will be the manager
of each Minnesota cable system, has experience in managing.
the Arlington System, Brooklyn Center system, and is in-
tending to acquire a.23,000 subscriber system in Montgomery
County, Maryland.
The inclusion of Continental -MN, a wholly-owned sub-
sidiary of Continental Cablevision, Inc., should not be
- 10 - 0
considered as directly bringing any additional technical
capability to the operation of your system. Although
Continental -MN owns one-half of the stock of North Central,
the agreement.between Continental and Hauser allows Hauser
to control two of the three seats on the Board of
Directors. It would appear that Continental's involvement
is primarily as an investor in the system. Although Con--
tinental Cablevision, Inc. has extensive exper.ience in the
cable industry which could be brought to the management of
your cable system, since it does not control the management
of the corporation, its experience is subject to the de-
cision of. Hauser.
Based upon our review of the information provided, it
would appear that neither the Commission nor Cities could
reasonably withhold approval of the transfer based upon the
technical ability of the transferee.
C. Financial Stability
The financial stability factor relates to whether North
Central.has the financial resources available or committed
to not only acquire the system, but also to meet the exist-
ing franchise requirements. The Commission has engaged Mr.
Kevin P. Cattoor, Financial Communications Consultant, to
undertake a review of this factor. Mr. Cattoor has prepared
an independent report of his analysis, and the Commission is
referred thereto.
D. Other Relevant Factors
Other appropriate factors which have been reviewed for
the purpose of determining whether to approve or deny this
transaction are contained in the Municipal Request For In-
formation. The most significant factor to be considered is
whether the cable franchise will be transferred. intact and
whether North Central will agree to comply with all existing
franchise requirements.
The information which we have reviewed indicates that
North Central is not currently requesting any franchise
modificatio'n's as a condition of the transfer. Moreover,
under the terms of the original purchase agreement of the
consortium, North Central is prohibited from requesting any
franchise modifications as part of this transfer. In other
words, all systems are to be sold and transferred "as -is".
Consequently, North Central will agree to receive transfer
of the franchise intact.
With respect to the franchise requirements regarding the
existing service area and line extensions, North Central has
indicated that it will comply with the existing franchise
requirements and obligations. The construction practices of
North Central regarding aerial and underground installation
and standards will also conform to existing franchise re-
quirements, including the burial of snow -drops at no charge
to the subscriber in the spring. North Central has not
proposed any modifications to the.channel capacity or system
- 12 -
design (both subscriber and institutional network) and will
assume all existing franchise obligations regarding future
activation of channel capacity and upstream capabilities,
interconnection, performance,testing and system maintenance
policies. North Central has stated that its personnel will
assist current users of the institutional network.
Moreover, Nor,,th Central has agreed to assume all obli-
gations regarding the resolution of customer complaints. We
can take notice of the fact that HC, as current manager. of
the system has already implemented improvements to the cus-
tomer service obligations by extending office hours- North
Central does not propose any addition or deletion of any
programming services.
In ,the area of local programming and public access,
North Central will agree to assume all existing franchise
commitments, including equipment, facilities, staff, and
funding. North Central will not agree to forego modifica-
tions of the local programming/public access commitments in
the future. North Central does not propose any additions to
the access commitments.
With respect to proposed rates, North Central is not
proposing any changes in the applicable franchise require-
ments and will operate consistent with federal law in set-
ting rates. North Central's expected rates are detailed on
a rate schedule contained in the financial information. For
those rates which are.deregulated under federal law, North
- 13 - 0
Central is permitted to charge whatever it desires. Any
regulated rate will remain the same.
North Central has also indicated that it will comply
with all federal, state, and local laws relating to discrim-
ination, equal opportunity employment programs and affirma-
tive action programs. Moreover, North Central will abide by
all existing franchise 'requirements relating to staff posi-
tions and managers, to the extent these issues are subject
to the Commission's control.
North Central has agreed to execute the existing fran-
chise between Group W and the franchising authority, and to
comply with all terms and conditions of the franchise.
Additionally, North Central proposes that it will guarantee
the performance of the franchise. North Central states that
it is -fully capitalized and has substantial assets, which
includes the other five neighboring Group W systems. In
addition, North Central states that it has arranged for the
existing performance bonds and letters of credit previously
established by Group W Cable, Inc. to remain in place and be
guaranteed by Continental Cablevision, Inc. and Hauser
Communications, Inc. North Central has taken the position
that neither Hauser Communications, Inc. .nor Continental
Cablevision, Inc. are required to guarantee the performance
of the existing franchises.
The franchise provides that if the grantee is a sub-
sidiary or wholly-owned corporate entity of a parent corpo-
- 14 -
;1.1n • �.1�. .11,
ration, performance of the franchise must be secured by
guarantees of the parent corporation "in form and substance
acceptable to city, . . .". In this case, North Central
states that the oricinal grantee, Group W Cable of Burns-
ville/Eagan, Inc., will remain in place as a subsidiary
corporate entity of a parent corporation, North Central.
The question before the Commission and the cities is
whether North Central's guarantee of the performance of the
franchise is "acceptable in form and substance". If not
acceptable, the offering of an unacceptable guarantee would
be a violation of the franchise and more probably than not,
would be a reasonable basis for the withholding of approval
of the transfer. If not, the Commission and cities must de-
cide whether the guarantee of either Hauser or Continental
or both would be acceptable. The question of the guarantee
is related to the amount of equity, the negative cash flows
in the first five years indentified for not only your
system, but also for the neighboring Group W systems and the
fact that the assets of the other systems are pledged as
security to the Bank of Boston. Mr. Cattoor's report
addresses these factors more specifically. North Central
has stated that Hauser and Continental are reluctant to
guarantee the franchise based upon common industry practice
and the reluctance to show the guarantee as a liability on
the corporate books. The Commission should consider these
arguments in light of the perceived need for the guarantee.
- 15 -
Based upon our review of the information constituting
other appropriate factors, and recognizing the uncertainty
as to judicial interpretations of the 1984 Federal Cable
Act, it does not appear that there is any legally justifi-
able reason to withhold approval of the transfer to North
Central in the areas of legal or technical.
The area of financial ability to perform the franchise
commitments appears to be the only remaining question for
the Commission's consideration, albeit an extremely signifi-
cant consideration. Depending upon the policy determination
regarding the viability of the financial plan and.the
associated guarantee of performance, or lack thereof, Com-
mission staff is prepared to prepare the necessary documen-
tation to approve or deny the transfer of ownership.
•
- 16 -
3uC-svlliei Normi Vorctt ;mid ?a:c�.,ey/
Fagan, L:c. Central, Lnc `libisbe, 3hc Cities, Inc. Wash. , Inc. HiL�p, Lac
1001 1001 1009
GROUP'W, I?NC.
AMERIC.IN =11SICN AND CCbM.YICATICNS C' -::P.
TEE-Ca4AL 7ICATIGNS, LNC.
MC.ZSr CI?M RATION i
Oi NMLS s ASSOCIATES, IVC.
=41LW SCUrWEST CABLE TM VISICN, INC.
Transition (1)� — _-------___—_ ---------
Process.:
Louisiana/.California
Systems
DANIELS-FFAUSER HOLDINGS
DANIELS S.ASSOCIATES,I
PROPOSED:
CONTII`FE?rAL CABLEVISICN
OF MINNE.ATA, zNc.
(2)
Minnesota -Systems
e •� as �• : «« �• « �
(3)1 Assignment
NORTH CENTRAL CABLE
COMMUNICATIONS
CORPORATION
1 MAfC,GE�r
AGREL.*NT LrITFN
Fil[SER
CCt+LTNICATICNS,.
IVC.
HAGSER CABLE OF
MWMS=, INC.
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Burnsvill
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Fagan, L1c Central, Inc �ubuNrbs,Inc. Quad
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1001 1001' 1009 100! 1001 319
KEVIN P. CATTOOR
FINANCIAL COMMUNICATIONS CONSULTANT
2224 73rd COURT NORTH
MINNEAPOLIS. MN 55441
Hua (612)-370-0686
Rn. (612)-566-5294
TO: Directors of the Burnsville/Eagan Cable
Communications Commission
FROM: Kevin P. Cattoor, Financial Communications Consultant
DATE: September 11, 1986
RE: Financial Analysis of Group W Transfer
I have been engaged by your Commission to perform a fi-
nancial analysis of the financial pro formas submitted by the
North Central Cable Communications Corporation (North Central)
forthepurpose of purchasing the six Group W cable systems
in the Minneapolis/St. Paul metro area. The purpose of per-
forming the financial analysis on North Central's pro formas
is to determine whether the assumptions used in preparing
the financial pro formas are reasonable in comparison with
current industry experience. Additionally, it is important
to assure that the assumptions made in the pro formas are con-
sistent with the information presented in the Request For
Information. This is particularly important as it relates
to the documents supporting the financing commitments.
To date, the financial analysis has surfaced two major
concerns.
First, North Central has projected that the cash on hand
necessary to finance system acquisition and subsequent operation
goes into a negative $2.9 million in the year 1993. Review of
the Request For Information indicated the existence of no other
financing commitments that would cover this shortage. Addition-
ally, North Central has assumed that $8.5 million of additional
senior debt would be obtained in the year 1992. There is no
evidence of this commitment in the Request For Information.
Second, review of the loan commitment letter from the
Bank of Boston for the $50,000,000 senior debt calls for cer-
tain financial ratios to be met in order for North Central
to maintain its loan balance with the Bank of Boston. The
loan commitment letter indicates that the total debt to oper-
ating cash flow ratio in each of the years one and two must
be no higher than 6.5 to 1 and 5.75 to 1 respectively. In
performing these calculations on North Central's pro formas
included in the Request For Information, it is noted that
ratios of 8.0 to 1 in year one and 5.87 to 1 in year,two
k'
Directors of the Burnsville/Eagan Cable
Communications Commission
Page Two
September 11, 1986
exist. This indicates based upon the pro formas that after
years one and two North Central will not be in compliance
with the loan commitment with'the Bank of'Boston. Addition-
ally, the operating cash flow to debt service ratio is also
not met in year one when the ratio is required to be at ,least
1.1 to 1. North Central's ratio of operating cash flow to
debt service in year one is 1.07 to 1. This indicates, again,
that North Central would not be in compliance with the fi-
nancial tests as described in the Bank of Boston loan commit-
ment letter.
In performing a financial analysis of these pro formas,
it is necessary to review all of the assumptions used in
developing the pro formas. However, the fact that North
Central in their pro formas as submitted is generating nega-
tive cash flows which exceed the cash invested into the sys-
tem simply indicates that the plan as proposed is not eco-
nomically viable. At this date, even if a detailed review
were performed to determine that the revenues, expenses and
other assumptions were reasonable, the overall financial
plan proposed by North Central would still not be viable.
At this time if the analysis were to be completed with-
out further discussion with North Central's management it
would be my opinion that North Central's financial plan is
not viable. This conclusion is reached on the basis that
therms is not enough cash invested to fund the acquisition
and operation of the system and due to the fact that the
pro formas as submitted would not comply with the financial
tests required in the Bank of Boston loan commitment letter.
KPC:abg
J•
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DIRECT DIAL NUMBER
O'CONNOR & HANNAN
ATTORNEYS AT LAW
3800 IDS CENTER
80 SOUTH EIGHTH STREET
MINNEAPOLIS, MINNESOTA 55402-2,254
16121 341-3800
TELEX 29-0584
TELECOPIER 16121 343-1256
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MEMORANDUM
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TO: Directors of
municatiothe Burnsville/Ea
Commission Burnsville/Eagan Cable Com -
FROM: Thomas D. Creighton, Legal Coun
Kevin P. CattOOr, Financial Communi /
tant �cT
cations Consul -
DATE: October 1, 1986 �vi
RE: �!� Group�
W Transfer of Ownership
BurnpviPle�of
his Memorandum is to
sionof /Eagan Cable Communications uCoate the
on the status of the request
to the member 4 fromission ("Cois-
and transfer of'ties of the Commission Group W Cable
the Ca ital all Of the issued tO approve the ' Inc.
Inc, to North Centralck Of W CableoftheOutstanding Burnsviilleareslof
L Central"). This le Communications
mndum s tions Cor
the concerns memorandum s Porationagan,
as stated expressed by Mr, CattoorPecificall
in his memorandum s fin I' addresses
the reasons for continuing issued September11,analysis
the public hearing, , 1986 and
As noted in Mr. Cattoor's memorandum dated
1986[ the financial analysis had surfaced
concerns: September 11,
the following
I• BACKGROUND
First, North Central has
on hand necessary to financelocted
cable systems that the cumulative cash
in the operation of the six
Minneapolis/St, Group W
Paul
area goes into a
•
.:1 Mr
Fire r� if i' �; i[ '� '`S' •+ L }*•aYr K s
negative $2.9 million in the year 1993. Also projected by
North Central was an additional $8.5 million of senior debt
financing that would be obtained in the year 1992. A review
of the Request For Information indicated the existence of no
financing commitments that would cover the $2.9 million
shortage in cumulative cash flow nor the $8.5 million of
additional senior debt financing (total cash shortage of
$11.4 million).
Second, a review of the loan commitment letter from the Bank
of Boston for the $50 million senior debt investment calls
for certain financial ratios or tests to be met in order for
North Center to maintain its loan balance with the Bank of
Boston. The loan commitment letter indicates that the total
debt to operating cash flow ratio in each of the years one
and two must be no higher than 6.5 to l and 5.75 to 1,
respectively. In performing these calculations on North
Central's pro formas included -in the Request For Informa-
tion, it is noted that ratios of 8:0 to 1 in year one and
5.87 to 1 in year two exist. This indicates, based upon the
pro formas, that in year one and two North Central will not
be in compliance with the loan commitment with the Bank of
Boston. Additionally, the operating cash flow to debt ser-
vice ratio is also not met in year one when the ratio is
required to be at least 1.1 to 1.0. North Central's ratio
of operating cash flow to debt service in year one is 1.07
to 1. This indicates, again, that North Central would not
be in compliance based upon our understanding of the finan-
cial test as described in the Bank of Boston loan commitment
letter.
It should be understood by the Commission that the above
concerns result in the conclusion that the financial pro
formas as presented by North Central do not represent an
economically viable plan. To this previous conclusion, Mr.
Hauser took exception based on insufficient communication of
North Central's future borrowing capacity to meet the per-
ceived revenue shortfalls and an alleged misapplication of
the Bank of Boston financial ratios. The Commission subse-
quently continued the public hearing and directed its staff
to further investigate North Central's claims. The follow-
ing is a summary of our investigation as determined through
direct conversations with North Central management and fur-
ther documentation supplied by North Central.
First, in response to the September 11, 1986 memorandum
concluding that the financial pro formas as presented do not
represent an economically viable plan, North Central manage-
ment has taken the position that despite the pro formas
.indicating cash shortfalls,.significant borrowing ability
will exist in the future based upon the level of operating
cash flows generated from the systems. North Central has
- 2 -
attempted to demonstrate and confirm the additional borrow-
ing capacity by a letter from Phillip Hogue, President,
Investment Banking of Daniels & Associates, Inc. and a let-
ter from the First Bank of Boston which conclude that North
Central should have available additional borrowing capacity
far in excess of its cash requirements.
Second, North Central management has obtained confirmation
that the financial ratios used to test the compliance of
North Central's borrowings from First Boston are in fact
applied a year later than that discussed in Mr. Cattoor's
September 11, 1986 memorandum.
To date, the financial analysis has revealed the following: ,
II. RATIOS
Based upon North Central's response regarding the financial
ratios test as it pertains to the First Bank of Boston loan
commitment, there is still ambiguity as to when the finan-
cial tests are applied. As indicated in the Bank of Boston
letter, "if the closing were to occur on or about January 1,
1987, no tests would be applicable in 1987, and the first
year of the tests would be 1988." It appears that there is
still a possibility that the financial tests could be
applied on January 1, 1988.
However, our concern with the ratio issue is based on the
pro formas presented by North Central. As stated earlier,
the assumptions of the pro formas we have received have not
been challenged in our analysis. A modification of the
assumptions in such areas as interest rates, penetrations,
cash flow, etc., could effect the ratio question. The Bank
of Boston has informed Mr. Cattoor that they reviewed other
pro formas from their own sensitivity analysis and have made
a loan commitment based upon all of the information they had
available to them. Therefore, it is our conclusion that the
ratio question is irrelevant to any further analysis of the
transfer in that our concern was based upon one set of pro
formas which have been discredited.
III. ECONOMIC VIABILITY OF FINANCIAL PLAN
With the objective of determining whether the financial plan
as presented to the Commission is viable, it is concluded
that the pro formas do not support an economically viable
plan. North Central has indicated to the Commission that
their borrowing plan as presented is dependent upon addi-
tional borrowings if the pro formas did in fact become
reality. North Central has indicated that they have borrow-
ing capacity of approximately 5.5 times the operating cash
flow being generated from their systems. As it relates to
C]
- 3 -
industry standards North Central's claim regarding their
borrowing capacity in terms of the 5.5 factor times oper-
ating cash flow is reasonable. However, the borrowing
capacity of North Central will be highly dependent upon the
level of operating cash flows being generated from their
cable systems at such time North Central would seek to bor-
row additional funds. The accuracy of the cash flow projec-
tions of North Central cannot be determined without an
indepth analysis of revenues and expenses as presented.
Nevertheless, assuming the cash flow projections of North
Central are reasonable, Mr. Cattoor can conclude that the
borrowing capacity is more than sufficient to meet the pro-
jected $11.4 million shortfall. Additionally, North Central
has confirmed that should it find additional funding to be
necessary, it will endeavor to first utilize any available
equity or credit facility before initiating any discussions
with the Commission or its member cities with regard to
franchise or system modifications.
IV. OTHER COMMITMENTS
North Central has also documented other commitments and
assurances which address the questions and concerns raised
at the Commission public hearing. Specifically, North
Central has acknowledged that it understands and accepts all
of the provisions of the franchise and affirms that it will
comply with the same. Additionally, North Central has
agreed it will not initiate with the Commission or its mem-
ber cities discussions of changes in the community program
requirements of the franchises prior to one year from June
1986, if ever. North Central has also confirmed that its
obligations under the franchise are guaranteed by the per-
formance bonds and letters of credit now in place, which
bonds and letters of credit are in turn guaranteed 50-50 by
Continental Cable Vision, Inc. and Hauser Communications,
Inc. Finally, North Central has 'provided evidence from
Continental Cable Vision, Inc. that it will utilize its best
efforts to borrow an additional $3 million for other busi-
ness requirements.
It should be understood by the Commission that to date no
detailed analysis of the North Central pro formas (revenue=_,
expenses, capital expenditures and other items) has been
performed. It can only be concluded at this point that the
amount of funds necessary to acquire the system appear to be
in place supported by a loan commitment from First Bank of
Boston for $50 million, and equity investments from Conti-
nental for $13 million and Daniels & Associates for $7.6
million.
4 -
V. CONCLUSION
The area of financial ability as part of the Commission's
consideration of this Request For Approval, appears to be
the only remaining issue, albeit an extremely significant
factor. The question of the financial ability of North
Central at this stage of our investigation results in a
policy determination for the Commission and its member
cities. It has been concluded that the financial pro formas
of North Central as presented do not represent a financially
viable plan. However, North Central has endeavored to sup-
port its financial plan by the commitments and assurances
stated above. It can be concluded that North Central's
financial plan based upon the information we have reviewed
does present a risk to Mr. Hauser. While the risk to the
Commission, its member cities and the franchise commitments
is aoP licy decision for the Commission, it would be my
opinion that, based upon the totality of the circumstances,
the Commission could not reasonably deny the transfer to
North Central. To this end, it would be my opinion that if
the Commission or its member cities were to deny the trans-
fer based upon the information provided, a court would
likely conclude that the denial was unreasonable.
- 5 -
MEMO TO.: HONORABLE. MAYOR 6 CITY COUNCILMEMBERS
FROM: CITY ADMINISTRATOR HEDGES
DATE: OCTOBER 7, 1986
SUBJECT: PROPOSAL FOR FIRE STATION #4
For the past five (5) years, a planning committee of the Fire
Department has met with the City Planner and the City's planning
consultant to review future fire station locations. All fire
station locations were based on demographic studies considering
future population and housing units. The initial report proposed
nine (9) locations for fire stations throughout the City. After
City Council review and additional consideration by the Planning
Committee, it was determined that nine (9) fire stations was high
and that the number of stations should be reduced to more
accurately reflect the ability to pay, staff and operate stations
strategically located throughout the community. The Fire
Department has reexamined the number of sites and it is their
opinion that with the present three (3) fire stations, an
additional three (3) stations and possible addition to the Fire
Administration Building to, provide for one or two operating and
storage bays is adequate to serve fire protection for the
community.
The Fire Department proposed as part of the 1987 operating budget
and capital improvements budget for the same calendar year, the
acquisition of sites for Fire Stations #4 and #5 and also the
construction of Fire Station #4. The 1987 budget presented by
the Fire Department Administration did include a request for land
acquisition for both fire station sites #4 and #5, construction
of Fire Station #4 and equipment to operate that station. It was
determined by the City Council that capital expenditures for the
new fire station should be funded through a bond referendum. The
City's costs were also proposed as a part of the capital
improvements program budget that was presented' earlier this
summer. During a budget work session at the time of CIP review,
it was suggested that Fire Station #4 be combined with a park
referendum later in the 1980's --either 1988 or 1989.
Since the Capital Improvements Program and further analysis of
the budget requests for fire station locations and Fire Station
#4, it appears that Fire Station #4 is critical for an adequate
fire response time in the new growth area of Eagan. Since the
last fire station was constructed, Fire Station #3, the
population has increased by 16,800 from 20,700 to a current
population of 37,500. The number of housing units constructed
since the completion of Fire Station #3 is 6,585 units. These
new units represent 47.7% of all housing units within the City.
The number of fire.calls at the time Fire Station #3 was
completed averaged 21 calls per month which is considerably less
than the 35 calls per month recorded in 1986. Many of the units
have been constructed in southeast Eagan and according to the
.4.
Planning Department, most of the new development will occur in
that part of the City during the next several years. The issue
of response time and lack of trunk water and water hydrant.
availability in east Eagan has created a necessity for a new fire
station in that area.
The site being considered for Fire Station #4 is a location
north of Wilderness Run Road and south of Diffley Road on Dodd
Road. The site that is most agreed upon by City staff, including
Fire Administration, is a location on the southeast corner of
Diffley and Dodd Road. The ,site for Fire Station #5 would be the
possible Tatsuda property between Astleford and Zilla at a
general location on Galaxie and I -35E. Fire Station #6 would be
considered at a location north of Yankee Doodle Road in the
general vacinity of Lone Oak Road and Pilot Knob Road. With the
ultimate addition of,a bay or two at the Fire Administration
Building, this should adequately serve fire station needs within
the City of Eagan.
In regard to manpower, the Fire Department has received applica-
tions from residents residing in the general area proposed for
Fire Station #4. Each time a new fire station is constructed,
some manpower shifts from an existing station. Both Acting Chief
Schindeldecker and District Chief Southorn feel manpower would be
available for day and night shifts to adequately serve the needs
for Fire Station #4.
The estimated cost for acquiring land and construction of Fire
Station #4 is shown follows:
Fire Station #4:
Building Construction $225,000
Land (Fire Stations #4 & #5) 100,000
Pumper 150,000
Tanker 70,000
Manpower Vehicle 25,000
Turn -Out Gear (20 sets) 12,000
Hose 7,000
Breathing Appartus 5,000
Compressor 5,000
Other Equipment 20,000
$619,000
Both Dick and Ken will be present at the meeting on October 14 to
review this information, present additional data and answer any
questions the City Council might have regarding the proposal to
construct Fire Station #4 in 1987. Staff has targeted specific
sites for Stations #4 and #5 and would like to discuss and
receive authorization to begin negotiations with the property
owners on City Council concurrence. If a referendum were, held in
1987, and the fire station constructed during that calendar year,
it would be necessary to have a special referendum in the late
spring, early summer, to allow for late summer/fall construction.
A referendum with the municipal election in November of 1987
would delay occupancy of Fire Station #4 until the summer of
1988.
This information is presented as a brief needs analys;is and
should be used as an.outli.ne for City Council review and
discussion.
City Administrator
TLH/kf