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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 ,, { Mq xLYOLIe ui :� Nov YxOxy� YZIL1[[.[1111 OVIR[ JRM1OYLa iRm'R,,L[i�.W fON, Je. WILT:. .....NN mwaw C.1 RNrvu I.... LF[xN NLIM "aLOi ORUN IO '1 pOM1eio i ouR m Y4AM Y o nail O'CON NOR & HAN NAN ATTORNEYS AT LAW 3800 IDS CENTER 80 SOUTH EIGHTH STREET MINNEAPOLIS, MINNESOTA 55402-2254 16121 341-3800 TELEX 29-0584 TELECOPIER (612) 3434256 v ooxmx uo- aRuro.Yu­ JOYY nmin:o••� au+i. Rmc.a•nN• rn[w Y MYu oYe /J10+[ W A J W OL OI41• Rncxu D�n.vwa• TInO•x• M J[xaly yR• C IN [L x' mYRV Ri eC.T1Oii ..I' xoO w Ycun dmuyu Y AL D cvnOxlOM e[OL RIC. N. ixoY/3 RIC. F.. .. ="`RR ...T1.1. oRFa A xl[L[r Ig ecRi o aiRWOw w1uuN c0111111-.1.1YOLO acu\ O R. RUR'.. YR+. D MYLL1 T[Paa eon[• RDecvi wmawxD v J.YLe • aa• aux[ urta[xu• eprv0 vinC[ �YYIMiaR o c ssa RRDRID On�C[ xoLw s. D•u• DIRECT DIAL NUMBER w�ic om wn[eoo vcLuau[c. x. e..aw orrr uxn[D wNR ccxi[R roIo r[NvsnrNu nwY[ Nw Ymvm �, y-]Im -'•YOi x[n e[A o1 NIxY LCau e.+ uxcOLx sivcci uNvcR co .otos+s.a WASFIF CLOY O. c. ZD[OO-]Y) eIUAL eMs.a W.nm W mVYy� W bfJ�L mVM\LL U=R W Y.w L�-Wa1 A.Yx J. VIRD.• pM•�D�O 9LNGY[• wl[LNY R I...:A _ DOFF J� IR" j=,"[, - 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- • I N 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 - IS .1 AIw C Rw. O CONxOR I.....L�L��LP NI NICIACL L .[GLIM[ NOf LPI cw PIf IIANaDNlP. ....0 'I .'A� 4iaw" i:D::a RR s:oi:I'.°iX nueiAA:uenY��D'N A. fo.R[ .A WILLIAM W + uRANiLw . °ET rwom `,11Luu.NTo. POLLNf10. fIN WONN ii°¢iIaoiN I...0 WILLIAM C, PLLLY PaIa�Ia101 DIRECT DIAL NUMBER TO: FROM: DATE: RE: 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. �.aNlxamx R xy 3BOO 105 CENTER ...J..- ......,O...O..O• 1I 1NW'JROO ........ .. LP. ..]L..RLi ILLLxPMICNACL 140 Y.lx..OUIXX• JILPPLLL• 4COr10[ J. M. eNInA JI1,• BO SOUTH EIGHTH STREET OwIoR. NnlNrom au[Rr . o.• MINNEAPOLIS, MINNESOTA 55402-2254 R: n.RD C. OPO.N N L] J. A....... TFiLITofru• Owx JDLRNOrr' VFAPxL\. PC4[N]I [IN• [+u". oiox• 16121 341-3800 o[v YR°OA. . RUILL"• c [PAIN .. r. o�ao• [L. A 1. u1cP1• • R aau• WPIC. C, o DONN[(L• �O]LrM x, aLATCNIDRO' NAco �u D[4APcua• +,.n orNv oe[nL• IlNorwl LNRIMa• TELEX 29-0584 :.n �...1.n • YPI c. .OL..• TELECOPIER 16121 343-.1256 YI[MALL [ v[ o IN "" C ... MIT.., acomouni• w°�����°M "D[pYP N. eLPLILR• "NOL.. R. " YYIO otl]e[P• LAPP. L (40a• .. NO..., YI .I.x[LICiN[P• O[NYO .TC[ oI14 .ORID ..LA A D1.V Ic .00 ON UMIoYTRCLXT[I jq' IN WNM4NSTLw41A A[NU[ MIT nuou..... �CRIC,.SPAIN •xOI OI .Ilxw[SOi. YP 17M LINCOLN .]N[I .. C. ]OO.eYa] OfrOw wo:I eo.Lao Al]I00 rt(u a]]P] PLN[CR u[ulDiSo[.noozo>.].a IL I. X. JOW... - oI [ NSIL 'A N IR011.wem .'0 auulxY.o JON" WILLIAM ;LT N" .. wN.I AA .. 1......• i°.u'1. i." nrrr- 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. i t 1 � M Burnsvill NozTh artz Quad Raasey/ Col. Hghts Fagan, L1c Central, Inc �ubuNrbs,Inc. Quad Eagan, Wash.. Inc. lltop,L^.c 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• A[p qw M°Y- rYr[Llµ C SLLLY rrpre. p,pr 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 013 ce 1pp L'uoL• uwLq° e�"i cnr[a or ooh °. c amLa Lr > r etn°T� of-.a.T ssvrxcrox riozr eeT.r.00 L�zoa`o`e i:v` ruegm omcc �a'°"z�ucir:�x .LL[aiiw a•'�°lYw�INLrxL. rr4gY WIL L[I-°[rurmm p. naxY4l. Jc ccgwx rm Lreeer rl�y y; i°wiL Mx Lrµ LiCq°Tr.. MEMORANDUM +our vti.L , r[.L -0r • `L�Rr"iionp. wic`•L L c Lzs rrr. C � terry W9ibx rrr • ncn• cvi°ir�.in o rr•mn. v ynLSowuv YI[n.[L J y: ggLLt• n[qq •� n.iox- LY,^ q ..q.oru• • T-0 o.r: q��acarcnr• °^^ c..pLuxnrxa- Yawr acorn Donn• �qo n adaiirne• p'uvia eLr�a'zii [.e•• •xm vL.en or Yixxuou a.n 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 ,, { Mq xLYOLIe ui :� Nov YxOxy� YZIL1[[.[1111 OVIR[ JRM1OYLa iRm'R,,L[i�.W fON, Je. WILT:. .....NN mwaw C.1 RNrvu I.... LF[xN NLIM "aLOi ORUN IO '1 pOM1eio i ouR m Y4AM Y o nail O'CON NOR & HAN NAN ATTORNEYS AT LAW 3800 IDS CENTER 80 SOUTH EIGHTH STREET MINNEAPOLIS, MINNESOTA 55402-2254 16121 341-3800 TELEX 29-0584 TELECOPIER (612) 3434256 v ooxmx uo- aRuro.Yu­ JOYY nmin:o••� au+i. Rmc.a•nN• rn[w Y MYu oYe /J10+[ W A J W OL OI41• Rncxu D�n.vwa• TInO•x• M J[xaly yR• C IN [L x' mYRV Ri eC.T1Oii ..I' xoO w Ycun dmuyu Y AL D cvnOxlOM e[OL RIC. N. ixoY/3 RIC. F.. .. ="`RR ...T1.1. oRFa A xl[L[r Ig ecRi o aiRWOw w1uuN c0111111-.1.1YOLO acu\ O R. RUR'.. YR+. D MYLL1 T[Paa eon[• RDecvi wmawxD v J.YLe • aa• aux[ urta[xu• eprv0 vinC[ �YYIMiaR o c ssa RRDRID On�C[ xoLw s. D•u• DIRECT DIAL NUMBER w�ic om wn[eoo vcLuau[c. x. e..aw orrr uxn[D wNR ccxi[R roIo r[NvsnrNu nwY[ Nw Ymvm �, y-]Im -'•YOi x[n e[A o1 NIxY LCau e.+ uxcOLx sivcci uNvcR co .otos+s.a WASFIF CLOY O. c. ZD[OO-]Y) eIUAL eMs.a W.nm W mVYy� W bfJ�L mVM\LL U=R W Y.w L�-Wa1 A.Yx J. VIRD.• pM•�D�O 9LNGY[• wl[LNY R I...:A _ DOFF J� IR" j=,"[, - 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- • I N 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 - IS .1 AIw C Rw. O CONxOR I.....L�L��LP NI NICIACL L .[GLIM[ NOf LPI cw PIf IIANaDNlP. ....0 'I .'A� 4iaw" i:D::a RR s:oi:I'.°iX nueiAA:uenY��D'N A. fo.R[ .A WILLIAM W + uRANiLw . °ET rwom `,11Luu.NTo. POLLNf10. fIN WONN ii°¢iIaoiN I...0 WILLIAM C, PLLLY PaIa�Ia101 DIRECT DIAL NUMBER TO: FROM: DATE: RE: 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. �.aNlxamx R xy 3BOO 105 CENTER ...J..- ......,O...O..O• 1I 1NW'JROO ........ .. LP. ..]L..RLi ILLLxPMICNACL 140 Y.lx..OUIXX• JILPPLLL• 4COr10[ J. M. eNInA JI1,• BO SOUTH EIGHTH STREET OwIoR. NnlNrom au[Rr . o.• MINNEAPOLIS, MINNESOTA 55402-2254 R: n.RD C. OPO.N N L] J. A....... TFiLITofru• Owx JDLRNOrr' VFAPxL\. PC4[N]I [IN• [+u". oiox• 16121 341-3800 o[v YR°OA. . RUILL"• c [PAIN .. r. o�ao• [L. A 1. u1cP1• • R aau• WPIC. C, o DONN[(L• �O]LrM x, aLATCNIDRO' NAco �u D[4APcua• +,.n orNv oe[nL• IlNorwl LNRIMa• TELEX 29-0584 :.n �...1.n • YPI c. .OL..• TELECOPIER 16121 343-.1256 YI[MALL [ v[ o IN "" C ... MIT.., acomouni• w°�����°M "D[pYP N. eLPLILR• "NOL.. R. " YYIO otl]e[P• LAPP. L (40a• .. NO..., YI .I.x[LICiN[P• O[NYO .TC[ oI14 .ORID ..LA A D1.V Ic .00 ON UMIoYTRCLXT[I jq' IN WNM4NSTLw41A A[NU[ MIT nuou..... �CRIC,.SPAIN •xOI OI .Ilxw[SOi. YP 17M LINCOLN .]N[I .. C. ]OO.eYa] OfrOw wo:I eo.Lao Al]I00 rt(u a]]P] PLN[CR u[ulDiSo[.noozo>.].a IL I. X. JOW... - oI [ NSIL 'A N IR011.wem .'0 auulxY.o JON" WILLIAM ;LT N" .. wN.I AA .. 1......• i°.u'1. i." nrrr- 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. i t 1 � M Burnsvill NozTh artz Quad Raasey/ Col. Hghts Fagan, L1c Central, Inc �ubuNrbs,Inc. Quad Eagan, Wash.. Inc. lltop,L^.c 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• A[p qw M°Y- rYr[Llµ C SLLLY rrpre. p,pr 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 013 ce 1pp L'uoL• uwLq° e�"i cnr[a or ooh °. c amLa Lr > r etn°T� of-.a.T ssvrxcrox riozr eeT.r.00 L�zoa`o`e i:v` ruegm omcc �a'°"z�ucir:�x .LL[aiiw a•'�°lYw�INLrxL. rr4gY WIL L[I-°[rurmm p. naxY4l. Jc ccgwx rm Lreeer rl�y y; i°wiL Mx Lrµ LiCq°Tr.. MEMORANDUM +our vti.L , r[.L -0r • `L�Rr"iionp. wic`•L L c Lzs rrr. C � terry W9ibx rrr • ncn• cvi°ir�.in o rr•mn. v ynLSowuv YI[n.[L J y: ggLLt• n[qq •� n.iox- LY,^ q ..q.oru• • T-0 o.r: q��acarcnr• °^^ c..pLuxnrxa- Yawr acorn Donn• �qo n adaiirne• p'uvia eLr�a'zii [.e•• •xm vL.en or Yixxuou a.n 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