Attorney addresses Fraser Rec bond concerns
January 28, 2009
At Tuesday night’s meeting of the Fraser Valley Metropolitan Recreation District board, the district’s attorney stood in front the packed meeting room to address the three main concerns raised by the Concerned Citizens, a group that organized the Feb. 17 recall election of three board members.
Their concerns deal directly with the tax-exempt status of a $19.5 million bond approved by voters in November.
To find the answers to the Concerned Citizens questions, attorney Owen Oliver consulted with the Denver law firm, Kutak Rock, which specializes in tax law, and did the primary legal work preparing the original bond.
Concerned Citizens asked about the effects on the tax status of the bond by three things: A reversionary interest clause for Grand Park written into the land donation agreement, access that may be granted to the recreation center for hotel guests of a neighboring hotel, and naming rights. (To read the Section 141 of the IRS tax code used by Oliver and Kutak Rock to make the following legal arguments, visit http://www.irs.gov/taxexemptbond/article/0,,id=134367,00.html)
The reversionary interest clause gives ownership of the recreation center back to Grand Park, the developer that donated the land, if the building is no longer used as a public rec facility, Oliver said. “This is a common proposition in site donation agreements.”
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There is a similar clause in the land donation agreement for Pole Creek Golf Course, he said.
As long as the building is used as a public rec facility, Oliver said, “it does not cause a problem with the bond.”
It has been discussed that a hotel may be built next to the recreation center and a walkway will be built between the center and the hotel for guest access.
According to Oliver, the hotel access to the rec center does not endanger the bond as long as the access is open to the public.
“If the public wants to go through the lobby of the hotel and use the same access, they may,” Oliver said. “If that access is open to the public, it does not cause any qualms with the bond.”
“The thornier questions is the naming rights issue,” Oliver said. “The question is one of value.”
According to the tax code, no more than 10 percent of the bond may go toward private business use. In order for the naming rights to jeopardize the tax-exempt status of the bonds, it would have to be proved that the value of the naming rights was worth more than 10 percent of the bond, Oliver said. That figure would also have to account for the value of the land donated to the project by the same developer.
Estimating the land to be worth $3.7 million including infrastructure, Oliver said, “The value of the naming rights would have to be worth more than $5 million to cause a problem with the bond.
“Though we don’t know the true value of the naming rights, everyone I’m talking to (at Kutak Rock) has a comfort level that we’re not looking at a problem here.
“Kutak Rock is telling me they don’t see a problem in any of these three concerns that rises to the level of allowing the bond to lose its tax exempt status.”
In the public forum portion of Tuesday night’s meeting, Becky Arnold raised the question of a rumor that the Fraser Rec board “shreds minutes from executive sessions.”
Oliver explained that minutes from executive sessions are electronically recorded.
“There is a public misconception about executive sessions. They are kept confidential by law,” Oliver said.
In accordance with Open Meeting Law, minutes are kept for 90 days, then erased, unless a request is made in that time that they are maintained, he said.
“That seems suspect,” Arnold said.
“That’s the law. If you don’t like it, talk to your legislator,” Oliver said.