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12b. Historic Trust FundCITY OF 426 �HANBASSEN 690 COULTER DRIVE • P.O. BOX 147 • CHANHASSEN, MINNESOTA 55317 (612) 937 -1900 • FAX (612) 937 -5739 MEMORANDUM TO: Mayor and City Council FROM: Don Ashworth, City Manager DATE: October 5, 1995 SUBJ: Historic Trust Fund On Monday evening the city council-considered the Public Works budget as well as several General Fund budgets. On many of the pages the council saw a notation where $10,000 or $20,000 in costs associated with that particular activity should rightly be assigned as a downtown cost and therefore paid from the Historic Trust Fund. In total, all of those allocations total approximately $200,000. In addition, Todd and Pam walked through the expenses that are 100% associated with the downtown, i.e. salaries of each of the individuals assigned to maintain the downtown, equipment specifically used for downtown, etc. The total of those direct expenditures is approximately $300,000. To ensure the viability of the Historic Trust Fund during the time frame that tax increment dollars are not available to pay these costs directly, it is necessary to ensure that adequate balances exist within Historic Trust to pay those costs. Currently the Historic Trust Fund is one of the major funds identified to be able to take the investment hits from two years ago. Currently, two of the investments that were the most volatile (1614 VB and 165 SW) have current values significantly over what they were booked at from the end of 1,994. Specifically, 165 SW is booked at approximately $1 million whereas we could sell that for approximately $2 million today. Assuredly the council will ask, "What did you originally buy it for, not what is it currently booked for ?" The answer is that I don't know. In each of the years from 1990 through 1994, we continued to take a portion of the extraordinary interest earnings and applied that to reducing the cost basis should the value of the investment drop. Another way of proving my point is the fact that the Historic Trust Fund did not exist 4 -5 years ago and its entire $3 -4 million balance was accumulated through land sales and interest earnings. Accordingly, I would argue that we are not selling either of those two investments at a loss and, in the case of the 165 SW, we would truly be selling that for a $1 million profit. Mayor and City Council October 5, 1995 Page 2 The council can direct me to hold either of these two investments. However, we would be doing such for all of the wrong reasons. The money needed by the Historic Trust Fund is over the course of the next 4 -5 years. The 165 SW has a maturity of 2023. The Historic Trust Fund can use the money now to ensure that salaries are continued to be paid and that costs can be shifted from the General Fund to the Historic Trust Fund as they should be. All of those objectives can be met through the sale of especially 165 SW. On the other side of the coin is the fact that no one knew how volatile this investment really was, including our auditors, financial advisor or myself. Specifically, if you decide to pull the handle at Mystic Derivative one more time, the value drops to what we currently have it booked for, i.e. $1 million. The next pull of the handle drives that down another $500,000. A third pull virtually eliminates a value. After any one of those pulls, we will have lost the ability to meet the primary objectives of cushioning the General Fund from extraordinary costs. The one, two or three additional pulls will have resulted in the elimination of Charlie Eiler's position and any form of maintenance within the downtown. However, you don't turn off the signals very easily. The costs to energize those signals, street lights, etc., will have to go back over to the General Fund. It just does not seem reasonable to subject either Pam or myself to be the one who actually stood in front of the machine and pulled the handle. At this point in time, Pam can reasonably inform her colleagues that she has helped turn Chanhassen's investments into a positive force, at a gain, and returned a sense of stability that Standard and Poor is eagerly looking for. She assuredly does not need a phone call from a resident, a colleague or council member asking her why she allowed the city to lose an additional million dollars.