On the hook: Green Bay scrambles for $750,000 debt payment
By Heather Graves
GREEN BAY – The City of Green Bay unexpectedly found itself in need of nearly $750,000 for a debt service payment for the KI Convention Center expansion project (KI-2), after being denied funds by the county through the Room Tax Stabilization Fund.
“This partnership that we’ve had with the county has been strained at times,” District 4 Alderperson Bill Galvin said. “And (Mayor) Eric Genrich had wanted to mend fences, but to me and some of the other council members, it’s just like much of the same. Green Bay gets pushed aside while the county plows ahead with whatever they want to do, without any regard for the citizens of Green Bay.”
The KI-2 project added more than 34,000 square feet of meeting and event space to the original KI Convention Center facility at a price tag of $24.84 million completed in 2015.
“Remaining is $24.79 million, as very little principal was structured early on due to the need for room taxes to increase,” Green Bay Finance Director Diana Ellenbecker said. “The final principal payment is due June 2, 2043.”
In 2013, seven Brown County municipalities entered into an agreement with the county to levy a 10% tax on all hotel room stays through 2029.
Those dollars are put into a trust fund and used to pay the debt service payments for the Resch Center and the KI Convention Center (KI-1), as well as KI-2.
An amendment was added in 2017 to add the $93 million Resch Expo project to the mix, pushing the end date of the room tax to 2043.
The funds are under the discretion of the county and are paid out through what’s described as a “waterfall model.”
This means the Resch Center and KI-1, are paid first before the money flows down the waterfall to lower priority debts including KI-2.
Room tax funds were significantly lower in 2020 because of the COVID-19 pandemic, which led to much uncertainty.
“The situation is the Room Tax Stabilization Fund does not have enough funds in it to complete the entire waterfall,” City Attorney Vanessa Chavez said. “So the county’s position is that the entirety of the annual payment for the Resch funds and the KI-1 funds have to be paid before the application can be made to the KI-2 funds. The KI-2 funds are still backed by the city, so if there is a shortfall in that, the city has to pay for them. Now if it was the KI-1 or the Resch it would be the county on the hook. But since those ones are covered, it is the city that is on the hook. KI-2 is the only one that is not backed by the county. Everything else in that waterfall is backed by the county.”
Ellenbecker said this isn’t something staff has ignored.
“We’ve been talking about it at the Room Tax Commission meetings, we’ve been doing projections, we’ve been looking at the numbers,” she said. “We knew the numbers were running low. But in February, I got confirmation that my (June 1) payment was going to be paid by the county and we might be short for December. So at that point, we didn’t have a concern.”
Ellenbecker said then at the beginning of May, the county informed her in order to avoid a shortfall with its December payment, instead of funneling the remaining funds through the waterfall to help the city pay the K-2 debt payment, the county decided to hold on to them.
That decision isn’t sitting well with some alderpersons.
“I find it very disturbing, in that the county has the money for the city to make the payment, but they are holding onto it to make sure they are able to make their payment in December,” Galvin said. “Which, let’s face it, it sounds like things are opening up, hotels are going to be up and running, you know Packer games, and everything. The way they set it up is Green Bay is at the bottom of the heap when it comes to the left over money. So we are short.”
The shortfall was first brought to the Finance Committee’s attention May 26, as staff scrambled to find ways to make the payment.
“Unfortunately, we are just in a time crunch right now, there isn’t any opportunity for us to really make these negotiations at this time or to come up with a solution at this time because the payment is due on June 1,” Chavez said.
Galvin said the due date is part of the problem.
“Personally, I see this as (the county) manipulating the system to give (the city) no room to create any public outrage over this,” he said. “By the time anyone finds out about this it is going to be too late to do anything about the first payment. It’s more like asking for forgiveness than asking for permission. It seemed like very calculated, very cold decisions that were made at executive levels that really put Green Bay in a bad, bad situation.”
Running out of time, the Finance Committee directed staff to continue negotiating with the county, while at the same time locate and allocate the funds needed to make the payment.
Ellenbecker said the city was able to make the $732,888 payment using multiple sources – including a $500,000 reserve fund set up for this very reason.
“The $500,000 was set aside at the signing of the agreement with the county in 2017 for use if the room tax stabilization fund were not fully funded due to a dip in room tax revenues,” she said. “The (remaining) balance will be paid from a bond fund and KI Convention Center fund balance held for room tax. Monies that the city was holding onto after the 2017 agreements were signed in case there ever was a shortage in the room tax stabilization fund. No general levy will be used.”
By the time it was in front of the full council, Tuesday, June 1, it was mainly informational as the payment was already due, paid in full and changes weren’t an option.
But what was up for discussion – what happens come December?
Approximately $728,000 is due Dec. 1, the second portion of the annual debt service payment.
“Unlike the June payment, we won’t have a contingency fund or other accounts to tap into for the (December payment),” District 9 Alderperson Brian Johnson said. “I think part of what the closed session discussion, I think, will revolve around is that conversation with the county, what does that look like to make sure that the city can really have their arms wrapped around what happens if. If, is an important word. But what happens if this same conversation has to occur in December.”
Ellenbecker said nothing has been set aside in the 2021 budget for the December payment.
“We did not budget for a shortfall in 2021,” she said. “There is one additional reserve fund that is set aside when you set up the original loan – it is called a debt reserve fund. It is set aside to make your very last payment. So the money that I need for the 2043 debt service is in another fund in the trust. According to our financial advisor, that is the very last place you are going to want to tap into. But that is a possibility that would cover our December payment if needed. That, we would have to fill back up.”
Some alders suggested using federal relief dollars to help the city with its payments.
However, Chavez said that isn’t an option.
She said even though the shortfall in the room tax fund is a direct result of the COVID-19 pandemic and its effect on hotel stays, the city is not allowed to use the dollars to pay debt service payments.
Following more than an hour of closed session discussion, the council directed staff to continue negotiations with the county in regards to future payments.
“What I get confused with is the money is there and (the county) made this choice to not honor this agreement with the city, knowingly, and chose to keep that money for their December payment,” District 1 Alderperson Barbara Dorff said.