Isle of Capri/city management agreement modifications allow lower contributions to events center capital improvement fund

Terms of the management agreement between the Isle of Capri casino and the city of Bettendorf have been modified by city officials without city council approval, including a clause which has allowed the casino to forego paying hundreds of thousands of dollars into a joint city/casino capital improvement fund.

The management agreement approved by the council in 2006 set up a joint "capital expenditure fund" to be supported by annual contributions of $250,000 from both the Isle and the city. The arrangement allows the Isle to fund its portion of the contribution from a $4 per room/night facility charge on its 514 hotels rooms, with the Isle making up any difference between the annual room surcharges and its $250,000.

According to financial information obtained from the city through a Freedom of Information request, the Isle contributed $34,332 for the three months of fiscal 2009 that the center was open, $100,000 in fiscal 2010, and $225,000 in fiscal 2011.

Asked why the city had not received the full $250,000 annual contribution to the capital expenditure fund from the casino each year, city officials responded with a note on the financial statements stating: "As agreed with management of Isle and conversation with Decker (City Administrator Decker Ploehn) and Carol (City Finance Director Carol Barnes), at least for first years, full contribution is not required of or by either party."

To date, the Isle has contributed a total of $359,380 into the capital expenditure fund, while the city has contributed $509,752 to the fund, including $150,372 in unused bond funds from construction of the QC Waterfront Convention Center. With accrued interest, the city reported it currently has $809,768 in the capital expenditure fund.

The city says this past year's (fiscal year 2011-12 ended June 30) annual contribution to the fund from the Isle "has not been determined yet." The Isle has collected $200,908 with the $4 room surcharge during fiscal 2011-12.

If the Isle and city would have made contributions in accordance with the city/casino management agreement, each party would have set aside $562,500 for a total of $1.125 million since the facility opened. With the unused construction funds, plus interest, the capital expenditure fund would now be more than $1.3 million, nearly $500,000 more than currently set aside in the fund.

Based on the Isle's annual contributions to the fund, which have been limited to the amount collected through the $4 room surcharge, the Isle hotels have had an occupancy rate of just over 23 percent.

The low occupancy rate likely reflects the large number of rooms which are "comped" (provided without charge) to people frequenting the gambling casino as those rooms do not generate a $4 surcharge to the Isle/city.

Another provision of the Isle/city management agreement which is not being enforced is the requirement the casino file an annual report outlining its plans, budgets and estimates for operation of the city owned events center.

Not a single annual report has been filed by the casino since the agreement was signed, and City Administrator Ploehn says he doesn't plan to enforce the reporting provision even in future years.

"We are comfortable with the budget documents they submit and those coupled with the annual audit is sufficient at this time for our purposes," Ploehn stated in an email response.

Asked if the city planned to have the Isle file such reports in the future, Ploehn responded: "I can’t say what we will do in the future."

Asked under what authority he had to allow the Isle to not comply with terms of the council-approved contract, Ploehn stated: "administration of the contract is an administrative matter and unless directed by council not to administer it, I will continue to do so in the best interest of the city. . ."

The annual reporting specified under the contract calls for the Isle, as manager of the $20-million city owned facility, to provide "An Annual Plan."

That plan is to "include information regarding manager's (Isle) anticipated operations and activities for the then current operating year, including planned operating maintenance activities (including a preventative maintenance schedule), expense control initiatives, requested capital expenditures and capital equipment purchases, anticipated events (including number and type of events) to be booked at the Events Center, anticipated advertising and promotional activities, and planned equipment and furnishing purchases."

Asked what the Isle's plans were for the coming year as far as those operating and maintenance items listed in the "Annual Report," Ploehn replied that those questions should be directed to casino officials.

The city owns the events center, but the Isle manages its operation and must cover any operating deficits. If the center would turn a profit, which is hasn't yet, the Isle would be reimbursed for its $346,000 working capital contribution, pre-opening expenses, and the amounts it has contributed to the capital improvement fund, with a cap of $7 million.

If the center would generate enough revenue (profit) to fully reimburse those Isle expenses, the city and Isle would then share 50-50 of future profits.

The city issued revenue bonds to finance construction of the events center and those are being paid from property taxes from the Isle hotels/development.

In addition to the Tax Increment Financing (TIF) revenues used to pay off the bonds, the non-profit charitable gambling license holder - the Scott County Regional Authority - is paying a total of $3.3 million ($330,000 annually over 10 years) to help pay the event center bond principal and interest.

Below are minutes of the special city council session held June 20, 2006 to enter into the management agreement between the city and Isle of Capri for operation of the events center.

CITY COUNCIL SPECIAL SESSION MINUTES - June 20, 2006

The City Council of Bettendorf, Iowa met in regular session on Tuesday, June 20, 2006 at 6:00 p.m. in the Council Chambers at Bettendorf City Hall, 1609 State Street, Bettendorf, Iowa.
Council Members Present: Malinee, Koos, Brown, LaMar, Douglas, Voelliger, Stecker
Presiding: Mayor Freemire

Event Center

City Administrator Ploehn highlighted the terms and conditions of the Management Agreement reached with the Isle of Capri regarding the operation of the Event Center. Nancy Donovan, of the Isle of Capri added her comments and thanked the City for their cooperation and effort in reaching the agreement.
Mayor Freemire and Decker Ploehn thanked all those involved in vision, funding and hard work to make the project a reality.

Resolution

Council Member Brown presented a resolution approving the Events Center Management Agreement and Amended Development Agreement with the Isle of Capri and made a motion to approve the resolution as presented. Council Member Koos seconded the motion. Roll call vote indicated: Malinee (aye), Koos (aye), Brown (aye), LaMar (aye), Douglas (aye), Voelliger (aye), Stecker (aye). The motion carried.

Adjournment

There being no further business to come before this Special Session of Council, a motion to adjourn was made by Council Member Voelliger. It was seconded by Council Member Brown and carried unanimously.

The meeting was adjourned.