At their last city council meeting the aldermen who will no longer represent the residents of the City of Lake Geneva have a chance to leave their legacy, their last action as elected officials for which they will go down is the history books, and on 4.9.12 they didn’t disappoint. For on that date Todd Krause, Tom Hartz, and Frank Marsala along with Alan Kupsik, who will stay on the council to continue their good work, voted to lock the City into what was generally considered a raw deal for another 12 years, until 2040.
The Riviera on the shores of Lake Geneva is probably the City’s most valuable asset. It has a big band ballroom, some small beach shops, and the boat docks which the city leases. The “Riv” was built-in the 1930s as a WPA project to help lift this county out of the Great Depression and ever since has been the scene of crony capitalism.
It all began on 4.10.2000, the last meeting of another city council, Spiro Condos was Mayor and Gage Marine was trying to get a new lease and License agreement for his large tour boat operation on the docks of the Riv. According to the minutes of that Council meeting the lease/license that the council passed was to be for 10 years with a 5 year option. But the agreement the Mayor signed was for one 6 year term, one 5 year term and an option for another 6 years, not the terms passed by the City Council.
The lease agreement for the piers where Gage parks his large tour boats is for $20K/ year with no increase for inflation over the term of the lease. In the license agreement the Company (Gage) agreed to pay $80K/year for 6 years with an increase for the next five-year term of only $5K or $85K/year and so on with an increase of only $5K per 6 year term – according to the lease/license agreement the Mayor Spyro Condos and William Gage signed.
Two years later in 2002, when Charlie Rude was Mayor, another extension for Gage. According to the council minutes, Gage Marine, Inc. was to get “two more five-year options on their lease/license agreement with the City of Lake Geneva.” But the Addendum that was signed by Mayor Rude actually added two more six-year terms, till 2028, and since the fee only increased $5000 each term it was an even sweeter dear for Gage at the taxpayer’s expense. Mayor Rude in the signed addendum allow the Company to continue paying only $20K year for the lease of the piers, with no increase for inflation.
At the last Piers and Harbors Committee Mr. Marsala would chair on 3.29.12 the agenda was amended at the last-minute, at 2:45PM on 3.27.12 adding an item “Extension of pier lease with Gage Marine.” Frank Marsala and Alan Kupsik voted to extend it at that meeting.
The item came before the last meeting of the outgoing members of the City Council on 4.09.12. Marsala and Kupsik made the motion to extend the pier lease with some minor changes, to the year 2040. From a financial prospective the major change was during the last 2 six-year terms the license would now be increased by $10K/term instead of only $5K.
Alderman O’Neil was the only Council Member to bring up the effect of inflation would have on the present value of the payments the city would be getting. O’Neil stated “we can only predict high inflation in the coming years…this could be very cheap rent in the future.” He also was rightly concerned with the city having to maintain the piers and when they will need replacing, the City taxpayers will bear the cost not Gage. According to the lease Gage “shall not be liable for any repair and maintenance costs” and “If the premises leased hereunder and any part thereof is destroyed or damaged by tornado, fire, or any other cause, the City agrees to promptly and expeditiously repair and restore the premises.”
A little number crunching will highlight Alderman O’Neil’s concern about inflation.
During the first 6 year term the $5K increase will work out to only a little over .1%/year and decrease each term till 2028. The last two terms will increase by $10K each which works out to 1.9%/year. United States inflation during the last 30 years averaged 3.7%/year. The effects of inflation compounded can be devastating on buying power; using the Bureau of Labor Statistics CPI Inflation Calculator and inflation rate of the last 40 years from 1970 to 2010- to maintain the buying of $80K/year, what Gage started paying in 2000, and if inflation follows the same pattern as the last 40 years, the City should be receiving over $449K during the last year of the license, not $120K.
The lease recently passed for Elmer’s space was for 10 years with an automatic increase of 3%/year.
The 1970’s were a time of high inflation, which may very well be repeated if central banks continue their current course of printing money. But if we just take the last 30 years average inflation rate of 3.7% the last $120K payment to the City in 2040 has only a Present Value over the term of the license of $28K.
The rental rate for the storage and office areas has a CPI adjustment but that is only starts at $2318 in 2000. As for the lease rental payments locked in at $20K/year for 40 years with no increase at all, their Present Value is only $4676, what a sweet deal indeed. Just to add topping to cake, Gage is given a monopoly, “an exclusive right to carry passengers for hire in motorized vessels, 30’ and longer… from any docks owned by or leased by the City” for free.
Alderman Krause did ask if the City had an out clause and if Gage could transfer the lease to another party. The City has no out clause but Gage does, and according to City Attorney Draper “if Gage were to transfer their interest in the lease or license agreement requires written approval from the City which should not be unreasonably withheld. Which means if someone financially strong comes in to take over the lease you (the council) would have to approve it?”
Real estate tycoon Donald Trump attributes his early success in investing largely due to the stupidity of both elected and government officials in New York City. Lake Geneva’s Business Administrator Dennis Jordan, who is, if not the highest paid employee in the City, certainly one of them, at almost $100K/year with benefits, in a letter to the Council recommended approval for the extension of the lease. In his written recommendation he also gets the dates and terms wrong, but according to minutes of the council that night:
“Administrator Jordan said Gage Marine is seeking two additional six-year terms added to their lease. He said the lease would be extended from 2028 to 2040. The lease would increase by $10,000 in 2028 and in 2035.”
Your correspondent is has had enough – who knows what Mayor Connors actually signed, since a copy of the new extension was not given to the council, but he was the one who caught the FUBAR about the length of the terms going back to 2000.
Wouldn’t be nice, dear taxpayer, if the City would make the same deal with you? Guarantee your taxes would not go up more the .1% a year till 2040 and they pick up the maintenance of your property.
The last vote for extending the lease/license till 2040 was: YES- Krause, Hartz, Marsala, Kehoe, Krohn NO- Mott, and ONeil.
The quote of the night: Bill Gage “a good citizen here.”
