HomeMy WebLinkAbout4.g. Presentation of Attorney's Investigation of Alleged Conflict of Interest CITY OF ROSEMOUNT
EXECIITIVE SUNIlKARY FOR ACTION
PORT AUTHORITY MEETING DATE: JANUAR.y 18, 1994
AGENDA ITEM; ATTORNEY PRESENTATION OF AGENDA SECTION:
INVESTIGATION OF ALLEGED CONFLICT OF INTEREST WORK SESSION
PREPARED BY: JOHN MILLER, AGENDA NO.
ECONOMIC DEVELOPMENT COORDINATOR 4 . G.
ATTACHI+�SENTS: ATTORNEY'S MEMO DATED 1-10-94 APp VED ,
Attached is a memorandum from port authority legal counsel Mike Miles
regarding conflicts of interest. At your direction Mr. Miles will review
it with you.
- ',
�,
RECOI�SENDED ACTION: None. Discussion item.
PORT AUTHORITY ACTION:
M E M O R A N D U M
TO: Mayor E. B. McMenomy, Members of the Rosemount City
Cauncil and Members of the Rasemount Port Authority
FROM: Mike Milesap��c.�
�r`
DATE: January 10, 1994
RE: Alleged Conflict of Interest Regarding Discussion and
Voting on the Kerry and Ron Johnson Office Proposal
INTRODUCTION
At the December 21 , 1993 meeting of the Rosemount Port
Authority, Mr. Ron Johnson spoke to the Port Authority about
modifying the proposal that Mr. Johnson and his son, Kerry, had
- originally submitted to the Port Authority in January of 1993 .
Specifically, Ron Johnson suggested that the Port Authority "front-
end" the tax increment financinq funds that it intended to
contribute to the project, instead of providing these funds to the
Johnsons as actual tax dollars were received by the City.
Considerable discussion was had on Mr. Johnson's proposal and a
motion was made to further consider the proposal . This motion
failed on a vote of three members in favor and three against, with
one absent.
By letter of December 29 , 1993, Mr. Kerry Johnson raises the
issue of whether Mayor McMenomy, who participated in the discusWion
and vote on the Johnson proposal on December 21, 1993, had a
conflict of interest. This letter is attached as Exhibit A.
Former City Council Member Harry Willcox also has inquired whether
the Mayor' s participation in the December 21 , 1993 Port Authority
deliberations constitutes a conflict of interest . This memorandum
is written in response to these questions .
FACTUAL HACRGROUND
Late in calendar year 1992, the Rosemount Port Authority (RPA)
requested proposals from persons interested in developing what has
been generally referred to as the Repairs, Inc . site . This piece
• of property was acquired several years earlier by direct purchase
. , by the City of Rosemount and, upon the inception of the RPA, the
�, � property was placed under its authority.
In response to the request for proposals , potential projects
were submitted by Dakota Central Partners, in which Mayor McMenomy
� is a general partner, and Kerry and Ron Johnson. In light of his
involvement with Dakota Central Partners , Mayor McMenomy indicated
that he would take no part in consideration of the proposals and
did not wish to receive any memoranda or other correspondence from
January 10, 1994
Page 2
the City regarding selection of a successful proposer (see
attachment to Exhibit A) .
The RPA examined both proposals , received oral presentations
from the Johnsons and from Dakota Central Partners and selected the
Johnsons ' proposal in January of 1993 . Since last spring, Ron and
Kerry Johnson have been engaged in attempting to finalize building
plans for the proposed office building, obtaining financing and
attracting tenants to occupy the proposed building. At the
Johnsons ' request, the Rosemount City Attorney drafted a commitment
agreement which essentially provided the terms and conditions of
and dates on which certain events must take place. The Johnsons
have been in possession of the draft commitment agreement for
several mc�nths, but have not executed this document. Further, when
questione�:i on this subject at the RPA meeting of December 21 , I993,
Ron Johnson indicated that he and Kerry "probably would not sign
the agreement . °
The "revised" proposal, presented to the RPA at its December
21 , 1993 meeting by Mr. Ron Johnson, differed from the Johnsons '
original proposal as follows . Mr. Johnson requested that the
anticipated tax increment funds the City would receive for a period
of time after the Johnsons ' office building was constructed and
occupied be contributed to the project before its inception, rather
than when actually received by the City of Rosemount . It is
estimated that the amount in question is approximately $170, 000 .
Mr. Johnson indicated that this sum was necessary to secure
conventional financing from a lending institution and, because the
profit margin was not sufficient on this project, the Johnsons did
not want to be at risk for this sum of money.
After considerable discussion and questioning of Mr. Johnson,
Mayor McMenomy indicated that Mr. Johnson was actually presenting
a different proposal from that selected by the RPA in January of
1993 and, when a motion for further consideration of Mr. Johnson's
proposal was made, Mayor McMenomy, along with several other RPA
members , voted against the motion .
DISCUSSION
. Basically two legal questions have been posed regarding the
. issue of conflict of interest. First, Kerry Johnson suggests that,
�,��' since the Mayor was a general partner in Dakota Central Partners
.when it submitted a proposal in competition with the Johnsons '
original proposal, the Mayor is forever disqualified from taking
part in any discussions regarding the Johnson project.
Second, Mr. Johnson states that, because several tenants in
the Dakota Central Offices (which is owned by Dakota Central
Partners ) are "interested" in leasing from the Johnsons in their
proposed building, the Mayor has a conflict of interest from a
January 10 , 1994
Page 3
financial point of view and should not have participated in
discussions of the Johnson project on December 21 , 1993 .
It does not appear that state law regarding possible conflicts
of interest bears on the legal questions under discussion here .
However, the answer to both of these questions can be readily found
in the applicable City ordinance regarding conflict of interest .
Specifically, Ordinance No. 11 . 7 , adopted in June of 1993 by the
Rosemount City Council and which is significantly more stringent
than state law, establishes a City Code of Ethics which deals
directly with prohibited conflicts of interests . Section 7 of the
Code of Ethics states in part;
No public official shall engage in any
business or transaction or shall have an
interest which is incompatible with the
discharge in the public interest of his/her
official duties or which would tend to impair
his/her independence of judgment or action in
the performance of his/her official duties .
In turn, the term, "interest, " is defined in Section 3 (C) of
the Code of Ethics as a;
Direct or indirect financial or material
benefit realized by a public official as a
result of a contract or transaction which is
or may be the subject of an official act or
action by or with the City, except for such
contracts or transactions which confer a
similar benefit on a significant number of
persons who are not public officials .
Application of these provisions of the Code of Ethics to the
facts in this matter make it clear that none of the allegations of
conflict of interest are true pursuant to the following analysis :
As to the issue raised by Mr. Johnson regarding whether the
Nayor, as a general partner in Dakota Central Partners , could ever
participate in a discussion of the Johnsan project, it is clear
• that conflict of interest issues would only apply when the Dakota
. =, Central Partners ' proposal and that af the Johnsons was under
' active consideration by the RPA. If the Mayor had chosen to
�participate in Port Authority discussions during the pendency of
the two proposals, it is arguable that a conflict of interest would
have existed (but it should be noted that the Code of Ethics cited
� above was not even adopted by the Rosemount City Council for some
months after the Dakota Central Partners and Johnsons ' proposals
were under consideration by the RPA) . However, the Mayor
specifically removed himself from any participation in the
consideration of those proposals, even though the Code of Ethics
January 10 , 1994
Page 4
was not yet in existence . Once the RPA selected the Johnsons '
proposal and rejected that submitted by Dakota Central Partners,
the Mayor' s ��otential financial interest in the Repairs, Inc . site
development was extinguished and so was any potential conflict of
interest. Having no further financial interest in the project
thenceforward, the Mayor was free to fully participate in RPA
activities associated with the Johnson office building project .
Indeed, as an elected public official charged with oversight of the
financial affairs of the City of Rosemount, it was and is his duty
to involve himself in this financially significant project .
Moreover, even if under some legal theory the Mayor could not
participate in deliberations regarding the Johnsons ' original
proposal, that was not the subject before the RPA at its meeting of
December 21 , 1993 . In fact, from a financial viewpoint, Ron
Johnson was actually making a substantially different and new
proposal to the RPA from that which the RPA initially approved.
Even under the most strained interpretation of the City of
Rosemount' s Code of Ethics, Mayor McMenomy would not be prohibited
from reacting to what appears to be a new transaction involving
significantly more risk for the City of Rosemount.
As to Mr. Johnson' s allegations regarding the fact that a
current office building in which Mr. McMenomy has an interest may
be currently occupied by tenants who are "interested" in the
Johnsons ' proposed office building, insufficient evidence regarding
any threatened financial interest on the part of the Mayor is in
existence . Simply saying that current tenants of the Dakota
Central Offices are interested in the Johnsons ' project, does not
meet the definition of financial interests contained in Ordinance
11 . 7 . Mr. Kerry Johnson appeared at the January 4 , 1994 meeting of
the RPA and asserted that he had a legally binding commitment from
a tenant of Dakota Central Offices . At my request, he agreed to
provide a copy of the alleged legal commitment on the morning of
January 5 , 1994 . However, despite several telephone calls to Mr.
Johnson on January 5 (to which as of the date of this memorandum I
have not yet received his return call ) , he has not provided
documentation of the tenant' s comma.tment. Mr. Johnson has sent a
letter to a list of 12 individuals indicating that he will not be
providing the alleged legally binding commitment in order to
' protect the "privacy" of this unknown tenant .
'� Clearly, unsupported assertions as to a potential conflict of
� interest cannot form the basis for application of the Code of
Ethics . To conclude otherwise would allow any person to stymie a .
public official ' s attempt to carry out his or her responsibilities
' by making undocumented and specious claims about alleqed conflicts
of interest.
January 10, 1994
Page 5
Further, in the present case, it must be shown that, not only
a documented commitment agreement between the Johnsons and a
current tenant of Dakota Central Offices exists, but that the Mayor
had knowledge of this agreement prior to his actions at the
December 21, 1993 RPA meeting . Without such prior knowledge, no
issue of conflict of interest arises, since the Mayor could not
form the requisite intent to believe it necessary to protect
certain financial interests . Failing evidence of a legally binding
commitment and a showing of the Mayor' s prior knowledge of same, no
conflict of interest exists .
Finally, it must be noted that the provisions of Ordinance
11 . 7 require the existence of a real and palpable "interest" which
is incompatible with the discharge of a public official ' s
responsibilities . Possible or potential financial interests
existing in either the past or the future do not meet this test.
To conclude othe�wise, would suggest, for example, that because
Mayor McMenomy is, among other things, a licensed realtor, he may
not participate in any real property decisions which the Port
Authority or City Council ever make because, at some point in the
future, he may represent the property owner. Clearly, this type of
absurd result is neither intended to be or is within the ambit of
the City' s Code of Ethics .
CONCLUSION
No conflict of interest as defined in Ordinance 11 . 7, the
City' s Code of Ethics, arose as a result of Mayor McMenomy's
participation in the discussion of the Johnsons ' modified proposal
for the construction of an office building on the Repairs , Inc .
site . At the point in time when the Mayor had a potential conflict
of interest resulting from his financial interest in one of the
proposers to the RPA for use of the Repairs, Inc .• site, the Mayor
properly chose not to participate in any discussions or
deliberations regarding the selection of a proposal . Once the
Johnson proposal was selected, the Mayor was entitled and, in the
discharge of his official duties as to financial matters involving
the City of Rosemount, perhaps required to participate in
discussions regarding progress of the Johnson project. No other
basis for concluding that any conflict of interest exists has been
. demonstrated.
''
JMM:gmo
Att.
s � h�/� • ai • � � �
� . p ; ,, Oi � ,,�N JOHNSON CHIROPRACTIC
�j r_ ���'. �` �'' � � + • ` � 14465 SpUTH ROBERT TRAiI
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`._.�i _�i �`.�.�� �\t��� : t_ � ROSEMOUNT,MN 55Q68
1
-• . - • •• TELEPHONE:612 423 5250
� . Kerry L.Johnson, D.C.
cen�r�ea cn�rop.act�c sports Pt,ys�c�an
Certif�ed pccupebor�l Heahh Cqnsultant
December 29, 1993 ,
Mr. Ed Dunn, Chair
Rosemount Port Authority
2875 145th Street West
Rosemount, MN 55068
Dea:Mr. Dunn:
I an;writing with regards to the Repairs Inc. redevelopment project and the Port Authority
meeting af December 21, 1993. I would like to apologize for my absence. John Miller has
scheduled our past appearances for�_pp p.m. as I work until then. I had no indication this night
would be different until the day prior and by then my schedule was full. I will do a better job of
cc�-;ununicating with John prior to any future meetings. For the sake of clarification I would like
t� briefly describe my involvement in this project from the beginning.
I a�proached the city of RosemounY about s'v�years ago and about three years ago with the intent
o:�urchasing the blue house immediately north of St. Joseph Church. At frst my intent was to �
u�e the site as a home/office but was turned down for a sign variance by the city council after a
p:4.-uung commissioner who was sour over their favorable vote appealed to the council. Knowing
t:.4�I desperatety needed more space for my business, three years ago I approached the city with
t:�a desire to purchase the blue house and remodel the whole thing in to an office. The city staff
w4s not inter�ste� ;n rezoning t:�at sr.zall piece of land b�,�t told me they tvere v��y�nterested in
��veloping the piece v�,}tere Repairs Inc. was located and in fact they had purchased the property.
T;.zy did insist however, that I make every attempt to maximize the building size so as to generate
tr.e;nost ta�ces possible for that property. I told Steve Jilk and Tracy Pechonick(sp?) that I didn't
have the money nor the capability to finance a large project. They both assured me that they and
' tt��EDA would be interested in providing me with the same arrangement that John Loch and Les
� , B:aice received, which was 100%low interest financing by the city. About this same time
;,
, nc�otiations to move Repairs Inc. went sour and there were plans to create a Port Authority as a
r.'.;.;,hanism to stimulate commercial development in Rosemount. During this wait and see period
rt.�office lease expired and a space became available next to Big Daddy's and so I chose to move
r.y office. You know the rest of the story.
A:�d now to the present. My partner and I,Ron Johnson(dad), have spent several thousand
d�:;ars to create a project that would be mutually satisfactory and one that is much needed in
FAM�LY♦ SPORT�I WORK♦ AUTO —.---._.____. .. - _-----.--___ .
Rosemount. Although I am satisfied in my new location it would still be ideal for me to own rny
of�'ice. But as you may well know, office buildings are not considered a hot invesfinent. We
spent several months tiying to make the numbers work and to prelease the space. We didn't have
a lot of success with either. Our bank told us they would not finance the project unless we could
Iower construction costs and/or put more money into the project up front. We have our
deve(opment team looking at ways to trim costs without sacrificing quality and we came to you
to ask for the T.I.F. rnoney up frant instead of on a " pay as you go " basis. Our analysis shows
that we can provide more com�etitive leases and still make this project cash flow if we can lower
the mortgage amount by adding in the T.I.F. and cutting some costs.
Please correct me if I am wrong but it is my impression that the ptzrpose for creating the Port
Authority was to promote commerciai development by financially assisting with good projects �
that would otherwise be impossible. This is a good project that is much needed in Rosemount buf
the vote on December 21 suggested that the Port Authority is not even willing to explore '
possibilities w}uch will make this project happen.
I would be remiss if I didn't include in this letter the fact that I am appalled by the involvement of
Mayor E.B. McMenomy in the discussions as well as vote regarding this project during the
December 21 st Port Authority meeting. Mr. McMenomy as a partner in the other party interested
in developing t}us site(see attached) and very welt knowing that a few of his e�cisting tenants are
interested in leasing from us should our building be constructed, has a direct "conflict of interest"
because he is directly affected financially by the outcome of the vote no matter which way it went.
His direct "con$ict of interest" is even documented in the R.F.P. that his partnership submitted.
Mayor McMenomy had no business taking part in discussion or voting on our request.
As I told John Miiler the other day, we are not interested in a "us against you" relationship with
the City of Rosemount. We wish to continue to explare ways in which this pro1ect can happen. I
would hate to think that the City of Rosemount was more proactive 4 years ago in their desire ta
promote commercial development than they are today. With this in mind I request that you
reconsider our project and your vote on December 21, 1993.
Respectfully submitted, • �
,
�
� Ke L ohnson, D.C.
; '
cc: Port Authority Members City Staff City Council Members
Joan Anderson Dennis Wipperman John Miller James Staats
Kevin �arroll John Edwards Ron Wasmund Sheila Klassen
Don Sinnwell E.B McMenomy Ivfike M'iles Harry Willcox
PROPOSAL — REPA:tRB, ZNC. RfsD�PSL()P2�tT PROJ$CT
Tfl: PORT AUTHORZTY
CITY OF ROSEMOUNT, DAKOTA COUNTY, MINNESOTA
FROM: DAKOTA CENTRAL PARTNERS - A MINNESOTA LZHITED FARTNERSHIP
14450 SOUTH ROBERT TRAIL
ROSEMOUNT, MINNESOTA 55068
(Ai'TEN: ANiNE F. McMENOMY-GENERAI. PARTNER/322-1555}
Zn reaponse to the Request for Proposal issued by the Port Authority with reapect
to development of an office/retail complex buildinq on the "Repairs,
Incor�rated" site.
Dakota Central Partners, a Hinnesota Limited Partnership, is the owner of
the building, known as ~Dakota Central .-O�fices" abuttinq the Repairs,
Incorgorated aite to the south. This building is the only asaet of the
partnership (hereinafter called DCO) . DCo owna the property without encumbrances,
except for obligations between the partners. DCO qeneral partners are:
E. B. McMenomy - Present Mayor of City of Rosemount and member of
the Port Authority (hereinafter called P/A); licenced Minnesota real
estate bzoker and appraiser; C.E.O. and President of ERA McMenomy
Associates, a Rosemount real estate marketinq and appraisal firm.
(Mr. HcMenomy recognizes the conflict of interest raised by this
proposal. He will not participat� in any way in thfs matter, on
behalf of the City or the P/A. He requeets that he be exc2uded
entirely by the City and the P/A in the consideration of this
proposal. He recognizes that he ahould not receive any correspondence
or memorandums from either the City or the P/A with respect to it,
and that he should not participate in any discuasions, meetings,
deliberations or decisions of any kind with respect to it. )
Reid 3. Hansen - C.E.O. and President of McMenomy, Hansen & McCann,
P.A. , Attorneys - practicing law in the DCO building since 1980.
Anne F. McMenany - Hanaging partner of DCO; shareholder and General
Manager af ERA McMenomy Associates, Inc.; l,icensed Minneaota real
estate agent.
. , DCO (formerly Bernier Motor Co. - Buick/Chevrolet Agency) was remodeled
+ into its present uses beginning in 1980. P/A and its predecessors have received
� tax increment funds from the project since 1980. In 1992, the PJA received
$13,502.08 in tax incrementa from DCO (see Exhibit A) . $13,839.34 is projected
for 1993 (see Exhibit A). In addition, DCO partners paid $942.50 in tax
� increments to P/A in 1992 related to real estate at 2810 145th Street. $948.48
is proposed for 1993 {See Exhibit B) . A portion of the real estate at 2810 145th
Street ie effected by this proposal, as hereinafter stated.