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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 yx `._.�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.