Questions arise about zoo lease and operating agreement

December 6, 2013
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A potential 60-year, $120 million lease and operating agreement for the Kent County-owned John Ball Zoo and Park prompted some questions from members of the county’s Finance Committee last week.

Most of the inquiries about the new contract centered on the financial commitment the county would be required to make to the John Ball Zoo Corp., a new private nonprofit that could assume operations of the public zoo and park on Jan. 1.

“This is a 60-year agreement, potentially, at $120 million-plus,” said Commissioner Roger Morgan, a committee member.

The agreement is for 20 years, with options for two 20-year extensions. Although the county will continue to own the zoo and the park and the property, the contract calls for Kent to pay an annual management fee to JBZC, an amount that varies from year-to-year but never drops below $2 million in any year.

For instance, the county would transfer $2.5 million to JBZC for next year, with $2.1 million coming from the zoo’s budget in the general fund and $368,000 from the county’s Lodging Excise Tax fund, which gets most of its revenue from the county’s 5 percent hotel-motel tax.

The money being transferred from that account is part of the $1.3 million subsidy the county made to the account from its general fund and not from the fund’s tax revenue, which would be illegal to do under state law.

The management fee is $2.4 million in 2015 and $2.25 million in 2016. In 2017, the fee is $2 million with up to $250,000 as a match for contributions made to the zoo; in 2018, it’s $2 million with up to $150,000 as a match; and in 2019, it’s $2 million with up to $100,000 as a match. The fee then becomes a flat $2 million in 2020 and for every year after that for the contract’s duration.

In recent years, the county has allocated about $2.1 million annually to the zoo from the general fund but has collected the revenues from zoo admissions, concessions and other sources and bundled those dollars with the general fund allocation to make up the zoo’s budget, which is nearly $4.2 million for 2014.

The new agreement, though, calls for JBZC to keep all revenues, roughly $2 million, and pay for permits, utilities and any taxes that might arise. So Morgan said it was hard to see how the agreement saves the county money.

Commissioner David Bulkowski said he favored the agreement but was concerned about transferring the $368,000 from the excise account. He thought that money was needed to ensure the payment for the DeVos Place construction bond would be made. The tab is about $6.3 million next year.

“It would almost be cheaper for the county to provide these services in-kind than spend the $368,000. I just don’t like that additional cost,” said Bulkowski.

County Assistant Administrator Mary Swanson said the $368,000 transfer was necessary because the zoo will be moving to a new level and JBZC needs some more funding until it can get up to operational speed. She said the new entity won’t have new donations to help with operations from the beginning.

“So we determined they needed funding from Day One,” said Swanson, who added the county will reduce its financial support to the zoo in the coming years.

“I’m kind of torn about this whole thing, but I have a lot of the same concerns Commissioner Bulkowski has,” said Commissioner Nate Vriesman.

Vriesman noted this transfer would be the second time this year the county has “raided” the excise account, having withdrawn $1.2 million of a general fund transfer to it this year to build the county’s new South Health Clinic in Kentwood. He also said the county would be financing the zoo with $870,000 above the facility’s general fund allocation for the next few years.

County Administrator and Controller Daryl Delabbio reminded the committee it wasn’t that long ago the zoo received $400,000 each year from the excise account for capital improvement projects. But that expense was eliminated from the excise fund when hotel occupancy and its resulting tax revenue dropped. Both actions stimulated the county to subsidize the fund.

“For five years we have been augmenting it a little bit,” he said.

Delabbio also said he didn’t like using money that has been designated to the excise account for other purposes, like the clinic and the zoo. “The only other option is to use general fund reserves,” he said.

The agreement allows JBZC to request improvement projects from the county for the zoo through 2027 or until the county has allocated $2.6 million for such projects. The county commission would review all such requests.

Vriesman then asked what will happen if JBZC doesn’t agree to the contract. County Corporate Counsel Dan Ophoff said a lot of negotiations have taken place and he thought this was the best agreement the county was going to get.

The contract allows JBZC to put a millage request on the ballot as a more permanent source of funding. If such a measure gets approved by voters, the county’s management fee will be reduced by the amount the millage raises.

The county can also reduce the fee on a sliding scale of up to 10 percent if at least one of its five revenue sources falls by $2.5 million in a single year, over two years, or even over three years. The county’s general operating millage and its state revenue sharing are included in the five sources.

Commissioner Shana Shroll asked if the 20-year term was normal for this type of lease and operating agreement. Swanson said it was. “What was always envisioned was a 20-year term,” she said.

“We’ve been meeting with one thing in mind: What’s the best for John Ball Zoo,” said Commissioner Harold Voorhees, who chairs the Finance Committee and served on the task force that negotiated the agreement. “We had very strong entities come together with a good agreement for the residents of Kent County.”

Current county employees working at the zoo may have to apply for positions with JBZC if the contract is ratified. Those not hired will be laid off by the county as of Dec. 31. All are represented by the UAW. “We are bargaining with the union,” said Swanson. “We assume that most of the people will be picked up.”

Delabbio told the committee this wouldn’t be the first time the county has spun off one of its holdings or agencies; he used Network 180 and Kent Community Hospital as examples.

“While this will be a private corporation running the zoo, there will be an opportunity for public input to the commission,” said Commissioner Carol Hennessy, vice chairwoman of the Finance Committee. “I think there are some checks and balances here.”

The county will have two representatives serving on the JBZC board when it convenes.

The Finance Committee recommended that the commission approve the agreement by a 7-to-1 margin. Bulkowski voted against the contract. The committee also gave its approval to go forward with the second stage of construction for the Tigers of the Realm Exhibit at the zoo.

The committee also agreed to appropriate $251,769 from the lodging excise tax revenue as part of the expected $1.25 million payout to Experience Grand Rapids for this year. The county has a contract with the area’s destination marketer that gives it 16.75 percent of the total revenue from the hotel-motel tax, projected to be from $7 million to $7.5 million this year.

The Legislative Committee will review the lease and operating contract on Tuesday and the agreement will come before the commission on Thursday for final approval.

“I guess the way we’re doing this is OK,” said Commissioner Dick Vander Molen. “At the end of the day, though, the excise fund is probably going to be short and we’ll have to take that out of the general fund.”

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