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City’s request for debt forgiveness denied by state

Michael Anderson, The Hawk Eye, Burlington, Iowa –

Burlington’s request to have the debt from the purchase of the Dresser-Rand complex forgiven was turned down last Friday. The plea to the Board for the Iowa Economic Development Authority represented a Hail Mary for the city, and City Manager Jim Ferneau was not surprised it failed.

“Typically, they don’t forgive those,” he said. “The basis for our request was the fact that the original intent was we were going to use the funds to purchase the downtown facility for resale to another business.”

The city borrowed $1 million from a state low-interest fund in 2008 to buy the Dresser-Rand property as part of an incentive package to keep the company’s turbine-testing business in the area. The incentives helped convince Dresser-Rand, which flirted with the idea of moving to New York, to consolidate its local operations in the Flint Ridge Business Park. The abandoned facilities then were damaged by a flash flood in 2010.

Unable to sell the property, the city decided to tear down the buildings, and still is paying off the original $1 million loan. The 10-year loan has a 2 percent interest rate, according to Ferneau. The city still owes $576,638.57, and has paid about $101,000 toward the debt this fiscal year.

“We began making requests for forgiveness of the remaining loan balance at the end of 2011,” Ferneau said at Monday’s city council meeting. “Our request was denied, primarily on the basis of there being no precedent from the past and a desire not to establish a precedent for future projects.”

Ferneau, who has been preaching fiscal prudence since becoming city manager last month, said the negative fund balances in the city’s budget totaled about $7.3 million as of May 16. Still, even including that number, the city has a positive total fund balance of about $10.4 million.

But Ferneau cautioned the number is deceptive, since about $8.5 million of that is due June 1 as debt payments, including further payments toward the Dresser-Rand debt.

One fund with a significant positive balance is the debt-service fund, which has about $7.6 million. That fund, which is set aside specifically to make debt payments, will be emptied to pay the city’s $8.5 million in debt payments by the end of the fiscal year, June 30, Ferneau said. The additional $900,000 or so the debt service fund won’t cover will come from the waste water treatment fund, which has a positive balance of $1.8 million.

“It’s easy to lose the details and not see where there’s problems if you’re not looking at the pieces and seeing how they fit together,” Ferneau said, adding the Dresser-Rand debt is only one of several outstanding debts the city will make good on by the end of the fiscal year.

Built in 1866, the plant originally consisted of an iron and brass foundry to which later was added a machine shop and engine works used to manufacture Corliss steam engines and boilers for the railroad. The complex traded hands over the years as different manufacturers came and went from the community.

Council members approved its demolition April 2 after failing to receive any serious purchase proposals for the property. Under its contract with Spring Valley, Ill.-based Glynn’s Demolition and Excavating, the demolition, asbestos removal and $120,000 lead abatement will not cost the city as long as Glynn’s retains salvage rights to materials found on the site.

The demolition began April 27. Glynn’s demolition team has been working on the site nearly every day since then, knocking down walls with bulldozers, cutting through steel girders with cutting torches and steel-shearers, and hauling the rubble away in semi-dump trucks.

The team so far has managed to tear down an entire structure and is looking to demolish the remaining 60 to 70 feet left in the main office building Tuesday.

Terry Glynn, the on-site supervisor, said so far his team has not salvaged as much steel as he anticipated. In spite of a fire in one of the buildings last week, Glynn said the demolition is on schedule and should be completed within the next five months.

“Keep cleaning up the brick and just keep tearing her down,” Glynn said.

Planning and Development Director Eric Tysland said the city has not yet made any plans for the site once the demolition is complete.

“That will be a future discussion item,” he said.

In the meantime, a 1,000-foot-deep well remains on the property, housed in a small hut about 30 feet east of one of the yet-to-be-razed buildings. Capping the well was not included in Glynn’s contract, though Tysland said the well will remain enclosed until the city is assured it is capped.

“That will be something we’ll look for future grants and other money to cap that well,” Tysland said.

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