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Debt from 2014 leaves future wide open


Photo: Councilmember Ruth Sterling states, "I feel for the Merchants, I feel for the situation, believe me I do, but when you have the money and you know you owe the money, you’ve got to get your priorities straight. I would say the same thing to my children, if they got the rent to pay and they’ve got other things to pay. You get your priorities straight and pay the rent, or you’re going to be out on the street."


By Kristin Kjaero

May 30, 2015 (La Mesa) – The operation of this year’s Oktoberfest is up in the air, with the door open for a new organizer to potentially take over. Last week, the city of La Mesa received an application from the La Mesa Village Merchants Association for the 2015 Oktoberfest, but the Merchants’ group still owes the city $37,229 for past events including last year’s Oktoberfest.  Without ruling on the application directly, the city added a phrase to its special event application policy that empowers the City Manager with discretion to pre-qualify and negotiate with applicants.

 The Merchants Association proposed to pay both its past debts and future costs by taking over the entire event without the La Mesa Chamber of Commerce’s participation, combined with a request asking the Council  to roll back cost recovery to 50%. The Merchants group also promised to place future proceeds from 2015 into an escrow account so the City would be the first paid from future event revenues. 2015 Car Show series, funded annually by Oktoberfest profits, was also cancelled last week by the Merchants.

This isn’t the first time that the Merchants Association’s finances have led to a change in the way the City processes applications for special events.

In 2011 the Council passed a requirement 5-0 that applicants must “prove their organization's paperwork is in order and that its financial records have been independently audited,” according to a La Mesa Today report, which that same month reported on an a dust up within the Merchants Association over financial reporting inaccuracies and a lack of transparency that lead to the loss of some of its members.

Follow the Money

The Merchants group owes the City $33,996 from last year’s Oktoberfest as well as another $3,233 for the Association’s car show series last year. In previous years, the Council gave the event a 50% discount on city fees based on the notion that it brings sales tax to the City, while requiring 100% cost recovery for police, fire and public works support provided by the City.

Because the City has requested a single name on the Oktoberfest application, two trade groups—the La Mesa Chamber of Commerce and the La Mesa Village Merchants Association--had an arrangement in which the Chamber ran the Allison Street beer garden and food concession at 4th and La Mesa Blvd, while the Merchants run everything else and bore the responsibility to pay City fees for the event.

The total bill for the 2014 Oktoberfest was $81,772. The Merchants paid the City $47,776 of which around $40,000 came from the Chamber, which means the Merchants’ own contribution toward the debt was only about $7,776. Meanwhile they paid $20,000 to John Vigil - listed on their website Board page as Executive Director - for his services as Oktoberfest organizer, according to an interview with Merchants Association President Arlene Moore.

But the biggest source of the financial issues was revealed in a dialogue (video, right) between Councilmember Sterling and Merchant Guy Blumenthal:

Sterling: Guy, what happened to the $30,000, you said $30,000 was paid; what happened to that $30,000?

Blumenthal: It was paid to you, to the City. We took another $30,000, or $28,000 to throw Christmas in the Village, and I guess in hindsight we probably should have given it to you rather than thrown it, thrown the Christmas in the Village, cause that’s the amount of money we’re talking about. We were pretty excited about the new Mayor and everything else that happened with the election and thought it’d be pretty cool to throw Christmas in the Village, have the new Mayor walk down the street and greet his, uh, uh, (smiling) appreciative voters.

Sterling: So you spent the Oktoberfest money that should have gone to the city, because you owe the City,….

Blumenthal: …on another city event promoting the city, yes, we did.

Everyone on the dais, including the new Mayor, discretely ignored the potentially compromising implications from Blumenthal, their outspoken political ally, implying the use of funds owed the City to promote a political campaign winner. However, it was not politics, but the size of the debts and ability to perform which caused City Manager Dave Witt to place the item on the agenda to ask the new Council for guidance on the City’s old cost recovery policy.

Discussions at the Council Meeting

“If we have someone taking over the event, we want to make sure they have the resources and qualifications to take over the event. There is ABC, private security that supplements the City’s, insurance requirements, volunteers. Over 100,000 people come to the town,” Witt said as he introduced the agenda item.

Witt later elaborated during Council discussion:

I think what was problematic in this case, as was even testified this evening, they made their decision on their own, without really coming to the City and say would you prefer us to spend the money on this event, or would you allow us some additional credit, like on your credit card. But in this particular case the decision was made in the background, leaving us in a very awkward situation where we were sending out past due notices, and really forcing the hand, and that’s where I think it was perhaps handled in a way that … could be handled differently in the future.

During public comments, representatives of both the Merchants and Chamber made the case that some credit should be given for an annual spike in sales tax that benefits the City, to adjust down the rate of cost recovery for the event. Despite possibly being cut out of the event in 2015, Chamber member Dave Smiley (full video, right) argued passionately that a number could be quantified, and stated:

…. Call it 10%, whatever, whether you feel you can justify it or not there certainly is revenue brought to the City that day, or those three days that aren’t brought any other time during the year without these two organizations putting an event on. So I would certainly welcome the Council adjusting cost recovery in the future to some credit or number for the revenue that it does get from this event that is put on by these two organizations whether we’re doing it for our fundraising or not.

But that was looking forward while the issue of currently outstanding debt remained unresolved, which Sterling honed in on with an experienced hand during Council discussion (full video, left):

As far as the benefits for the City, I think that the City does a lot in having the Oktoberfest, and having many neighbors complain that they don’t want it, and yet we stay with you and have it. But when it comes to the monetary portion of this, you know the City is not in here to make money, and the police, fire and public works have been paid. They were paid a year ago for their time that they gave to the City. So that came out of the General Fund. So the money that you owe us, the $40,000, the $33,900 that you owe us, that is money that has to go back into the General Fund. Because we in essence borrowed from the General Fund to pay the police, fire and public works. So I cannot see compounding the debt by giving a permit when there’s already that taxpayer money outstanding. That just not is a way to do business.

And then she did the difficult task of setting old friends and allies straight:

I feel for the Merchants, I feel for the situation, believe me I do, but when you have the money and you know you owe the money, you’ve got to get your priorities straight. I would say the same thing to my children, if they got the rent to pay and they’ve got other things to pay. You get your priorities straight and pay the rent, or you’re going to be out on the street. Well, you had the money, and you spent it on the Christmas festival and you didn’t pay your bill that you owed. You know I, I’m sure I’m all wet here, that’s your thinking, but it’s a part of doing the right thing. When you owe money, you pay it.

The newest elected official, Councilmember Guy McWhirter, countered in favor for extending credit and even possibly revisiting and softening the established cost recovery policy (video here):

This is not apples to apples, and we are not a credit card company, but I don’t pay my debts every month on my credit card company yet they continue extending me credit knowing and having faith to me that I’ll make good in the future. There’s a couple issues on this. They explained to us, I think, [an] adequate plan on how they plan on paying us back the money that they owe. I feel comfort with what they said.

The other issue I’d like to talk about in the future is when both parties mention the benefit that comes to our City by Christmas in the Village, the Oktoberfest and other things, do we want to reevaluate our cost recovery, because I was reading earlier one of the benefits that it does is, yes we don’t have that extra money coming in to us, but what does it do for our Merchants, we’ve talked numerous times about increasing the visibility of downtown La Mesa. Well, I can’t think of things that do it better than what we’re talking about here.

Reaching a Decision

Councilmember Bill Baber asked if they gave discretion to the City Manager, what would he consider significant? The tens of thousands of dollar now outstanding is a significant amount, Witt replied, but an amount that might qualify for small claims court was something for which a payment schedule might be negotiated.

McWhirter stated he’d like the wording to indicate a need to provide significant evidence of an ability to pay back debt, to which Witt suggested, “Often times in business in times like these you require a deposit, or you require a letter of credit, or you would have a performance bond, I don’t think all those necessarily apply, but those are types of business tools that are available when you’re unsure of the ability to pay and yet you want to grant permission for something.”

“Naming of their first born,” McWhirter quipped, and expressed support for an escrow account.

Mayor Arapostathis requested broad wording from the City Attorney that would be inserted to give the City Manager discretion processing applications. Then the Council voted 5-0 on the recommendation not to process applications if the applicant has significant outstanding debt to the City, inserting the phrase “unless the applicant demonstrates to the satisfaction of the City Manager a secured method of recovery for the City at the time of application.”

Regarding the cost recovery policy itself, the Council voted 5-0 to reaffirm the existing policy that states, “Any materials or required staffing for the event is charges at full cost recovery unless a specific exception has been approved by the Council.”

What now?

The new wording means last week’s application from the Merchants Association will not be processed until it can demonstrate that it has the resources to both meet its debt and run the event, so it’s back to the drawing board and negotiating table for them. Until an application has been accepted, the Council has nothing to deliberate on regarding whether or not to grant a cost recovery exception for Oktoberfest.

The decision also gives the Merchants Association and Chamber time to resolve issues around the interpretation of the Memorandum of Understanding (MOU) signed on May 15, 2014, which remains in force until Oct 31, 2015. Three years of disruption near carnival rides and Spring Street trolley by teens and gang members meant increased security costs for the event, so the Chamber agreed to pay the a flat fee of $30,000 and relinquish its food concession (which netted $15,310 for the Chamber in 2013,and conservatively $10,000 for the Merchants in 2014). In return the Merchants granted the Chamber “the exclusive first right of refusal to manage and operate the Allison Street beer garden for the 2015 La Mesa Oktoberfest.”

The Chamber interprets this to mean it has the right to run the beer garden unless it chooses not to, while the Merchants interpret this to mean if someone other than the applicant runs the beer garden then the Chamber get the first choice, and this now has to be sorted out between the parties before a new application is submitted.

In the meantime, as Chamber President/CEO Mary England succinctly summarized in a phone interview, the field is wide open and, although she has not discussed running the entire Oktoberfest with her board, “Any organization could apply for a special event permit for Oktoberfest,” including a totally new third party if someone wanted to step up.

Whether or not the City Council will make an exception for Oktoberfest remains to be seen, after an application is accepted. Meanwhile the delay provides time for the Merchants Association and the Chamber to resolve their issues about the big beer garden—and potentially, for a new organizer of the overall Oktoberfest to step forward.

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