North Branch council questions expenses, revenues

The North Branch City Council continues to balk at the cost of the investigation they ordered of City Administrator Renae Fry, which could lead to a $28,564 overage in the yearly city attorney budget.

The legal fees were just one part of a first-quarter financial update, provided by Finance Director Sharon Wright at the council’s May 9 meeting, that caught the council members’ eye.

The council asked Fry to inquire whether Flaherty & Hood P.A. could better track past inquiries from city staff and council members to determine the source of the expenses. 

Fry informed them the attorneys kept track of expenses by issue or case investigated, but not by who initiated the specific inquiry - and going back through call logs and calendars would mean hours more of billable time.

Fry agreed to start by providing a breakdown of attorney invoices by the issue being addressed, whether it be the employment investigation or a recent inquiry into merchandise sales in public parks. If the council deemed this information inadequate, then she would inquire with Christopher Hood at the firm about more itemized billing.

Fry also reminded the council that the usual system for tracking who made what inquiries to the city attorney was for all communication to be routed through her office, a procedure that has often been circumvented during the investigation concerning her.

Mayor Kevin Schieber asked the council to return to the usual practice of going through Fry’s office with legal inquiries.

“I think we’ve gotten to a point where we need to go back to that policy and practice again,” Schieber said, “unless there’s some kind of special circumstances.”

Councilmember Kelly Neider alerted the council, “there are special circumstances” that she does not anticipate will end.

As far as the projected $78,564 in attorney costs, Wright said that is based only on what expenses have been incurred so far. If the investigation ends or changes course, it is possible the council will not exceed its $50,000 budget. As of March 31, the city has spent $19,641 on non-development legal fees.

LIQUOR STORE SALES QUESTIONED

Expenses for the two municipal liquor stores exceeded revenues in quarter one, Wright explained, but that is due to the stores’ buying schedule.

In the first quarter, the stores bought more than $100,000 in inventory, Wright said.

“It’s not because they don’t have the sales and the opportunity to support it,” Wright said, “it’s just because they’re trying to get the wholesale prices when they’re at their best and do their purchasing to get stocked up for the summer.”

The municipal liquor stores are projected to make less revenue than originally budgeted, but also to cut expenses, resulting in a projected net revenue of $141,328 — which would put the 2023 income $58,427 above budget.

Still, based on her own research, Neider said she felt the city could be benefiting much more from its municipal liquor stores.

“I would like to look into why, in the last few years, we haven’t seen any substantial revenue coming in to the city, and what is projected to come in this year,” Neider said.

Other municipalities, Neider said, are pulling in hundreds of thousands of dollars a year from their municipal liquor funds.

According to the 2023 budget, the actual net income from municipal liquor was $17,612 in 2022, $26,548 in 2021, and $10,301 in 2020.

Neider went on to claim that the liquor stores were not “bringing anything in” and operated “at a deficit.”

“We’re in a negative, and it really bothers me that nobody’s taking a clear, concise look at this and hasn’t for years,” she said.

Wright reiterated that she did not anticipate a deficit at year-end, and Schieber confirmed that the city is not losing money on its liquor stores before referencing Neider’s “insinuations” and asking for supporting data.

The liquor stores are currently at 24 percent gross margin, according to Wright’s report — meaning the city is making 24% more in sales than the sales are costing the city. The projection for the end of 2023 is a 31% gross margin.

DEVELOPMENT DISTRICT APPROVED

The city also hosted an official public hearing on creating a City Development District that encompasses most of North Branch.

Creating the district does not cost the city anything, city development director Jason Ziemer said, and can open up grant and other financing opportunities for the city and developers.

The current motivation behind creating the district is two vacant parcels on the west side of I-35, between the Holiday gas station and the Cartfull retail store. A developer is interested in these plots but needs the city to act as a go-between to purchase them from the State of Minnesota.

The properties have been undeveloped since 2008 and in tax foreclosure since 2012. The city voted to create the district, then notify Chisago County, as an agent of the state, of its intent to purchase the properties. The county will remove them from the possibility of a public auction for six months while the city and the developer finalize the deal.

OFFENSIVE MERCHANDISE

The council is also pursuing a new regulation on selling merchandise in city parks, occasioned by a particular vendor selling items containing “vulgarity,” Neider said.

The city’s Parks, Trails, and Open Spaces Commission had a “lively” discussion on the matter at its May 1 meeting, Neider said, and the city has since reached out to its attorney to determine how to proceed.