I was surprised to learn from our correspondence that our Town government doesn't track the expenses of owning Dockside closely enough to know whether or not its monthly rent of $3,125/month actually produces a profit or loss. Unlike, Pop Whalen or the Municipal Electric department which are set up as enterprise funds.
Which raises the question of why aren't all revenue producing properties, like Dockside restaurant and the Railroad Depot, set up as an enterprise fund or at least having their costs accounted for closely enough to know whether they produce a profit or loss? Certainly, there are limitations to running a town (municipal corporation) like a business, such as providing safety services that produce no revenues. However, rental properties certainly seem appropriate to hold to business standard of whether or not owning them is producing a profit or loss (surplus or deficits) to their owners, the taxpayers. Perhaps the Board of Selectmen will put this on thier to-do list for this year.
Below are excerpts from my e-mail with the Town Manager pertinent to the Dockside Lease:
My questions reference Dockside Lease Agreement
Approval: Lease Agreement with Garwood's for Dockside Restaurant Facility. Please provide the basics of the lease being approved, how long is the lease for, what is the monthly rent amount, what is the expected profit from the lease.
Mr. Owen's Reply:
As per Article 29 of the 2011 Town warrant, the new lease is for 5 years, with a 5-year optional extension, or 10 years in total. Under the new lease, the monthly rent will start out the same as under the old lease ($3,125/mo), but will then be adjusted each year in December going forward by an amount equal to the Boston CPI (Consumer Price Index), so that the lease revenue will no longer be a stagnant amount, but will increase each year with the rate of inflation. There is no profit from the lease, as municipalities do not make profits. The lease presently generates a revenue of $37,500/yr, which goes into the Town’s general fund, and which closes out to the surplus (undesignated fund balance) that the Town uses to offset a portion of the tax rate each year.
My follow up Questions to Mr. Owen,
As to whether the Dockside lease makes a profit
1) Is there a law that says a municipality cannot make a "profit," or, in other words. make more from a lease than it spends on the expenses of owning and leasing out restaurant?
2) Perhaps, I should reword my question. Does the rent charged cover all of the Town's expenses inherent in being the landlord of a lakeside restaurant.
3) Reporting the rent simply as a revenue stream makes it sound as if there are no costs associated with the restaurant, when there are the costs of maintenance of wear and tear items, updating for ADA accessibility, etc. that go with the Town owning a lakefront restaurant building.
4) So what is left of that revenue stream once the expenses of owning the building are subtracted and what costs are being included in your calculation?
Mr. Owen's Reply
Mr. Bickford: When I say that municipalities don’t make profits, it is because the term “profit” pertains to private businesses, as the amount of their revenue that accrues to the benefit of the business owner or the stockholders. Municipalities make surpluses (or deficits).
I cannot tell you precisely how much of a surplus that the Dockside restaurant generates, because we do not have it set up as its own fund, like the Pop Whalen Arena or the Electric utility, so that we can capture all the costs associated with it. What I can tell you is that the Town has already made the investments in the last couple of years to provide the ADA-accessible bathrooms there and to make a number of other improvements to meet code compliance standards, so we do not anticipate that there will be many large-scale expenditures required by the town over the period of the proposed 10-year lease. The revenues to be realized by the town over the 10-year term of the lease will be in excess of $300,000. It is hard for me to conceive how the Town would have to spend anything close to that amount on maintenance over 10 years, unless the building is damaged by fire or natural disaster and needs to be dismantled and reconstructed , in which case the Town’s insurer would probably be involved in helping to finance its reconstruction. Dave Owen
