HomeMy WebLinkAbout1993-03-02 Info Packet
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City of Iowa ,City
MEMORANDUM
DATE: February 26. 1993
TO: Ci ty Council
FROM: City Manager
RE: Material in Information Packet
Memoranda from the City Manager:
a. Public Participation - Capital Projects
b. ,Budget FY.94 and FY95
Copy of letter from City Manager to Iowa Department of Natural Resources
regarding environmental mandates.
Memorandum from Jeff Oavidson and Rick Fosse regarding Melrose Avenue,
reconstruction issue.
Memorandum from the Director of Public Works regarding water resources
meetin9 - Lone Tree.
Memorandum from the Senior Building Inspector regarding the Plumbing
Code.
Memoranda from the City Clerk:
a. Melrose Avenue
b. Meeting Change
c. Code Upda te
Memoranda from the Finance Department:
a. Fiscal Year to Date Parking Usage through January 1993
b. Comprehensive Annual Financial Report (~R'pOR.~)
Memorandum from the Economic Development Coordinator regarding Johnson
County employment trends, 1980 to 1990.
Memorandum from the Transit Manager regarding wheelchair accessible
buses
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Copy of letter from Mayor Courtney to Susan Jaecques, applicant for
the Board of Examiners of Plumbers.
Letter from the State Historical Society of Iowa regarding Moffitt lJRI
Cottage Historic District.
Agenda for the February 25 meeting of the Board of Supervisors. ~
Memo from City Atty. re distinction between Formal "Public Hearings" and 3
"Public Comment on Agenda items"
Agenda for the 3/2 Informal & Formal Meetings of the Bd. of supervisors.38~
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Info Packet
2/26/93
page 2
Information from Clara Olson regarding Larry Larsen Lawsuit (Millards)
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City of Iowa City
MEMORANDUM
Date: February 26. 1993
To: City Council
From: City Manager
Re: Public Participation. Capital Projscts
Over the last few months we seem to have recurring circumstances whereby the direct
involvement of the public in the design of capital improvement projects is being discussed. not
only by the Iowa City City Council. other government agenciss. citizen groups and through
media reporting. I believe it is important to understand. as your staff. we believe our
responsibilities are to serve your best interests. We have assumed you desire our best
prOfessional and technical judgment in the form of capital project recommendations. as well
as recommsndations concerning any issue. You expect the same from the many boards and
commissions which work for you and are served by the City staff. In an earlier memorandum.
I outlined this issue as it related to the Kirkwood Avenue street improvement project. As I
indicated at that time. pubiic involvement in capital project planning continues to grow as an
issue of community interest. Intsrest on the part of other jurisdictions such as the schools.
county and other cities. also continues to grow. I have several concerns as this issue unfolds
and your policy guidance will be nscessary.
My first concern is the request that members of the city staff appear before and participate
in discussions concerning a capital improvement project or other City issue. particularly in a
forum which causes media coverage and publicity, This would include a City Council meeting.
County Boerd meeting. and/or other public meetings oftsn arranged by other political bodies.
The request to participate is often on a short timeframe and usually is the result of some
public statement by an elected official. Specifically. the staff is often asked to negotiate.
debate. and defend issues prior to lhs substantial involvement by the City Council. Your
agendas are certainly crowded and therefore we have grown to understand that you expect
preparation of information in a form you can discuss thoroughly, modify and change as you
see fit. With short notice. it is difficult to prepare information for our nmtl audience and that
which they might expect. let alone the problem of anticipating what those issues might be.
It seems as if when we answer their questions and they are not as the new audience desires.
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somehow the City Council is expected to ignore any and all staff work. Staff bashing
becomes a new sport. Furthermore, if we are unable to satisfy ths other party's time frame,
it is seen as ignoring their questions. As your staff we are responsible for the preparation of
information for you as a matter of our first responsibiiity. Information for the purposes of
debate by another government or agency is a secondary consideration. The questions raised
may often require significant work effort and, therefore, staff work is diverted from ths
responsibiiities you have directed to us.
While ws wish to recognizs the interest of these other public bodies, groups, committees, and
regardless of short notice, the forum for such meetings is of greatest concern. While I do not
have trouble with City staff members participating and discussing ths merits of a particular
technical or professional proposal, the greatest difficulty is that this process is perceived to
be the initiation of some negotiation with an elected body and/or with a group of citizens
present at the time. This group of citizens often represent parochial interests and may not
be fully representative. This, then, has the additional problem of changing the perspective
from one of a professional/technical nature to one of a political nature, clearly not ~ur roie.
To be a~ effective staff, we must remain sensitive to the political nature of the decisions you
make. However, making such political predictions as to when such an issue will arise is
difficult.
You also have a right to expect from us the best professional and technical information based
upon your policy direction. These include by specific direction from the City Council, planning
documents approved by the City Council and other agencies represented to the City Council,
or other often informal means of expression of public policy, Often the group of citizens will
step forward and wish to be involved in these issues, a process we do not discourage.
However, it is difficult for us to follow through on each and every specific concern without
directing time and resources away from the other aspects of proposal prsparation and other
work assignments. When the time comes to proceed with a project following a City Council
decision and schedules have been dramatically amended, it is often forgotten that the process
may have been extended and thereby the earlier scheduling promised cannot be fulfilled. If
the project begins later in the construction season, little memory of why it occurred rsmains.
As I am sure you can appreciate, we hear from everyone and everyons apparently has
standing when it comes to a public discussion, Each of the proposals put forth and reviewed
require some type of staff involvement, regardless of the merit of the proposal. It is
appreciated by the staff when individual citizens do commend us for our willingness to provide
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information; however, it is not without cost, delay and other factors not often receiving the
same commendation.
In addition to the short notice to appear, legislative bodies have often taken positions prior to
invitations to participate, the City staff person involved or attending the meeting is, quite
frankly, "set up." A recent issue would be that the University Heights City Council asked a
City staff person to attend a meeting when they have already taken a position on their interest
with respect to the Melrose Avenue bridge. The Lone Tree City Council 'has asked for
participation in discussion of an issue when they, too, have already passed a rssolution
expressing their opinion, contrary to the proposed water resources project. As you can see,
this clearly creates a no win situation for a staff person trying to represimt your intsrests.
As you recall, I was rscently criticized publicly by an individual indicating why I did not attend
the County board meeting concerning the water resourcs proisc!. As I have indicated to you,
I was informed on a Thursday afternoon, asking for my participation in the mssting of a
County board and evidently a group of citizens arranged for the following Monday. My
schedule had already been set for that particular day and I could not, rather than would not,
attend. That was not acceptable by our critics.
I am bringing these issues to your attention now in that I believe ths Council needs to engage
in some type of discussion to provide direction for the future concerning the involvement of
staff in the process of citizen input and project design, and in particular the involvement of
, staff with other elected bodies or agencies. City Councils, County boards, Board of Regents,
University Hospital staff, University staff, other agencies and'citizen groups pull and tug at
the City staff in many different directions, each vying for our attention for their particular
position. Our responsibility is to prepare our best judgment and recommendations to the Iowa
City City Council, not these other agencies. The process of the preparation of recommenda-
tions to the Planning and Zoning Commission and other boards is some idea of how we fulfill
our goal of public involvement, notice and participation, We believe these boards and
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commissions to be extensions of the City Council. When, in fact, thay adopt a policy
recommendation and with the .final approval of the City Council we assume this to bs a
reflection of your overall policy.
The meims by which we distribute information in my judgment should only occur after City
Council is provided some, at the very least, preliminary direction, You often take initiatives
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to file applications, approve general design concepts, etc: Many times the public ignores such
action, but ultimately appears before you when they fesl the decision has reached a point at
which their interests are at stake.
I have found it interesting to note that in rscent circumstances, such as meetings concerning
open space. these meetings occurred in public forum and opsn spacs proposals were prepared
by the City staff for the committee. In this case, the process appears to be acceptable as we
now mset with citizen groups to have their comments on ths open space proposal. Yst, whsn
street design projects occur and are presented to the City Council in the fashion we have in
the past. this is found to be unacceptable. It is this latter circumstance where we all receive
criticism for not involving various groups, agencies and, other institutions in our staff
recommendations. It is this type of criticism that must be dealt with in some fashion to
assure we can continue to provide public support for the many issues that the City Council
faces in the future.
While I have no magic formula for how to address this type of criticism, I would offer the
following as a suggestion for your discussion. Please keep in mind these circumstances are
not without costs, particularly timeliness.
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1.
A project concept is shared with the Council and endorsed by the Council to the extent
that staff proceeds to inform affected persons,
2. With the assistance of the Neighborhood Services Coordinator, the project concspt is
distributed to affected persons. The staff members typically involved wouid be the.
Neighborhood Services Coordinator, Public Works staff and Planning staff. The
purpose of this presentation is to a) introduce the concept endorsed by the Council;
b) explain the community need perspective to the residents; and c) take input.
3. At a staff level, take the results of the meeting with the residents and see how
neighborhood concerns can be addressed in the project and still meet community
needs. This may not always be possible.
4. Forward the staff proposal of how to implement the concept (not design and specs
yell to Council, including an explanation of resident concerns and how they were or
were not incorporated.
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5. The Council holds a public discussion on the project.
6. At Council's direction. further staff work is dons to refine the project.
7. Council directs staff to proceed or not proceed with the design and specs; this is a
recorded vote.
8. The normel bid and specs procsss continues from here on.
There ere drawbacks to the use of this type of project discussion policy formulation.
1. You will nsver be able to fully idsntify the affected partiss in all capital projects and
therefore will simply exacerbate the criticism of the City's performance in the public
participation/project design. While neighborhood interests have captured the media
attention, overall community planning, such as the effect upon the motoring public,
utility location and other uses of a street project, may not be afforded the same
organized opportunity to comment.
2.
Such a policy will likely delay implementation of a specific projects and thereby affect
the overall plan particularly !inancing which takes many months for planning and
implementation.
3. Many projects often have a short window of opportunity in that'we must proceed with
some speed in order to secure state or federal aid or fulfill some other legislative
mandate. Once we formally adopt a policy that requires the greater involvement, it
, will be difficult to go back regardless of the fact that other opportunities/pressures may
be placed upon you,
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4. There will bs a cost in staff time devoted to this procsss and thsrefore it is liksly to
create circumstances where fewer projects are considered.
5. There are others who wish to participate in project planning but from a different
perspective, such as suggestions that the City become more involved in the
environmental interests, growing mors likely as a requirement of the state and federal
governments, end this, too, will require further adjustments to the overall projects
planning process.
6.
The efficiencies in project planning will come into question, There is no doubt that the
greater participation is an effective political tool in fulfilling capital project and other
policy planning; however, it is also inefficient in that it slows the speed with which we
can respond. This is a sacrifice that we must conscientiously make and also be aware
of the additional criticism that will be forthcoming due to the speed with which
projects are completed.
cc:
Karin Franklin
Chuck Schmadeke
Rick Fosse
Marcia Klingaman
bi\eapprojl
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City of Iowa City
MEMORANDUM
Date: February 25, 1993
To: City Council
From: City Manager
Re: Budget FY94 and FY95
Following the budget hearing of February 23, several presentations were made to the City
Council requesting. funding of verious projects or programs, The following represents a list
of those proposals put forth at the meeting of February 23,
Historic Preservation " $4,000
Senior Center. $122,000
Arts Committee-Iowa F.estival - $ 1 0,000
Highway 6 Bridge - $600,000
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Each of these projects represents somewhat of a different financial challenge to the City,
particularly due to the property tax freeze. I felt that you wished to receive my advice and
other related information concerning how you might consider thsse proposals and the
implications of such a decision herein,
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With respect to the historic preservation match grant proposal of $4,000, if you wish to
proceed you may indicate, as a matter of policy, your financial ~upport, thereby not
necessitating a formal appropriation of monies, This would allow the Commission to proceed
with the knowledge that the City Council will support up to the $4,000 and at the time of
budget initiation, after July 1, 1993, a budget amendmsnt could be made rathsr than
providing for a formal appropriation of monies, This budget amendment would require a
transfer from the contingency account. The negative aspects of such a position is the
reduction of our contingency account very early in the fiscal year.
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The Senior Center Commission seemed to indicate a number of concerns, particularly due to
their increese in program participation, etc. In total, the request included staff ($62,000), a
request for a parking capital construction project ($50,000), and $10,000' for
rehab/renovation work, These are estimates. Thsse requests are of sufficient magnitude that
the contingsncy could not absorb the amount requested and therefore I cannot rscommend
such funding from that source. However, if there is interest in the restoration of $10,000 to
bring back to $20,000 the earlier appropriation for continued building maintenance, that can
be accommodated by contingsncy transfer. You will recall a $60,000 building rehab request
was put forth and we chose, prior to the property tax freeze, to fund this at the rate of
$20,000 per year for three years. This, too, is also small enough that we could provide for
a transfer after the beginning of the budget year in the form of a budget amendment from
contingency. Anything beyond these two contingent transfers I would strongly urge you not
to utilize contingent account.
The Arts Committee has indicated a desire to receive approximately $10,000 in hotel-motel
tax fu~ding, You have an existing policy position in place that distributes those monies. If
you were to choose to reduce any of the current allocations, I would recommend that the
monies be taken from the Convention and Visitors Bureau portion, or the park land
acquisition/development portion. Mercer Park and the police are general fund operating
budgets and, therefore, 'any reduction in available revenues to the general fund would require
offsetting expenditure reduction elsewhere in the budget. The Convention and Visitors Bureau
and the parkland acquisition would have no direct bearing on the City's general fund operating
budget.
The proposed pedestrian bridge in the amount of $600,000:t has been further developed in
a preliminary engineering study, My sense of the Council was an interest in pursuing other
policy options such as signalization changes along Highway 6. I would remind you that we
have deliberately chosen an earlier policy to encourage Highway 6 traffic, and any changes
in signalization may cause that traffic flow to become constrained and diverted to other
streets. The dsvelopment of such a projsct will requirs the coordination with the Iowa
Department of Transportation and other neighbors, The preliminary engineering study
identifies sidewalks which must be installed in lOOT right-of-way and can conflict with certain
use of the right-of-way as the back yards of properties as well as proposals to construct
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sidewalks between houses to provide convenient access to the pedestrian overpass. The
financing can proceed es you see fit in the form 01 a note or other short-term financi[1g with
the understanding that permanent capital financing would nesd to be in place no later than
FY95. This schedule would not be difficult to meet, assuming all parties involved are
agreeable and no condemnation or resulting neighborhood opposition were to recur. Each time
you utilize available capital resources, it limits your ability for othsr projects.
,~'94-95bdo
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February 22, 1993
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CITY OF IOWA CITY
Larry Wilson
Iowa Department of Natural Resources
Wallace State Office Building
900 E. Grand Ave.
Des Moines, IA 50319-0034
Dear Mr. Wilson:
The International City/County Management Association created an Environmental Mandate
Task Force in order to provide a mechanism to comment to the Federal Government
concerning the increasing cost of compliance with such mandates. It is from their work that
I wish to offer comments.
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As I am sure you can appreciate, many local governments are overwhelmed by the require-
ments of environmental laws and regulations and have found themselves in difficult financial
position with respect to fulfilling the complexity and sheer volume of these regulations. With
little prospect lor lederal funding and an apparent unwillingness on the part of the State of
Iowa to grant serious tax policy alternatives to cities the difficulties are further exacerbated.
The recent state legislation to freeze city property taxes merely adds to the difficult
circumstances.
I am aware your office is subject to many pressures from the Fedsral Environmental Protection
Agency and are required to respond to the federal mandates.
Recommendations for improving the working relationship between cities and those agencies
regulating our environmental activities arEi necessary. Such recommendations, I believe, are
pertinent to the circumstances that my community faces and, I am sure, other Iowa
communities will face in dealing with your agency. I would like to provide a brief commentary
concerning the issues.
1. Doenino the reoulatorv devsloornent orocess. It has appeared to me that the DNR
often develops regulations without fully consulting local governments and/or other
directly affected parties, Recsntly, I was involved in the development of proposed
financial assurance regulations affecting our landfill. I found this to be a productive
process and, in particular, wish to commend the League of Iowa Municipalities as well
as the representatives of county associations for their involvement, particularly the
League for organizing the effort. I would hope the process would be further opened
and thereby create greater opportunity for local government involvement in your
regulations, One alternative would be for the creation of some type of local
410 EAST WASIlINOTON STRUT' IOWA CITY, IOWA 5124001126. 13191 )UdOOO. FAX 1311) 356.$009
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Lerry Wilson
February 22, 1993
Page 2
government organization, possibly made up of mayors, city managers, public works
directors and/or other local officials to provide you with advice on regulatory and
legislative proposals. I believe with this type of involvement we would create a far
more productive working relationship and greater understanding on the importance of
environmental regulation and legislation. In fulfilling your mandates would be far easier
for those who are regulated to understand your responsibilities.
2. Cost benefit of comoliance. It has been'my experience that frequently the cost of
compliance simply is not considered by IDNR. I would encourage some type of formal
requirement to analyze the cost/benefits of compliance. Eventually it would create
some circumstances whereby local governments could conduct cost benefit/analysis
and determine which mandates would deserve a priority based upon local
considerations. Our community faces $7 million for landfill financial assuranc,e; $30
million for new water treatment; $13 million for ammonia, etc. This is in addition to
an existing debt of $40 million for sanitary sswer improvements, Our ability to absorb
such debt will seriously affect our financial well-being.
3. Allow local oovernments f1exibilitv. I truly believe that local governments have a better
understanding of their own economic/environmental problems and how best to meet
and/or exceed environmental goals at lower cost. I believe local governments should
be encouraged to explore more novel approaches just as long as the end, result is as
good or better for the environment. Some mechanism to allow local governments to
choose amongst alternatives rather than the strict regulatory compliance might be a
meens to not only utilize local resources far more effectively and still fulfill your
agency's regulations.
There may be, for example, the need to explore regional authorities for solid waste
and/or similar rsgional storm water utilities, With the strict interpretation of the
regulations, it makes it rather difficult within a short time frame to not only comply
with regulations; but also to gather public approval and support for ths issuance of
debt which can be a complex political undertaking.
4. Reoional olannino and orioritv setting. Too often it has been my experience that the
DNR targets enforcement action without regard to other sources of pollution that may
be causing equal or greater harm to the environment. As you will recall, the City of
Iowa City is most concerned about the potential wastewater effluent release into the
Iowa River from a neighbor community. The Iowa River is the source of our drinking
water. In that we have met with serious opposition to exploring other water
alternetives, compounding the problem of fulfilling not only the requirements of the
state DNR with respect to treating our water and other federal government
requirements, I think you can appreciate the importance of overall regionel
environmental planning and particularly priority selling process, We are going to be
called upon to expend extraordinary amounts of moniss to resolve these issues, and
therefore, some sort of regional prospective needs to be encouraged by the DNR. A
regional priority needs to be established to provide assurance that our work efforts are
not undone by actions of another jurisdiction beyond our control.
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February 22, 1993
Page 3
5. Uniformitv of DNR decision-makino, The scientific uncertainties that cause local
governments to question health and environmental benefits of regulations is a difficult
circumstance for our community as well as others to accept. Regulations that are
premised on certain conditions that we believe are unfair and unfounded in scientific
fact. The strict interpretation of your regulations with respect to landfill regulation has
caused us to pursue a vigorous defense on our part to recent litigation by DNR over
blowing paper, cover and other issues associated with our landfill operation. This is
where I believe a more open regulatory process, as well as more time and the analysis
of cost and benefits, can improve rather than cause the conflict which frequently
occurs.
Hopefully, you will accept my comments In the spirit that they are intended. There is
significant support for environmental legislation within my community, However, the state's
actions are causing extreme economic!linancial concerns within my community and thereby
questioning the wisdom of DNR regulations.
Hopefully we can work toward a more efficient and cost effective way to provide for a
cleaner, safer environment for future generations.
Sincerely,
$~tk;"
City Manager
cc: City Council
Iowa City Area State Legislators
Director of Public Works
Kent Sovern, League of Iowa Municipalities
nl\wlllon
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City of Iowa City
MEMORANDUM
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February 25, 1993
To:
Steve Atkins, City Manager
Jeff Davidson, Rick FossecJi I ,,'
From:
Re:
Melrose Avenue Reconstruction Issue
At your request, we have summarized the Impacts of the five altematlves for Melrose
Avenue. The options Include do nothing, two lanes, three lanes, four lanes, or five lanes.
We have considered the bridge and street separately, since you have Indicated Council
may wish to consider these as separate Issues.
This evaluation assumes there will be no significant changes to the arterial street network
In west Iowa City, In accordance with the JCCOG Arterial Street Plan. U.S. Highway S,
Melrose Avenue, Benton Street, and State Highway 1 will continue to be the major traffic
carrying thoroughfares In west Iowa City. The City Council should determine as soon as
possible If they wish to have new arterial streets identified and evaluated, so that staff can
proceed and this matter can be taken before the JCCOG Urbanized Area Policy Board for
consideration.
I
Proposal for New Arterial Street. Regarding the proposal for a new arterial street which
was suggested by a member of the public at the February 2 meeting, we see this as an
Issue for the University of Iowa. Unless the Athletic Club or Presbyterian Church Is
displaced, this road would be built completely on University property. Its purpose would
be to serve a'Universlty parking facility. Perhaps most Important, It would Involve a policy
change by University Hospitals, to locate their major parking facilities for visitors and
employees to a site remote to the main hospital area. We have been Informed that this
Is not consistent with their current plans. It Is our opinion that the 50% reduction In
Melrose Avenue traffic claimed by the person making this proposal Is unsubstantiated.
Elimination of Byington Road. The Issue of eliminating Byington Road and having
Melrose Avenue connect more directly to Grand Avenue and South Grand Avenue Is also
a matter for the University to address. This Improvement Is acceptable from an arterial
street planning standpoint. However, It would encroach on University property and require
special pedestrian facilities be constructed by the University around Slater Hall. The
design of the University's new parking ramp will prevent a new street from encroaching
on the corner of Melrose Avenue and South Grand Avenue.
Federal Funding of Melrose Avenue Bridge. We checked with the Ames office of the
Federal Highway Administration (FHWA) to get the official word on the federal funding of
Melrose Avenue Bridge at a width less than the four lanes recommended. The
Information we received Is somewhat different from what was reported by a member of
the public at the February 2 City Council meeting.
The Federal Highway Administration will not permit up to $850,000 In federal bridge
replacement funds to be spent on an inadequate facility. Adequacy Is the key concept.
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FHW A will approve a two-lane or three-lane Melrose Avenue Bridge design If an
amendment is made to the JCCOG arterial street plan which shows that other
accommodations have been made for traffic In west Iowa City. We must assure that a
two-lane bridge and two-lane street In this vicinity of Melrose Avenue will be adequate for
existing, short-term, and long. term traffic volumes. A two. or three-lane bridge will likely
eliminate federal funding to Improve Melrose Avenue In the future.
FHWA Is asking that we make a commitment to Melrose Avenue Bridge for the duration
of Its useful life. It is accurate to say that FHWA will not mandate that Melrose Avenue
Bridge be reconstructed at two lanes, three lanes, or four lanes. What they will mandate,
however, Is that we present them with a plan for adequately managing traffic In west Iowa
City before up to $850,000 In federal funds are spent on Melrose Avenue Bridge. They
feel the four lane reconstruction of Melrose Avenue and Melrose Avenue Bridge Is an
acceptable traffic management strategy for dealing with the capacity deficiency identified
In our street plan.
Summary. In summary, we believe Increasing the traffic carrying capacity of Melrose
Avenue Is consistent with the JCCOG Arterial Street Plan and with the growth plans for
west Iowa City contained In the Iowa City Comprehensive Plan. It Is also consistent with
the campus planning framework developed by the University and the traffic planning
conducted by University Hospital.
We feel we have acknowledged the adjacent residential area sensitivities by
recommending a four lane design Instead of five lanes as suggested by the University's
traffic consultant, by having all the street widening occur on University property, and by
Improving the sidewalk system along Melrose Avenue, We continue to believe the ability
of motorists to exit driveways and streets on the south side of Melrose Avenue will be
easier with the reconstruction to four lanes because of greater gaps In the traffic stream,
and that pedestrian crossings will not be unduly difficult. If future traffic volumes on
Melrose make these movements difficult, then we can Implement a traffic signal system
to create breaks In the traffic stream.
Unless the City Council Is prepared to change the present classification of Melrose
Avenue as a major traffic carrying thoroughfare, we believe a two or three lane
reconstruction of Melrose Avenue Is Insufficient for existing and future vehicle volumes.
This will cause cut-through traffic In the adjacent neighborhood, and increased congestion
on Benton Street. If Council wishes to change the present emphasis on Melrose Avenue
as a traffic thoroughfare, then staff should be directed as to what acceptable alternate
arterial routes should be evaluated. Council may also wish to address overall community
growth Issues, as continued development In the central business district and University
Hospital area will bring with It continued traffic growth.
Let us know If you require additional Information regarding this matter.
cc: Karin Franklin
Chuck Schmadeke
l/70
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- 3-
DO NOTHING
This option entails putting the bridge and street Into safe working order if Council decides
to defer the capital Improvement project for reconstruction,
Brldae
1. There Is little short term maintenance that can be done for the types of problems
this bridge has. Asphalt patching may make it ride smoother, but will not add
strength or slow deterioration. At its present rate of decay, holes through the deck
can be expected In a few years, In addltlon, the beams used on this bridge are
prone to fatigue cracking and are nearing the end of their design life. If one of the
beams were to crack, th~ bridge would need to be posted for lower weight limits
or closed Immediately.
2. Jeopardizes federal funding of up to $850,000.
3, Leaves bridge vulnerable to lane restriction due to vehicle breakdown.
4. Inadequate left turn lane storage for Stadium Park Road.
5. Would preserve an on-street parking In University Heights. This will have a
positive Impact on the University Heights commercial area, and a negative Impact
on arterial street function.
Street
I 1. If Improvements are deferred, the existing pavement will require mlillng and
I overlaying for an adequate street surface.
I
I 2. Because of the poor substructure of the pavement, continued high annual
,
, maintenance expense can be expected.
,
3. Continued drainage problems from lack of curb and Inadequate storm sewer,
4. Continued capacity constraint for existing traffic volumes.
5. Continued Inadequate pedestrian and bicycle facilities,
6. Inadequate capacity for future vehicle volumes.
7. Inadequate access to adjacent University of Iowa Hospital facilities.
The remaining alternatives outline the Impacts of two, three, four and five lane
reconstruction scenarios, Anyone of these will Improve the bridge structural deficiencies,
Improve street dralnage, and Improve the parallel pedestrian and bicycle facilities, so
these are not listed for each Individual alternative.
'170
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TWO LANE
This alternative would reconstruct the bridge and street at the existing two-lane width.
BrldQe
1. Creates situation of Inadequate bridge capacity for 70 year life of bridge. Will
create future bottleneck If connecting street segments are widened In the future.
2. Leaves bridge vulnerable to lane restriction due to vehicle breakdown.
3. Inadequate left turn lane storage for Stadium Park Road.
4. Would preserve adjacent on-street parking In University Heights. This will have
a positive Impact on the University Heights commercial area, and a negative
Impact on arterial street function.
'5. Does not allow bridge to remain open to two-way traffic during reconstruction.
Maintaining one lane Is questionable. (Note: Will be closed for approximately two
months regardless at alternative selected.)
Street
1. Continued capacity constraint for existing traffic volumes, Including left turn
storage.
2. Uncertainty regarding storm sewer location In case street Is widened In the future.
3. Inadequate street capacity for future vehicle volumes. This may eventually cause
traffic to cut through the adjacent neighborhood.
4. Will add traffic to already overburdened parallel arterial streets (Benton and
Highway 6).
5. Inadequate street for access to University of Iowa Hospital facilities.
6. Some Improvement In traffic capacity Is possible with pull-off bus stops, but this
will encroach Into front yards on the south side of Melrose Avenue,
7. Right-at-way uses (utilities) may prevent widening In the future.
Cost Estimate
2 lanes University Heights to Byington
. Bridge
. Street paving
$760,000
767.000
$1,527,000
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THREE LANE
This alternative would reconstruct the bridge and street with a center turn lane In addition
to the two existing through-lanes.
Brldae
1. Small Increase In capacity, but continues situation of Inadequate bridge capacity
for 70 year life of bridge. Will create future bottleneck If connecting street
segments are widened In the future.
2. Would provide left turn storage for Stadium Park Road,
3. May cause reduction of two parking spaces In University Heights commercial area.
4. Maintaining one- or two-way traffic during reconstruction is questionable. {Note:
Will be closed for approximately two months regardless of alternative selected.}
Street
1. Continued capacity constraint for existing traffic volumes. Continuous left turn lane
marginally Increases capacity for left turning movements.
~ 2. Potential head-on conflicts In shared lelltum lane from proliferation of side streets
!
, and driveways.
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I 3. Potential hazard to pedestrians because of two-way nature of center turn lane,
4. University may not dedicate needed right-of-way.
I 5. Right-of-way uses (utilities) may prevent widening In the futura. !
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6. Inadequate street capacity for future vehicle volumes. May eventually cause traffic I
I
,
to cut through the adjacent neighborhood. I
7. Will add traffic to already overburdened parallel arterial streets (Benton and ,
I
Highway 6),
I
8. Inadequate street for access to University of Iowa Hospital facilities.
9, Some Improvement In traffic capacity Is possible with pull-off bus stops, but this
will encroach Into front yards on the south side of Melrose Avenue.
10, Example of similar width street: Muscatlne Avenue In Towncresl.
Cost Estimate
3 lanes University Heights to S, Grand, 2 lanes S. Grand to Byington
. Bridge $851,600
. Street paving 794,000
$1,645,600
l/70
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FOUR LANE
This altematlve would reconstruct the bridge and street with four travel lanes.
BrldQe
1. Adequate capacity for existing and projected traffic volumes.
2. Will cause reduction of two parking spaces In University Heights commercial area,
3. Bridge will remain open to traffic during reconstruction. (Note: Will be closed for
approximately two months regardless of alternative selected.)
Street
1. Adequate capacity for existing and projected traffic volumes. Minimizes cut-
throughs In adjacent neighborhoods.
2. University will dedicate needed right-of.way.
3. Some capacity problems stili forecasted at Hawkins Drive and new parking ramp
entrance without fifth lane for left tums.
4. Accommodation of forecasted traffic volumes will be perceived negatively by
University Heights and persons living on Melrose Avenue.
5. Wider street and Increased traffic volumes may require an additional traffic signal
to accommodate pedestrian crossings and Intersecting vehicle movements. (May
also be required under other alternatives,)
6. Previous setback of utilities by University Intended to accommodate four or five
lane street.
7. Example of similar width street: Madison Street.
Cost Estimate
4 lanes University Heights to S. Grand, 3 lanes S. Grand to Byington
. Bridge
. Street paving
$925,000
850,000
$1,775,000
'f70
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FIVE LANE
This alternative would reconstruct the bridge and street with four travel lanes and either
a continuous center turn lane, or left turn lane separation at major Intersections.
Brldae
1. Adequate capacity for existing and projected traffic volumes.
2. Will cause reduction of two or more parking spaces In University Heights
commercial area.
3. Bridge will remain open to traffic during reconstruction. (Note: Will be closed for
approximately two months regardless of alternative selected.)
4. Lane transitions In University Heights will be difficult.
Street
1. Adequate capacity for existing and projected traffic volumes. Minimizes cut-
throughs in adjacent neighborhoods.
2. University will dedicate a portion of the needed rlght-of.way.
3. Will require moving south curb line and sidewalk further south. Will require 5.1/2
feet of additional rlght-of.way from property on south side.
4. Accommodation of forecast traffic volumes will be perceived negatively by
University Heights and persons living on Melrose Avenue,
5. Wider street and Increased traffic volumes may require an additional traffic signal
to accommodate pedestrian crossings and Intersecting vehicle movements. (May
also be required under other alternatives.)
6. Preferred alternative by University West Campus Traffic Study.
7. Previous setback of utilities by University Intended to accommodate four or five
lane street.
8. Example of similar width street: Burlington Street.
Cost Estimate
5 lanes University Heights to S, Grand, 3 lanes S. Grand to Byington
. Bridge
. Street paving
$1,025,800
903,000
$1,928,800
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'170
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City of Iowa City
M E M 0 RAN 0 U M
TO:
FROM:
DATE:
RE:
Steve Atkins
Chuck,Schmadeke
February 24, 1993
Water Resources Meeting - Lone Tree
Ed Brinton, Ed Moreno, and I attended a public meeting on
February 22, 1993 sponsored by the City of Lone Tree to discuss
the buried channel formation and its potential for providing a
source of water for Iowa City. Other agencies represented
included Johnson County, Iowa Rural Water Association, Iowa
Department of Natural Resources, Iowa Geological survey, and the
u.s. Geological Survey. About 100 people attended the meeting.
The agencies represented formed a panel and answered prepared
questions (attached) asked by the mayor, Timothy Wilkey, and a
Lone Tree citizen, Vida Wollrab. Very few comments were made or
questions asked by the audience. Discussions were very cordial.
Of all the agencies represented, the IDNR was most supportive of
Iowa city's desire to secure ground water, our concerns with the
Iowa River water and our right to tap into available ground water
sources.
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'171
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to: IOWA, CITY COUNCIL;'DNR, JOHNSON COUNTY SUPERVISORS:
In well head protection planning, who will set the rules? County Supervisors or Iowa
City? Is this not in County jurisdiction and does DNR have set spec~fications?
TO: IOWA CITY COUNCIL & DNR & GEOLOGICAL SURVEY:
How much research has been done to see if this, (our rural water source) can handle "
this proposed large number of gallons over a 30 to 40 year period? 1I0w do you predict
or project future usage and/or problems?
TO: IOWA CITY COUNCIL, DNR & JOIINSON COUNTY IIEALTII DEPT.:
What provisions have been made in the funding of this' project to make restitution
to the public if in fact this project would render the aquifer useless, eit~er with
contamination or from withdrawal constraints?
TO: IOWA CITY COUNCIL & DNR:
If Iowa City cannot find a suitable water source in the rural area, will they be
forced to river water only?
. How can we be rest assured that all options will be given equal consideration with.' .
as milch money that has been spent already?
TO:
IOWA CITY COUNCIL:
Why are you going out of your own limits to "pirate" water?
Have you spent as much "tax" money looking for water within your own city limits?
(deep wells, Iowa Ri~er)
Is it possible or feasible to create a prpperty tax to provide the,money Iowa City
needs? Perhaps spread over a 5 to 10 year period the tax would be more easily accepted
by Iowa CitY' residents. Because Iowa City has grown so much, thus increasing their
water use, they have also increased their tax base. Many people are building
$300,000 to $400,000 homes. Perhaps for good water they would not care if a small
tax increase occured?
The area North of Iowa City (Coralville, Oakdale, 'Interstate 80 and 380) seem to be the
areas that will be the prime area of development in the next 10 to 20 years. Why not
look for water within that area?
Has Iowa City established any water conservation programs?
Why can't Iowa City be more restrictive on lawn watering and also concentrate on water
saving devices (low flow shower heads, ect)?
, .
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Have the social, economic or legal costs been factored into the cost of the project?
ex:. displaced farmer, ,~ttorney fees?
Give a direct breakdown of all the costs: what percent for the facility, what percent in
main transmission, what percent in insurance, what percent in upkeep, what percent in
easement, what percent in condemnation. Please give a breakdown in each of the fifteen
and thirty million dollar totals.
Iowa City is going to have to buitd a new water treatment plant regardless of what
happens, why not build it at the Coralville Reservoir and use the water there?
~y'is the Iowa City Council not answering our questions? The questions now are
handled by II.R,' Green.
What are II.R. 6'reen's qualifications to perform this study?
Are you aware of the problems Winterset has had with their water because of II.R. Green?
Winterset has a manmade reservoir and II.R. Green said to drill wells and the wells would
meet their needs, which tUllled out not 'to be true. ' Now Wlnterset had to turn back to
their reservoir. ," \. ,
Would not II.R. Green push the plan that financially is most beneficial to them?
Is it 60t in II.R. Green's financial interest that they see the project succeed?
Given past history of airport and sewage treatment facilities, can their reports
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How much validity can the Iowa City Council place in II.R. Green's engineering studies for
, this,total project when they were proven wrong in the,initial water study Southwest of
lIills which did not meet the specifications as first represented?
What is the criteria that Iowa City must meet to reach the final outcome?
At what point would Iowa City make a decision as to whether water is or is not available?
What amount of GPM is the deciding factor? Or how much money can be spent?
Why haven't the citizens of Iowa City been better informed as to what is going on and how
much of their money has been spent so far? '
): IOWA DEPARTMENT OF NATURAL RESOURCES & EPA & JOIINSON COUNTY IIEALT" DEPT.
If Iowa City has to supply water to us, how can we be sure it will be as safe as what we
now have? lIealth considerations.
01.
): IOWA DNR, JOHNSON COUNTY IIEALTlI DEPT. & GEOLOGICAL SURVEY:
Is there much of a possibility of ground substance, when pumping these kind of volumes, from
this aquifer? Is there the possibility' of pulling contaminants into ground or ground
depression?
J: IOWA DNR AND EPA:
I understand that there is a rock ledge above the burie~ river channel, however at some
place there has to be an inlet to t'his buried channel. Ny question is if Iowa City does
begin to pull 10,000,000 gallons of water per day from this channel, won't this speed up the
filtration process at the inlet and therefore speed up the eventual contamination of this \
.
water source from ground water pollutants?
I understand that if by pumping out of this channel 10013 City dires up our (Lone Tree's)
water source they will be required to provide us with water. However, what will our
recourse be if by pumping from this channel they speed up the contamination process thereby
requiring us to perform further purification of the water, which we are not now set up to
do? Is there any way for us to prove 20 years down the road that it was over utilization
of the channel which sped up the contamination process?
'0: IOWA DEPARTMENT OF NATURAL RESOURCES:
What records are needed to establish degradation of as established water supply?
Are there water rights in Iowa?
If restricitons are placed on chemical and fertilizer use around the well sites, will our,
tocal farm supplier be put out of business if they are in that area?
What will be the size of the restircted area around each pumping well head?
What chemicals, organic materials or other products and materials will have restricted
usage around these wells? ,
Upon completion of the test or production wells and the resulting water lines, what will
be the environmental inpact on surrounding landscapes, terrains and populace?
Will the City of Iowa City have to conduct an environmental impact study on this project?
If not, why not?
What criteria do rural citizens have to find and explore their options and rights, not
only during the investigation period but further into the project. What jurisdicitons
could ~owa City impact on county residents?
What are the specific guidelines for developing a comprehensive water plan that would
request water of this amount?
Who is made accountable for error, omissions or problems that would develop not just
short term, but for long term also?
.
~IO will be the governing body over this aquifer if pumpage pro~~ems start ~eveloping?
For example, Lone Tree pumps 100,000 gallons a day and if their water quantIty starts
reducing, who backs off? If there is a question who has first rights? Lone Tree
because they were in the aquifer first or Iowa City because they are bigger?
\/hat are the proper steps for an individual to follow if they were to document their well
quantity and quality? What are the steps if there appears to be a well interference?
ti71
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TO: IOWA GEOLOGICAL SURVEY:
Isn't there a large "lake" located 1900 to 2000 feet under the City of Coralville?
If this aquifer is fed from Northwest of here towards Delle Plaine and that no runoff from
here goes into this aquifer, then why the restricitons here, when the potential and most
likely pollutant would be towards Delle Plainer
Do you have information concerning this area being studied that would indicate the
qualitj and quantity of water Iowa City is searching for?
Please help identify criteria used to find such resources as a buried river channel.
What role has Geological Survey played in this investigation and what future roll would
you have if Iowa City identifies quality and quantity they are looking for?
Are there any other resources available in Iowa City or the surrounding areas, other than
the buried river channel they are investigating fur this quantity of water?
Ilhat possible problems could the geological formation of this buried river channel
develop if pumped beyond capacity?
Is there any significant evidence of the size of the recharge area to capacitate this
extensive redrawal?
I
Is the volume of water present to meet Iowa City's needs?
If Iowa City got the wells (everything done as Iowa City wants) would there be any way
that we (I,one Tree and rural residnets) would get caught nn paying for this through
taxes as Juhnson County residents?
What other communities are involved besides Lo'ne Tree, Hills, Nichols, Riverside, Columbus
Junction and Sharon Center?
How can we legally protect ourselves, if in the worst scenario, they do start pumping
water out of Lone Tree besides recording our well level marks from day one?
Why do we have to prove our well is dry? When it's dry, it's dry.
Have you studied the Cedar River to see if they could use that water?
Why isn't the Iowa Geological Service doing a survey in this area?
'fO: JOHNSON COUNTY HEALTH DEPARTNENT:
What role does the Health Department play in rural wells and well head pro,tect ion?
Are there specific criteria a rural resident might use to determine current status of
individual wells to help determine well quantity loss or changes in quality of water?
Is there funding available for those at rish individuals during this project to help
develop the criteria?
What percent of risk is there during the exploration process to contaminating the
shallower aquifers or sandpoint wells in the area?
Will the Health Department help the rural residents monitor their wills duriVg the
exploration and if it is developed?
What can I do as an' individual to safeguard my water supply. from quant ity & qual ity loss?
'0: ENVIRONNENTAL PROTECTION AGENCY:
What role do you play in Iowa cities water investigation?
Are there specific guidelines that have to be followed by cities to help protect the rural
or small cooununities, from losing their resources to large cities?
'0: IOWA RURAL WATER ASSOCIATION:
What role will you play during this investigation process? 'How can you help the rural
citizens and the coaununities' \nvolved?
Will,You playa role in developing a well head protection program for the County?
Has this large scale of investigation been donci in Iowa before? Did Rural Water get
involved?
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1'0: JOliN SON COUNTY SUPERVISORS:
What are your roles in the investigation?
Do the Supervisors carry the power of developing the options on well head protection?
The proposed sites are in the County.
1I0w much impact would this have on school taxes as well as1land taxes if this project
was developed? Would Iowa City have to pay County taxes for this land? Wouid the
evaluation be different? Would the sites be more valuable once they were developed
with wells?
Have there been any negnt iat ions between the City and County for easement in the
right-of-ways? For wither seismic exploration, well sites or transmission lines?
Other than writing to the DNR, what other options have you explored since the
December 15, 1992 meeting?
Does the County have a comprrhrnsive water plan for Johnson County?
Has there been any work done on a well head protection plan for Johnson County?
ro: ALL AGENC I ES :
What does it take to stop this project?
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City of Iowa City
MEMORANDUM
Date: February 26, 1993
To: City Council
From: Ron Boose, Sr. Building Inspector
Re: Questions Raised at February 23 Maeting Concarning Plumbing Cods
Some questions were asked regarding license examination procedures and how they will be
affected by the consolidation of the Plumbing Board of Examiners with the Board of Appeals.
Iowa City currently uses Block & Associatss construction examination service to conduct,
proctor, and grade licensing examinations for both plumbers and electricians wishing to work
within the City. Both Boards have set the passing grade at 75%. The City's only involvement
is to secure the test site, check in and identify applicants, and approve applicants to take the
pertinent exams. licensing standards are set out in Section 8-175 of the plumbing ordinance
which specifies prerequisites for taking the exam. Staff will review applications and approve
or deny applicants. Applicants may then appeal the staff decision to the Board of Appeals.
Ample time has been allotted between the application deadline and the test date to
accommodate any appeals.
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City of Iowa City
MEMORANDUM
Date: February 18, 1993
To: Mayor and City Council
From: Marian K. Karr, City Clerk
While researching another matter, I came across the attached statement presented to the City
Council on May 1, 1978, by the Melrose Neighborhood Association.
I thought you might be Interested In their observations 15 years ago.
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STATEliENT TO THE CITY COIINr.1L W M!Y Lll~ ,~
1rWA CITY ABBIE STOLFUS
Prmnted on I I'ay 1978 CIlY Cl.ERX
by the' H&troae' Nabhborhobda Aeaoclatlon' ,
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tho Halroaa Nel~hbcrhooda Asaoclatlon prasanted tc the ~Ity
Council on Octobor 2, 1973, ccplaa nr which you a~aln hava
berore 10U. thla la a carerully raaaoned, detailed anal1ala
or tha trarrlc problam or tha Orand Avenua,oHalroea area and
ltl ralatlonahlp to loma aapecte or tha trartlc neede or tha
, Unlvarelt1 Hoapltale, to urban renewal, and to weltward axp&nalon
or 101Ia Clt1.
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a ChlcBRO trarrlc oonaultln. tlrm, have baen publlahod. the
rlndlnKI In thea. r.porta conrlrm, with additional d.ta, our
1913 anal,ala. Th.rator. It ra,alna our unahaka.bla oonvlctlon
that tha wldanlnK or Holroa. Avenu. and the conatructlon or a
new diagonal ar. unneoeaaarr, waateful and Imprudant.
, "
Since that tlm., the Johnaon Count1 H..lonal Plannln. Com.laalcn
Area 'Pftnecoptfttlon Study ReoortB Hos. 1,2, and " prepared b1
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1) !xoapt tor tho bottleneck .t the Hlvaralda--Burlln~ton
Brld~e intare.ctlon, Kalroaa Avanue haa alraady, aa tha two.lana
. roadwa1 It ncw II, tha capacity ot handlln, whatevar lncre.aaa
are pr.dlctad ror the naxt twanty yeara. Purtharmore, even Ir
K.lro.. w.r. wldenad to tan lane"and raallRned, tha rOIl bottla-
naok at thl rlvar orolaln. would atlll remain. (por an analy-
all or thll altuatlon ael Attachm.nt A) Hpwavor, to axpadlt.
tho rlow or trarrlo In the Orand Avenue-or-.lroao arao, wa sU.o
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~ested In our 1973 MEKORANOUM an slternatlve trattlo pattern
whloh would In etteot provide a non-dlaRonal tour-lane con.
neotlon.(See our 1973 MEMORANDUM, Appendix B, with map; here
e~arl!ed In Att~oh.ent B(a).)
1.) We do not want our hom.e and nel~hbordhoods destroyed. Ther.
are es,ers1 stetely old homes In the Melrose are, many ot them
reoent1y acquired, r.stored and preser'ed with lreat oore by
their owners. Not only Is the p~poiel tor t~e wldenl~ ot Mel-
rose a oonetant anxiety to these people, It would Immediately
and drastically lower property ,a1ues. The quality at lit a In
tha entlra area would dstarlorata In tha S..e measure. Also, as
we 1aomed In 1973 tre. a qusstlcnalre distributed ..on~ the
residents or Slater Na11, and trem a .satlft# with ths., these
students wera 'ery muoh opposed to an expressway beln~ built
so olosa to t~alr do~ltory. Nor I. thore any reason to be1le,e
that this sentiment has ohan~ed In tho meantlm..
3; We theretore urRe the city to oppose the construotlon ot
a $18 Intsrohangs at Mo~rose (Ses pp. 23-4 ot our 1973 MEMORANDUM.)
Also, consider In this connection that the eo-oal1ed bubble
around Unl,erslty HalRhte, made necessary by the position that
community hae taken on the wldenlnR leeue, would In,ol,e new
and expensl,a Interseotlons and elRna1 11Rhte where It 1ea,ee
Melrose and again where It rejoins east ot the railroad bridle.
These ara problems that would have to be worked out both with
Unl,erslty HelRhts and the Unlv.rslty ot Iowa, whose propsrty
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4i Th, flnanolal ~ur4an aooruln~ fron this proJ.ot was sstl-
10tsd at oroun~ 2 nllllon 197) dollars (Ss. our KEKORANQUH,pp.)-S.)
A mnrs r.nont .Itl.atc ot ths dls~onal alone Hal '6)0,000. Thl.
.pparently dld not Includ. tho cost ot propsrty aoqulsltlon (Ses
Area TrMlllOrt.tlon studY Reoor\ No. ), p.l0). Yet ths whols
btnstlt to the Iowa Clty taxpayer Hould ba thl laYln~ ot a t.H
.eo0n4s' tl.e ln reaohlng tho perslstln~ bottleneok at the Bur-
l1ngton Brldp;. lnterlaotlon.
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Sl POpulatlon trend I and tlm. lohsdule mult bs rssxsmln&d. The
aore exubsrant trend prsdlctlons ot ths late 1960's and earlr
'70'. now .est wlth lnorsasln~ sksptlcll.. OroHth ot tho popu_
lation ot Iowa Clty and ot the snroll..nt in ths Unlyer.lt1 ls
now thought to be appreolably mora modest than ono. predloted.
(S8e:A~8 'rsnBoortatlon Stu4v Reoo~t No. 1. P1~re S. p.1S.)
Slnce the COlprehensl'e Plan plaoes the Kelrose Project 1n ltl
Phols Three, 1.e., at least 12 yearl tro. now. 'as so.ethln~
whloh ",y bs lmple.ented wlthln the next twenty years,' He ur~e
that the ""lro.s ProJeot bs deleted.
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Att!oh.ents
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A. An.l~.1s or \hft Burlington arld~e bottleneok.
B. rh~'e prop,a'l. to oxpedlte trarrlo rlow durln~ peak houre
wlthout ths costly and dsstruotl,e Malrose ProJect, lncludln~
a summary or the altsmatl,s trarrlc pottarn proposed In
AJlIlSndlx B or our 1973 MEMORANDUM.
Blbl1olfl'Soh,
1. John.on County Re~lonal Plannln~ Commleslon Area Transoorta-
tlon Stud, Reoort~, Nos.l,2,).
2. Halro.. Hdllhbol'hoocls Aesoclotlon HEMORANDUM, 197).
). Sook.en,c., Data Analyels or the April, 1977 Unl,eralty or
Iowa Helrose A,enue Orl~ln-Dastlnatlon Sur,sy
(Instltute or Urban and Rsglonal Rssesroh,
Unl,srslty or Iowa, July, 1977.)
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At teemen t A
RIVSRSID~ DRIVS-BURLINOTon BRIDGE INTERSECTIon
;-.
Thore ere trnrflo el~w~owns et tho sxistln~ o.ntral ol~y brli~e'
Interseotions. (See Johnson Gounty Regional PlaMlng Co",,18lllon
Area Transoortatlon Studies.) Sino. our conoern io with
Melro.e Avenue and the flow of trftffio onto the BurllnRton
Street Bridgs, v. quota from 'Report no. 2(' p. 4-'1) :'T',e int.r-
.sotion of US 6/218 and Burl1n~ton Street, Brld~e 18 ~,ready a
hiShly developed intsreeotlon. The potential of subo~antlally
inorea.lng ths traffio oarryi~ oapaoity of this bettlonsok in
tho .treot and hi~ay notvork 10 probablY lov.'
.
Vs quote again from Roport no.2 (p.4-26): 'Th. fJur.lano vlden-
ing of Melrooe from Emorald.and its dlegonal oOlmeotlon to
the US 6/218 Burllnton Brld~o intereeotlon vou~.d pro'ido no
trafflo ser,ioo benoflt to theso bridge oros~lngs if no othsr
lajor oh~el In thl streot and hl~hwlY ns~vork vere mede to
ralllu theee feoUitles. Additional tre':no (IOOO,pd) vould bs
loaded onto the Burlington Str.et brld',e abovs the foreoasted
deflolenoy lo,ell ~lreadi7 idontlfled.'
On tho basil of thai 0 various Itudlol and tosts ono must oon-
oludo that only tho building of a nov rlvor oroosin~ would
justify the vldonlng and rlellgnmsnt or Mllross Avenue. Without
I nev rlvsr orololng, wldenln~ end rSlli~ln~ Melrose Avenue
. .....-10.
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would only woraon tho oltuatlon by In'ltln~ moro caro to
con'~rge at tho Burlington Bridge. Tho Holrooo A,onuINolghbor_
hood. A"oolatlon 10 tlrmly oPpoood to tho allooatlon ot
publlo fUndo tor tho building ot an unJuotltlably oxpenol,e
ftddltlon&l rlv.r oroldl~, al woll al to tho dovelopment and
bUilding ot a Vut Campua bypass.
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Attar.hmll!nt ~
THREE PROPOSALS TC EXPEDITE TRAFFIC FUlW DURING PEAK HOURS
r.on.ld.rln~ that
'even now, oon~e.tlon occur. ror a rolatlvely rew mlnutee
per day' (R.port No.), p.40)
and that, a. pointed out le.t we.k berore th. r.ounoll,
51.1. or peak hour trarrlo on Helroee Is alther work or
.chool r.lated and has both Its orl~ln and d.stlnatlon
on the west sid. or the Iowa River within a one-mile
radlu. (H.lroaa AvenurOrl~ln-Destlnatlon study, pp.I-2,6-7.)
We propose the rollowlng relatively minor and Inslpenslve measures:
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a. chan.e or trafrlO rlow combined with some minor altera-
tion., along Orand and Helrose Avenues, as proposed
In our 197) HEHORANDUH, namely:
I. widen corners or ByingtOn at Helrose and at Orand
2. make Orand Avenue ONE WAY WEST rrom Byln~ton Boad
). make Helrose ONE WAY EAST rrom S. Orand to Byington,
therebr providing In errect a non-dla~onal, rour-lane
COM.ctlon.
b. ~n".~~lotion ot bikeways on Woolf Avenue and Melrose
Avenue.
*6).7 per cent. or all trips on Helroee Avenue past
Woolr are work related.
*45.4 per o.nt. or all work trips ora Unlveralty re-
lated and have both origin and destination on the
we.t .Id. or th. Iowa River.
(sonksen, p.))
*Hany re.pondents Lio the .urvei7 stat,d that they
would pr.r.r to rid, their bloyoles to and rrom
work or clesses but due to haavy auto congestion
and unavellabllty or bike lanes on Woolr and Hel-
ro.e, they relt that blcyclln~ on thess straete
we. too dangerous.
(Sonks,n, .p.6)
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a. eeteb11.h..nt at ehutt1~ bu. line. trom peripheral
parkln~ late to the We.t Campue and other adjacent areae.
d. Iftarelee ot .arkln. teee In medical center rampe In
order to dleo'ura~. parklnR ot oar. there, laKerl~
ot parkln~ te.. at peripheral p.rkln~ lot. Kith
eh~ttle bite cnMectlon!.
47J
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I ,1LUTlON NO. 81-115
1:2~r</
RESOLUTION APPROVING THE RECOfIMENDATlON OF THE PLAN/liNG AND ZONING COMMISSION
THAT THE RECOMMENDATIONS OF THE flELROSE CORRIDOR COMMITTEE BE ACCEPTED.
WHEREAS, the fie 1 rose Corri dor Committee, d subcollllli ttee of the PI anni ng and
Zoning Commission, has made certain recommendations regarding traffic needs in
the Melrose Avenue Corridor; and
WfIEREAS, the Planning and Zoning Commission, at a regular meeting held April 16,
1981, recommended to dissolve said committee and by a unanimous vote to forward
the fo 11 owi ng recommendat ions of the fie 1 rose Corri dor Committee for approva 1.
The Committee finds, based, on information presented to us including traffic
Counts and films,'and our ensuing discussions, that there does not appear to
be an unacceptable traffic congestion in the Melrose Corridor at this time.
Therefore, the Committee makes the following recomm~ndations:
1. That the implementation of the Melrose traffic circle not be considered
as a future option to solve traffic problems in the area.
2. That the currently planned widening of South Byington/Grand Avenue inter-
section to two lanes would appear to be an adequate improvement to meet
the current traffic needs.
3. That further improvements need to be considered to accommodate pedestrian
traffic on Melrose Court and across Melrose Avenue at Melrose Court and
to specifically reconsider our previous recommendations concerning these
issues.
I
4, That if in the future increased traffic demands on the Melrose Corridor
would necessitate a major new traffic facility, then the Committee would
recommend that the Melrose 'diagonal without median should be included
among the options considered to remedy the traffic congestion. This
should be considered an acceptable option only at such time as there are
no longer private properties fronting on Grand Avenue Court.
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY OF IOWA CITY,
IOWA, that the recommendations regarding traffic needs in the Melrose Avenue
Corridor be approved.
It was moved by Perret and seconded by Vevera
resolution as readlb~aaoptea;-and upon roll call there were:
tha t the
AYES:
NAYS:
ABSENT:
x
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x
x
-,-
Balmer
--Erdahl
--LynCh
-------Neuhauser
-------P e r re t
Ab~l:ni;-Roberts
-Vevera
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City of Iowa City
MEMORANDUM
DATE: February 24, 1993
TO: Mayor and City Council
FROM: Marian K. Karr, City Clerk
RE: Meeting Change
The joint meeting of the City Council and Board of Supervisors have been changed to Monday,
April 19. The starting time and location remain the same, 4:00 at the County Administration
Building. Please forward agenda items to me.
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City of Iowa City
MEMORANDUM
DATE: February 18, 1992
TO: Department Directors
FROM: Marian K. Karr, City Clerk
In light of recent discussions regarding new legislation being corporated into the code update,
I feel further explanation is in order.
The Contract we have with Sterling Codifiers is for reformatting of the present Code as well as
inclusion of all new ordinances and supplements in the future. Any proposed legislation must
be discussed with the City Attorney's office. The Codifier upon request of our City Attorney
may undertake to write specific language to meet your needs.
Please feel free to contact the City Attorney or myself with any further questions you may have
on this procedure.
I
cc: City Attorney
City Manager
City Councjl
Sterling Codifiers
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City of Iowa City
,MEMORANDUM
Date:
February 17, 1993
~~~
To:
Stephen Atkins, City Manager
Don Yucuis, Finance Director C(J\X'
Joe Fowler, Parking Systems SupJrintendentJl:
From:
Re:
Fiscal Year to Date Parking Usage through January 1993
Attached you will find the information requested regarding Parking System usage and revenue
through January 1993.
Year to date operating revenue (total revenue less sale of land/transfer in) for the seven months
ending 1/31/93 is $1,705,242 or 61.4% of the FY93 budget of $2,582,889.
Capitol Street revenue (xacc 4536) @ 1/31/93 is $577.865 or 54.7% of the FY93 budget of
$1,056,000. Capitol Street ramp revenue is projected to be approximately $44,000 under budget
by fiscal year end. .
The projected deficit in Capitol Street ramp revenue is offset by projected surpluses (actual over
budget! totaling approximately $146,000 and comprised of finss + $38,200; meter revenue
+$59,500; Dubuque Street ramp + $31.000; permits + $13,300;' and meter hoods + $4,000.
Although total projected rsvenues appear to be over budget, this does not address the issue of
whether or not the Capitol Street parking ramp policy should be continued.
January's ice storms had a negative impact on parking revenues. All areas were lower than last year
with the exception of the Dubuque Street ramp. Ice coated the meters for a two week period and
parkers were unable to pay the meters. Enforcement was confined to prohibited zones.
Year to date hours of paid parking are 2,216,669. This is 54,009 hours less than last year's YTD.
The following is a summary by area:
Caoitol Street Ramo
Hourly parking decreased by 17,533 compared to January 1992. Of this decrease, 1,524 were Park
& Shop hours. .
Parking tickets issued as a result of the lower level restriction continue at the same rate as pravious
months, about 30 par month,
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Dubuaue Street RamD
Hourly parking in the ramp continues to increase. January showed an increase af 9.817 hours over
January 1991. Year to date we have had an hourly increase of approximately 19%. Holiday Inn and
permit parking remains at Ihs 1991 level.
The increase in hourly parking has required an additional cashier between the hours of 4:00 and 6:00
p.m. on Fridays.
Street Meters
CBD meter usage decreased during January. Usage was done 16.691 hours. This is the third
consecutive month of dacreased usage of on-street meters. Weather was the major factor in this
decrease. Several ice storms decreased traffic. In addition. the meters were frozen over and parkers
were not able to pay them. There was a two week period whsn ths meters could not be paid.
collected or repaired. The decrease in paid hours was uniform throughout the system.
Off-Street Meters
Off-street meters decreased by 13.916 hours during the month of January. This decrease is
attributed to the removal of the Chauncey S~an Lot and the ice storms.
In July of this year the City of Iowa City increased on and off street parking rates in the C8D. In
August we imposed a lower level parking restriction in the Capitol Street Parking Ramp. The
following Is a comparison of ramp usage from July to November for 1991 and 1992. Hours to not
include 575 permit parkers or Holiday Inn usage.
HOURS OF PARKING. CAPITOL STREET RAMP
1i91
I JULY AUG. SEPT. OCT. NOV. DEC. JAN.
HOURLY 136,064 116.981 164,447 190.341 160.074 177.342 134.337
P&S 35.577 37.066 42.838 33.733 39.148 54.637 32.929
TOTALS 171.641 154.047 207.285 224.074 199.222 231.979 167.266
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JULY AUG. SEPT: OCT. NOV. DEC. JAN.
HOURLY 122.172 117.608 150.683 162.502 155.704 160.178 118.328
P&S 32.643 35,028 32.783 33.928 36.673 56.879 31.405
TOTALS 154.815 152.636 183,466 196,430 192.377 221.726 149.733
+1. (16.826) (1,411) (23.819) (27.644) (6.845) (10.253) (17.5331
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HOURS OF PARKING - DUBUQUE STREET RAMP
1m
JULY AUG. SEPT. OCT. NOV. DEC. JAN.
HOURLY 43,764 42,339 50,732 66,601 56,585 57,487 49,779
P&S 1,562 1,522 2,509 2,518 2,099 4,887 1,948
TOTALS 45,326 43,861 53,241 69,119 58,684 62,374 51,727
.1m
JULY AUG. SEPT. OCT. NOV. DEC. JAN.
HOURLY 49,649 54,727 68,660 78,359 59,349 67,424 59,134
P&S 2,530 2,623 2,097 2,040 2,042 4,669 2,410
TOTALS 52,179 57,350 70,757 80,399 61,391 72,093 61,544
+/- 6,853 13.489 17,516 11,280 2,707 9,719 9,817
TOTAL HOURS OF RAMP PARKING
JULY AUG. SEPT. OCT. NOV. DEC. JAN.
1991 216,967 197,908 260,526 293,193 257,906 294,353 218,993
1992 206,994 209,986 254,223 276,829 253,768 293,819 211,277
+/- (9,973) 12,078 (6,303) (16,364) (4,138) (534) (7,716)
The following is a comparison of on,street metered parking. The areas are defined as follows: Area
I I . Jefferson Street north, Gilbert Street east and College Street north, Area II . College Street south,
Gilbert street east, Burlington Street south, Area IV . CBO bounded by Jefferson, Gilbert and
Burlington Streets. Only Area IV was effected by the rate increase in July.
HOURS OF PARKING. STREET METERS
00
JULY AUG. SEPT. OCT. NOV. DEC. JAN.
AREA I 30.037 24,637 28,230 37,338 26,876 25,715 24,390 ,
I
AREA II 12,907 16,018 14,547 16,963 17,093 13,710 13,710 I
,
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AREA IV 53,134 51,976 51,138 58,403 74,986 69,388 58,710 I
TOTAL 96,078 92,631 93,915 112,704, 118,955 108,813 96,810 ,
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1992/1993
JULY AUG. SEPT. OCT. NOV. DEC. JAN.
AREA I 24,052 24.476 33,501 33,780 27,017 26,894 21,987
AREA II 18,342 14,603 17,634 22.499 17,005 17,986 10,923
AREA IV 65,133 51.439 57,823 67,327 50.032 55,933 47,209
TOTAL 107,527 90,518 108,958 123,606 94,054 100,813 80,119
+/- 11,449 (2,113) 15,Q43 10,902 (24,901) (8,000) (16,691)
Off street meters include meters located in the Burlington and Markst Street lots, the Schuman Lot,
100 E. Market, Recreation Center Lot and Old Library Lot. July, August and September include the
Chauncey Swan Lot. Old Library and Burlington Street rates increased in July.
HOURS OF PARKING - OFF STREET LOTS
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JULY AUG. SEPT. OCT. NOV. DEC. JAN.
HOURS 26,019 31,640 29,931 34,150 28,915 25,697 33,843
1m
JULY AUG. SEPT. OCT. NOV. DEC. JAN.
HOURS 41,121 29,576 36,088 32,618 19.438 24,679 19,927
15,102 (2,064) 6,157 (1,532) (9.477) (1,018) (13,916)
COMBINED HOURS OF METERED PARKING
I JULY AUG. SEPT. OCT. NOV. DEC. JAN.
1991 122,097 124,271 123,846 146,854 147,870 134,510 130,653
1992 148,648 120,094 145,046 156,224 113.492 125.492 100.046
+/- 26,551 (4,177) 21,200 9,370 (34,378) (9,018) (30,607)
TOTAL HOURS OF PAID PARKING ,
JULY AUG. SEPT. OCT. NOV. DEC. JAN. I
I
1991 339,064 322,179 384,372 440,047 405,776 428,863 349,646 I
I
1992 355,642 330,080 399,269 433,053 367,260 419,311 311,323 i
+/- 16,578 7,901 14,897 (6,994) (38,516) (9,552) (38,323)
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City of Iowa City
MEMORANDUM
Date:
February 25, 1993
To:
City Council and City Manager
. Donald Yucuis. Finance Director ~t
Comprehensive Annual Financial Report
From:
Re:
The Comprehensive Annual Financial Report of the City of Iowa City, Iowa (the City) for the
fiscal ye,ar ended June 30, 1992, is submitted herewith in accordance with the provisions of
Chapter 11 of the Code of Iowa.
This report was prepared by the City's Finance Department, and was dirsctly supervised by
Craig Standish. City Controller. Responsibility for both the accuracy of the presented data and
the completeness and fairness of the presentation. including all disclosures, rests with the
City. I believe the data, as presented, is accurate in all material aspects. is presented in a
manner designed to fairly set forth the financial position and results of operations of the City,
as measured by the financial activities of its various funds and that all disclosures necessary
to enable the reader to gain the maximum understanding of the City's financial activity have
been included.
I
This report is organized into four sections: introductory, financial, statistical, and compliance.
I have included the Management Letter, from Ernst & Young, at the end of the document,
The Management Letter includes matters that in Ernst & Young's opinion merit the Council's
consideration. The introductory section contains the table of contents, the listing of City
officials, an organizational chart. and the letter of transmittal. The financial section co~teins
the report of the independent auditors, the general purpose financial statements, the notes
to the financial statements, and combining and individual fund financial statements. The
statistical section contains comprehensive statistical data which is intended to provide a
broader and more complete understanding of the financial and economic trends of the City.
The City is required to undergo an annual single audit in conformity with the provisions of the
Single Audit Act of 1984 and U.S. Office of Management and Budget Circular A- 1 28, ~
of State and Local Governments. Information related to this single audit, including the
schedules of federal and state financial assistance programs, findings and questioned costs,
and auditors' reports on the internal accounting and administrative controls and compliance
with applicable laws and regulations, are included in the compliance section of this report.
The State Code requires an annual audit of the financial condition and financial transactions
of the City. This requirement has been complied with and the auditors' opinion is included
in this report. It must be emphasized that this opinion includes all fund types and account
groups of the City of Iowa City, Iowa, and the results of all the fund types operations and
q71
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cash flows of its proprietary fund types and non-expendable trust funds for the year ended
June 30, 1992. In the opinion of our auditors, the financial statements are prssented fairly
and are in conformity with generally accepted accounting principles.
The Govarnment Finance Offic~rs Association of the United States and Canada (GFOA)
awarded a Cartificate of Achievement for Excellence in Financial Reporting to the City of Iowa
City, Iowa, for its comprehensive annual financial report for the fiscal year ended June 30,
1991. The Certificate of Achievement is the highest form of recognition for excellence in
state and local financial reporting.
In order to be awarded a Certificate of Achievement for Excellence in Financial Reporting, a
governmental unit must publish an easily readable and efficiently organized comprehensive
annual financial report, whose contents conform to program standards. Such comprehensive
annual financial report must satisfy both generally accepted accounting principles and
applicable legal requirements,
A Certificate of Achievement is valid for a period of one year only. The City of Iowa City has
received a Certificate of Achievement for the last seven consecutive years, 1984-1991. I
believe, our current report continues to conform to the Certificate of Achievement Program
requirements and have submitted it to GFOA to determine its eligibility for another certificate.
The preparation of this report could not have been accomplished without the efficient and
dedicated services of the entire staff of the Finance Department. I would like to express my
appreciation to all members of the department who assisted and contributed to its preparation,
especially Craig Standish, City Controller, who supervised and controlled the entire audit. I
want to especially recognize the extraordinary contributions of Senior Accountants Ann
Maurer and Regina Schreiber. These people assist in preparing the report and work closely
with the independent auditors to achieve the required disclosures and format. In addition, I
would like to Commend Peter Grose, former Senior Accountant. Treasury, for his work with
cash, investments and interest income. The final document's professional quality is
ettributable to the fine efforts of the Document Services Division, in particular Neana Saylor,
and also the Central Procurement and Services print shop.
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I would also like to thank the Mayor, the members of the City Council and the City Manager
for their interest and support in planning and conducting the financial operations of the City
in a responsible and progressive manner.
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CITY OF IOWA CITY, IOWA
COMPREHENSIVE ANNUAL
FINANCIAL REPORT
For the Fiscal Year Ended June 30) 1992
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COMPREHENSIVE ANNUAL
FINANCIAL REPORT
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CITY OF IOllA CITY, IOllA
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Table of Contents
June 30, 1992
INTRODUCTORY SECTION
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Table of contents . . . .
Listing of City officials
Organization chsrt . . .
Letter of transmittal . . . . . . . . . . . . . . . . .
Government Finance Officers Association Certificate of
Achievement for Excellence in Financial Reporting
FINANCIAL SECTION
Report of independent auditors . . . . . . . . .
. . . . . .
. . . . .
GENERAL PURPOSE FINANCIAL STATEMENTS
Combined balance sheet, all fund types and account groups
Combined statement of revenue, expenditures and changes in
fund balances, all governmental fund types and expendable
Combined statement of revenue, expenditures and operating
tranafers, non.GAAP basis . budget and actual, all
budgeted funds . . . . . . . . . . . . . . . . . . . . . . . . . . .
Combined statement of revenue, expenses and chenges in
retained earnings/fund balances, all proprietary fund
types and similar. trust fund . . . . . . . . . . . . .
Combined statement of cash flows, all proprietary fund
types ........................
Notes to financial statements' ...........
COMBINING AND INDIVIDUAL FUND STATEMENTS AND OTHER SUPPLEMENTAL INFORMATION
Special Revenue Funds
Combining balance sheet .,..............
Combining statement of revenue, expenditures and changes
in fund balances . . . . . . . . . , . . . . . . . . .
Capital Projects Funds
Combining balance sheet . . . . . , . . . . . . .
Combining statement of revenue, expenditures and changes
in fund balances . . , . . . . . . . . . . . . . . . .
Enterprise Funds
Combining balance sheet ..,...........
Combining statement of revenue, expenses and changes
in retained earnings . . . . . . . . . . . . . . .
Combining statement of cash flows
Internal Service Funds
Combining balance sheet ,............
Combining statement of revenue, expenses and changes
in retained earnings . , . . . .
Combining statement of cash flows .........
Trust and Agency Funds
Combining balance sheet ..............
Combining statement of revenue, expenses and changes
in fund balances, all pension trust funds .....
Combining balance sheet, all expendable trust funds ..
Combining statement of revenue, expenditures and changes
in fund balances, all expendable trust funds . . . . .
Combining statement of changes in assets and liabilities,
all agency funds . . . . . . . . . . . . . . . , . . . .
Other supplemental information
Summary of bonded indebtedness I ,debt service requirements
to maturity (including interest) . , . , . . . . . . , . . . . ,
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3
4
5
13
15
16
22
24
30
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CITY OF IOWA CITY, IOWA
Table of Contents
June 30, 1992
STATISTICAL SECTION (Unaudited)
General governmental expenditures by function and transfers
to other funds ....................
General governmental revenues by source and transfers from
other funds ...................
Property tax budgets and collections . . . . . . . ,
Property tax rates & tax dollars budgeted . . . . . .
Property tax, road use tax & hotel/motel tax revenue .
Assessed end estimated actual value of taxable property
and exempt property . . . . . . . . . . . . . . . . . . .
Property tax rates, all direct and overlapping governments
Principal taxpayers and employers . . . . . . . . . . . . .
Special assessment collections . . . . . . . . . . . . . . .
Ratio of net general obligation bonded debt to assessed value
and net bonded debt per capita . . . . . . . . . . . . . .
Ratio of annual debt service expenditures for general bonded
debt to total general governmental expenditures ,....
Computation of direct and overlapping debt . . . . . . . . .
Schedule of revenue bond coverage . . . . . . . . .
Demographic statistics . . . . . . . . . . . . . .
Property value, building permits and bank deposits
Miscellaneous statistical data . . . . . . . . . . .
Parking rates . . . . . . . . . . . . . . . . . . . .
Schedule of liability and property insurance in force
COMPLIANCE SECTION
Report of independent auditors on the schedule of federal
financial assistance programs ............
Schedule of federal financial assistance programs . . . .
Notes to schedule of federal financial assistance
programs " . . . . . . . . . . . . . . . . . . . . . . . . . . .
Report of independent auditors on the internal control structure in
accordance with Government Auditing Standards ...........
Report of independent auditors on compliance with laws and regulations
in accordance with Government Auditing Standards .........
Report of independent auditors on compliance with the specific
'requirements applicable to major federal financial assistance
programs ....,...................
Report of independent auditors on compliance with the general
requirements applicable to major federal financial assistance
programs ..........................
Report of independent auditors on compliance with specific
requirements applicable to nonmajor federal financial assistance
program transactions .....................
Report of independent auditors on the internal control structure
used in administering federal financial assistance programs .
Schedule of findings and questioned costs ...........
.2.
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CITY OF IOIlA CITY, IOIlA
LISTING OF CITY OFFICIALS
June 30, 1992
ELECTED OFFICIALS
Mayor . . . . .
Council-member
Council-member
Council-member
Council-member
Council-member
Council-member
APPOINTED OFFICIALS
City Manager
City CIerI( .
City Attorney
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DEPARTMENT DIRECTORS
Director of Housing and Inspection Services
Library Director . . . . .- . . . . . . . .
Director of Planning & Program Development
Assistant City Manager .
Transit Manager . . . . .
Senior Center Coordinator
Airport Manager . . .. .
Fire Chief . . . . . . .
Director'of Public Works . .
Parks and Recreation Director
Chief of Police . . . . . . .
Director of Finance . . . . .
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Darrel G. Courtney
William J. Ambrisco
. Susan Horowitz
. Karen Kubby
Randy Larson
A. John McDonald
Naomi Novick
. Stephen J. Atkins
'. . . Marian K. Karr
Linda Newman Gentry
Douglas W. Boothroy
Lauretta P. Eggers
. . Karin Franklin
. Dale E. Helling
. John A. Lundell
. Bette F. Meisel
. Ronald J. O'Neil
. . . James Pumfrey
Charles J. Schmadeke
Terry G. Trueblood
. . R.J. Winkelhake
. Donald J. Yucuis
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October 28, 1992
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CITY OF IOWA CITY
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To the Citizens, Honorable Mayor, Members
of the City Council and City Manager
City of Iowa City, Iowa
The Comprehensive Annual Financial Report of the City of Iowa City, Iowa ("the City")
for the fiscal year ended June 30, 1992, is submitted herewith in accordance with the
provisions of Chapter 11 of the Code of Iowa. This report was prepared by the City's
Finance Department. Responsibility for both the accuracy of the data presented and the
completeness and fairness of the presentation, including all disclosures, rests with
the City. We believe the data, as presented, is accurate in all material aspects, is
presented in a manner designed to fairly set forth the financial position and results
of operations of the City, as measured by the financial activities of its varioua funds
and that all disclosures necessary to enable the reader to gain the maximum
understanding of the City's financial activity have been included. ,
This report is organized into four sections: introductory, financial, statistical and
compliance. The introductory section contains the table of contents, listing of City
officials, an organizational chart, and this letter of transmittal. The financial
section contains the report of the independent auditors, the general purpose financial
statements, the notes to the financial statements, and the combining and individual
fund financial statements, The statistical section contains comprehensive statistical
data which is intended to provide a broader and more complete understanding of the
financial and economic trends of the City. The City is required to undergo an annual
single audit in confomity with the provisions of the Single Audit Act of 1984 and U,S,
Office of Management and Budget Circular A-128, Audits o[State end Local Governments.
Infomation related to this single audit, including the schedules of federal financial
assistance programs, findings and questioned costs I and auditors' reports on the
internal accounting and administrative controls and compliance with applicable laws and
regulations, are included in the compliance section of this report.
Chapter 11 of the Code of Iowa requires an annual audit of the financial condition and
transactions of the City. This requirement has been complied with and the auditors'
opinion is included in this report, It must be emphasized that this opinion includes
all fund types and account groups of the City and the results of all the fund types
operations and cash flows of its proprietary fund types for the year ended June 30,
1992. In the opinion of our auditors, the financial statements are presented fairly
and are in confomity with generally accepted accounting principles.
The ReoortinE Entitv and Its Services
The financial statements and schedules include the financial activities resulting from
the provision of services through the City's thirteen besic departments which are under
the control of the City Council:
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Administration
Airport
City Clerk
Finance
Fire
Housing & Inspection
Services
Library
Mass Transportation
Parks & Recreation
Planning & Community
Development
Police
Public Works
Senior Center
The Airport is administered by a Commission, the Library by a Board of Trustees, the
City Clerk and City Attorney administer their respective functions and the City Manager
administers all the other departments.
h.
Ii 410 EAST WASIIINOTON STREET. IOWA CITY, IOWA 512400106 '1119, JH.SOOO. FAX (JI') )".s009
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The Iowa City Library Foundation, Mayor's Youth Employment Program and Project Green
each act under the direction of an autonomous board, and do not otherwise meet the
component unit criteria described in the Notes to Flnanc1al Statements. The City does,
however, act as financial custodian for the funds of these entities and, therefore,
includes them in its general purpose financial statements.
This report does not include financial statements of the Iowa City Community School
District or the Iowa City Conference Board which governs the City Assessor's Office,
as they are administered by independent/autonomous boards and are not legally a part
of the City or subject to control by the City Council.
Economic Condition & Outlook
The City's economic strength is based upon education, medical services and diversified
manufacturing. The University of Iowa is the largest employer with over 20,000
employees and the University of Iowa Hospitals and Clinics is the largest University.
owned teaching medical center in the United States. In addition to the University, the
City has a significant number of private employers which have a history of providing
stable and increasing employment in the community,
The stabUity of the University of Iowa, the leading employer in the community, coupled
with our sound base of industrial and commerc1al interests, will continue to help
shield the City from the negative economic impacts of inflation and unemployment as
well as the weak agricultural economy.
We continue to see sustained production in our maj or local industries. Continued
economic development efforts involving the Iowa City/Coralville Chamber of Commerce,
local private interests, the University of Iowa, and other surrounding communities
through participation as a member of the Iowa City Area Development Group, is showing
positive results.
The corridor between the City and Cedar Rapids has been identified as one of two major
growth areas for new business development in the State of Iowa. Recent new
developments in that area have shown a favorable impact upon the City's economy.
Although there are budget challenges facing the University of Iowa, the City's economy
as a whole continues to grow. Other major employers have maintained their workforce
size. For the first ten months of 1992, the ,unemployment rate for Johnson County
continued to remain low at between 1. 6% and 2.3%. This is the same as the 1991 figures
for the same period. \/hUe assessed property valuations have declined and/or
stabilized in most Iowa cities in recent years, the City has consistently experienced
modest increases in valuations. New housing continues to be relatively strong,with 116
new single-family houses added to the tax rolls for the fiscal year ended June 30,
1991, and 187 added in the fiscal year ended June 30, 1992. The total assessed value
added waa over $29,000,000 or approximately 1.9% growth annuallr. This, along with the
low unemployment rate, continues to be indicative of the City s economic well-being.
The Federal government's stated philosophy of turning responsibility for local affairs
back to local government has manifested itself to a much greater extent in the area of
local financial responsibility than has been true in the area of local control or
regulation. The same trend can be seen at the state level. \/hile funding assistance
continues to decline, we continue to face new Federal and State mandates for additional
services, increased perfermance standards, and stricter regulation ef lecal gevernment
programs and services.
Recegnizing the City's growing dependence upen property tax ravenues and the need to
compensate for lost and reduced Federal and State assistance previded the impetus for
the restructuring ef the City's annual financ1al planning precess. The City has
recently completed its third year of preparing a three year Financial Plan.
Integrating operating and capital improvement budgets and financial projections along
with planned debt structuring for a three year period, has given City officials the
opportunity to strategically establish property tax rates and debt financ1ng schedules.
A major element of the three year Financial Plan was the objective to increase and
strengthen the City's cash reserve position, In addition, procedures were adopted to
allocate unreserved fund balances between a contingency and an undesignated fund
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balance. The contingency is available during the fiscal year for unanticipated and
unbudgeted expenditures while the undesignated fund balance is intended to be
maintained as working capital. The City is committed to drawing from the undesignated
fund balanca only in emergency situations. This unreserved fund balance allocation
along with specific budgeting techniques has allowed the City to increase fund balances
over the past three years. During this period the City's operating revenues have
exceeded expenditures, a positive indicator of the City's ability to live within its
means.
--,
An encouraging trend for the City is our continuing cooperative efforts with other
local governments. Joint funding, purchasing, planning and other efforts allow us to
meet mandates for new and improved services in the future at the most reasonable cost.
Joint cooperation continues for regional transportation planning, human services, solid
waste management planning, a hazardous materials response program, an enhanced 911
emergency communications system, community relations and education on drug and alcohol
abuse, joint operation of an animal control facility, joint operation of an indoor
swimming pool facility, joint economic development efforts. While such cooperative
efforts are not new in concept, we do expect to enter into more such agreements with
neighboring governmental subdivisions as well as with the University of Iowa.
There are many signs that our City remains healthy and vibrant with great promise for
the future. A new technology/research facility has opened; a new eye clinic at
University of Iowa Hospitals is under construction. While the University of Iowa
student enrollment has begun to decline slightly, plans for future expansion in medical
research and other services bode well for the City's future. lie continue to see
sustained production in our major local industries. Industrial and commercial interest
in the community have continued to thrive.
lie will be challenged during the next couple of years to maintain the vitality of our
City through greater economic development efforts, fiscal restraint in local
government, and a renewed spirit of cooperation among local government officials. ,lie
are confident that the City is positioning itself to better meet the needs of the
community in the future through more effective long-term financial planning as well as
increasing the financial strength and stability of the City. The City Council and its
staff are committed to managing the City's destiny well into the future.
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Kaior Initiatives
The three-year operating budget facilitated phasing in changes to operations required
by State and Federal mandates. During the/ear ended June 30, 1991, the Stato of Iowa
enacted new legislation on the disposal 0 solid waste. The City began incremental
rate increases for both refuse collection and landfill fees. Recycling efforts were
instituted to comply with the mandate of reducing the amount of solid waste being
disposed of at the landfill.
During the year ended June 30, 1992, a new landfill cell was constructed to meet the
future disposal needs of Johnson County and the surrounding area. Due to new Federal
and State mandates, the $1,000;000 cost of this new cell quadrupled from the original
estimates.
The recent expansion and renovation of the Civic Center, the main City administrative
offices, resulted in consolidating three major departments, Public 1I0rks Administra-
tion/Engineering, Planning and Community Development and Cable Television, that were
formerly renting space, into one central location. The renovation also included new
office space for the City Clerk, Human Relations/Personnel, Accounting, Data
Processing, Central Services, Purchasing and the Police and Fire Departments.
The Iowa City Housing Authority provides rental assistance to 748 units with an annual
contribution contract with the Federal government of $2.6 million. Community
Development Block Grant monies were utilized for rehabilitation and renovation of both
owner-occupied homes and rental units.
Financial Information
In developing and evaluating the City's accounting system, consideration is given to
the adequacy of internal accounting controls. Internal accounting controls are
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designed to provide reasonable, but not absolute, assurance that assets are safeguarded
against loss from unauthorized use or disposition, transactions are executed in
accordance with management's authorization and recorded properly to permit the
preparation of the general purpose financial statements in accordance with generally
accepted accounting principles, The concept of reasonable assurance recognizes both
that the cost of a control should not exceed the benefits likely to be derived; and
also that the evaluation of costs and benefits requires estimates and judgments by
managemen t .
All internal control evaluations occur within the above framework. We believe that the
City's internal accounting controls adequately safeguard assets and provide reasonable
assurance of proper recordi~g of financial transactions.
The City maintains its day-to-day accounting records on the modified cash basis.
However, this report is prepared on a modified accrual basis for the governmental,
expendable trust and agency operations and on the full accrual basis for the City's
enterprise, internal service and pension trust activities.
5in2le Audit: As a recipient of federal financial assistance, the City is responsible
for ensuring that adequate internal controls are in place to ensure compliance with
applicable laws and regulations related to those programs. These internal accounting
and administrative controls are subject to periodic evaluation by the City's
management.
The results of the City's Single Audit for the fiscal year ended June 30, 1992,
provided no instances of material weaknesses in the internal controls or significant
violations of applicable laws and regulations based upon the audit of the general
purpose financial statements.
~: The City adopts a three-year budget which includes both operations and capital
,improvements. The State requires at least a one year operating budget. While legal
spending control is exercised at the program level, management control is exercised on
a major objective of expenditure basis at budget decision unit levels within funds.
Encumbrance accounting is utilized in all funds for budgetary control. Encumbrances
outstanding at year-end for the governmental fund types are reflected as reservations
of the fund balances. Appropriations which are not encumbered lapse at the end of the
year.
Retirement Plans: With the exception of police and fire employees, substantially all
permanent City employees are covered by the Iowa Public Employees Retirement System
("IPERS"). The state annually sets the contribution rate for all municipal entities
and covered employees. All covered employees are required to contribute 3.7% of a
maximum salary of $34,000, while employers contribute 5.75%. There is no allocation
of unfunded liability to any municipal entity and, upon the retirement of employees,
the IPERS has the sole responsibility for their benefits. The City has no responsibil-
ity to pay employee pension benefits of the IPERS system besides the required
contribution.
Up until December 31, 1991, the City acted in a custodial capacity for the police and
fire pension and retirement systems established for the City's police and fire
employees. As of January 1, 1992, the responsibility for these systems was transferred
to the newly created statewide system, Municipal Police and Fire Retirement System of
Iowa. Tho statewide system is a cost-sharing multiple-employer public employee
retirement system, An actuarially determined contribution to the statewide system as
of January 1, 1992 was determined for each participation city. The state annually sets
the contribution rate for all municipal entities and employees.
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Comparative information concerning the contributions made to the pension and retirement
systems for the year ended June 30, 1992, is as follows: '
Fire Police IPERS
Employees' contributions $ 86,155 $ 103,932 $ 372 ,443
Employer's contributions 351,967 348,698 578,797
Covered payroll 1,476,312 1,784,693 10,066,032
Number of employees 51 55 434
Contributions as a percentage
of active member payroll: 23.84%
Ci~ 19.54% 5.75%
Emp oyees 5.84 5.82 3.70
General Governmental Financial Analysis: Revenue and transfers from other funds for
general governmental functions (General Fund, Special Revenue Funds, and Debt Service
Fund) totaled $33,955,515 for the year ended June 30, 1992, an increase of 16.7% over
1991. Property taxes accounted for $15,803,215, 46.6% of the total'. The 4.7% increase
in property taxes was added primarily to the General Fund to meet inflationary costs.
Intergovernmental and miscellaneous revenues increased by 92.9% and 52.5%, or
$4,250,107 and $687,168, respectively, due to the inclusion of the Housing Authority
Fund as a special revenue fund in 1992 (in 1991, the Fund was included as an enterprise
fund), and the reclassification of certain activities from charges for services.
Transfers from other funds increased by 6.0%, or $267,318.
A comparative summary of the general governmental revenue and transfers from other
funds is as follows:
Percent Increase Percent
of (Decrease) of Increase
1992 Total from 1991 (Decrease)
Property taxes $15,803,215 46.6% $ 712,550 4.7%
Licenses and permits 452,476 1.3 37,073 9.2
Intergovernmental revenue 8,824,731 26.0 4,250,107 92.9
Charges for services 1,508,899 4.4 (1,044,867) (40.9)
Use of money and property 649,157 1.9 ~53,856) (7.6)
Miscellaneous , 1,996,289 5.9 87,168 52.5
Transfers from other funds 4.720,748 .J.lJ. 267,318 -.i.Q
Total $33,955,515 100,0% $4,855.493 ..ll...ll
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Expenditures and transfers to other funds for general governmental functions (General
Fund, Special Revenue Funds, and Debt Servica Fund) totaled $32,915,010 for the year
ended June 30, 1992, an increase of $5,175,509 or 18.7% over 1991. Capital outlay
decreased by 26.1%. Community protection and human development expenditures for the
year ended June 30, 1992 are $887,871 and $742,622, or 13.8% and 18.9% more than those
in 1991. The increases are mainly due to the reclassification of certain activities
from home and community environment and inflationary increases. Home and community
environment expenditures are $2,020,639 or 50.2% over the year ended June 30, 1991.
The addition of the Housing Authority Fund ($2,883,767 in 1992) and the reclassifi-
cations to community protection and human development caused the net increase, The
increase in transfers out is mainly due to transfers to the Employee Benefits, Bridge,
Street and Traffic Control Construction, Other Construction and Mass Transportation
Funds.
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A comparative summary of general governmental expenditures and transfers to other funds
is as follows: .
Percent Increase Percent
of (Decrease) of Increase
1992 Total from 1991 (Decrease )
Current Operating: $7,337,927
Community trotection 22.3% $887,871 13.8%
Human deve opment 4,670,023 14.2 742,622 18.9
Home and communi ty
environment 6,048,005 18.4 2,020,639 50.2
policr and administration 3,965,754 12.0 281,905 7.7
Ca/:ita outlay 649,825 2.0 (229,510) (26.1)
De t Service:
Principal 6.3 114,311 5.8
Interest 2.5 3,220 .4
Transfers to other funds ..lZ.J. 1.354.451 ZU
Total 100.0% 55.175.509 ll.l%
Enterorise Funds: The City has seven enterprise funds. Enterprise funds operate
primarily from user charges for services. In the Sanitation Fund, the refuse
collection rate increased from $6.25 per month to $7.50 effective July 1, 1991, and the
solid waste disposal fee increased from $16.00 per ton to $31.50 effective July 1,
1991. The refuse collection and solid waste disposal fee increases primarily arise
from State mandates adding restrictions to the disposal of solid waste in order to
clean up landfills. In September 1991, the water and sewer rates increased from 22%
to 28% and 9% to 10% respectively. The increases were needed to cover new expenses
caused by additional federal and atate regulations. Parking fees did not increase
during the year ended' June 30, 1992. The Mass Transportation and Airport Funds
operations continue to ,be heavily subsidized by transfers of property tax revenue from
the General Fund. These transfers represent 54% and 44% of these funds' total revenue.
Debt Administration: The ratio of net general obligation bonded debt to assessed
valuation and the amount of net tax supported debt per capita are useful indicators of
the City's debt position to municipal manegement, citizens, and investors. These
statistics for the City as of June 30, 1992, were as follows:
Amount
Ratio of
Net Tax Supported
Debt to Assessed
Value
Net Tax
Supported
Debt Per
Capita
Net tax supported debt $10,929,385 $6.83 : $1,000 $183
Outstanding general obligation bonds as of June 30, 1992, totaled $14,549,997 of which
$1,980,959 issued for pollution control improvements will be funded by the Pollution
Control fund and $1,639,653 issued for water improvements will be funded by the Water
Fund. Tables in the statistical section of this report present more detailed
information about the debt of the City.
The City continues to have the same excellent bond rating on its general obligation
bonds that it has had for the past several years. This rating is given to those bonds
judged to be the best quality and carrying the smallest degree of investment risks.
The City's bond ratings by Moody's Investors Services, Inc. as of June 30, 1992, were
as follows:
General obligation bonds Aaa
Parking revenue bonds A
Sewer revenue bonds A
Capital Projects Funds: During the fiscal year ended June 30, 1992, $4,584,582 was
expended for capital projects of which $3,882,940 was capitalized in the General Fixed
Assets Account Group. The remainder was not capitalized according to the City's policy
of not capitalizing infrastructure fixed assets.
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General Fixed Assets: The general fixed assets of the City are those fixed assets used
in the performance of general governmental functions and exclude the fixed assets of
the proprietary funds. As of June 30, 1992, the general fixed assets of the City
amounted to $27,817,146 as compared to $20,300,848 as of June 30, 1991. This amount
represents the original cost of the assets and is considerably less than their present
value. The City follows a policy of not capitalizing infrastructure fixed assets, such
as streets, bridges, lighting systems, sidewalks, storm sewers, and individual assets
with a cost of less than $500. Depreciation is not recorded for general fixed assets.
Cash Mana~ement: The majority of the City's investment activity is carried on by the
City's investment pool except for those funds which are required to maintain their
investments separately. This pooled concept provides for greater investment earnings
which are then allocated on a systematic basis.
For the year ended June 30, 1992, the City earned $4,050,157 from all investments, a
decrease of $11,808 from the prior year. The following tabulation shows how this was
allocated for the fiscal years 1992 and 1991:
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1992
Investment
Earnings
1991
Investment
Esrnin~s
Governmental
Proprietary
Fiduciary
Totals
$ 712,708
1.,050,500
2 286 94Z
$4:050:15
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Risk Mana~ement: The City completed its fifth full year under a property and liability
insurance program that provides for a $50,000 self-insured retention per occurrence,
with an annual aggregate retention of $427,000. The insurance provides coverage for
claims in excess of $50,000 per occurrence to a maximum of $5,000,000 annual aggregate.
The operating funds pay annual premiums to the Loss Reserve Fund, which is accounted
for as an internal service fund. The balance in the Loss Reserve Fund is aveilable to
cover the self-insured retention amounts and any uninsured losses.
For the past five years, that the City has had this insurance coverage, the loss ratio
for paid claims was37X of the aggregate loss reserve amount. The total assets in the
Loss Reserve Fund as of June 30, 1992, was $1,938,530.
Indeoendent Audit: Chapter 11 of the Code of Iowa requires an annual audit to be
performed. The independent public accounting firm of Ernst & Young was selected by the,
City. In addition to meeting the requirements set forth in Chapter 11, the audit also
was designed to meet the requirements of the Single Audit Act of 1984 and related OMS
Circular A-128. The auditor's report on the general purpose financial statements and
combining and individual fund statements and schedules is included in the financial
section of this report. The auditor's reports related specifically to the single audit
are included in the compliance section.
Certificate of Achievement
The Government Finance Officers Association of the United States and Canada (GFOA)
awarded a Certificate of Achievement for Excellence in Financial Reporting to the City
of Iowa City, Iowa, for its comprehensive annual financial report for the fiscal year
ended June 30, 1991. The Certificate of Achievement is the highest form of recognition
for excellence in state and local financial reporting.
In order to be awarded a Certificate of Achievement for Excellence in Financial
Reporting, a governmental unit must publish an easily readable and efficiently
organized comprehensive annual financial report, whose contents conform to program
standards. Such comprehensive annual financial report must satisfy both generally
accepted accounting principles and applicable legal requirements.
A Certificate of Achievement is valid for a period of one year only. The City has
received a Certificate of Achievement for the last seven consecutive years from 1984
through 1991, We believe our current report continues to conform to the Certificate
-11-
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of Achievement Program requirements and we are submitting it to GFOA to determine its
eligibility for another certificate., .
Acknowled2ements
The preparation of this report could not have been accomplished without the efficient
and dedicated services of the entire staff of the Finance Department. We would like
to express . our appreciation to all members of the department who assisted and
contributed to its preparation. We want to especially recognize the contributiona of
Senior Accountants Ann ,Haurer and Regina Schreiber. In addition, we would like to
commend Peter Grose, Senior Accountant. Treasury, for his work with cash, investments
and interest income, The final documents professional quality is attributable to the
fine efforts of the Document Services Division, in particular Neana Saylor, and the
Central Procurement and Services print shop, in particular Judy Mills ~ '
'We would also like to thank the Mayor, the members of the City Council and the City
Manager for their interest and support in planning and conducting the financial
operations of the City in a responsible and progressive manner.
Respectfully submitted,
Finance Department
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Certificate of
Achievement
for Excellence
in Financial
Reporting
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Presented to
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Iowa
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For its Comprehensive AIinual
Financial Report
for the Fiscal Year Ended
Jtine30, 1991 ,
A Certificate of Achievement for Excellence In Ananclal
Reportlng Is presented by the Government Anance Officers
Association of the United States and Canada to
government units and public employee retirement
systems whose comprehensive annual financial
reports (CAFRs) achieve the highest
standards In government accounting
and financial reporting.
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au ERNST & YOUNG
. Filsl Corpor,lle PI,lCC . Phone: 319 36] 1090
100 first 5110'1 5,\\" 152,11141 f,1\; J19 J6J ~76a
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Ced,IT R.Jpids, JOIm 52-107.-1888
Report of Independent Auditors
The Honorable Mayor and Members of the City Council
City ofIowa City, Iowa
We have audited the accompanying general purpose fmancial statements of the City of
Iowa City, Iowa as of and for the year ended June 30, 1992, as listed in the table of
contents of this report. These financial statements are the responsibility of the City's
management. Our responsibility is to express an opinion on these fmancia1 statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing standards,
Chapter 11 of the Code of Iowa and Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards require that we plan and
perfonn the audit to obtain reasonable assurance about whether the general purpose
fmancial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the general purpose
fmancial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall general
purpose financial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
In our opinion, the general purpose financial statements referred to above present fairly,
in all material respects, the financial position of the City of Iowa City, Iowa at June 30,
1992, and the results of its operations and the cash flows of its proprietary fund types for
the year then ended, in confonnity with generally accepted accounting principles.
Our audit was conducted for the purpose of fonning an opinion on the general purpose
financial statements taken as a whole. The combining and individual fund financial state-
ments and other supplemental infonnation, as listed in the table of contents, are presented
for purposes of additional analysis and are not a required part of the general purpose
financial statements of the City of Iowa City, Iowa. Such infonnation has been subjected
to the auditing procedures applied in our audit of the general purpose financial statements
and, in our opinion, is fairly stated in all material respects in relation to the general
purpose financial statements taken as a whole.
The infonnation included in the statistical section, as listed in the table of contents, is
presented for purposes of additional analysis and is not a required purt of the general
purpose financial statements. This infonnation has been compiled from City records by
City personnel, has not been audited by us and, accordingly, we do not express an
opinion on it.
~M<dT h
October 28, 1992
. 15 .
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CITY OF IOWA CITY, IOWA ...
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COMBINED BALANCE SHEET ..
ALL FUND TYPES AND ACCOUNT GROUPS I
" June 30, 1992 ~1
, ,
~; (Page 2 of 3) ,I
\~ (amounts expressed in thousands) I
(contiould) Governmental Fund ~es "'I
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LIABILITIES, Special Debt Capital I
EQUITY AND OTHER General Revenue Service Projects
CREDITS "'I
Liabilities: ~ I
Accounts payable $ 400 $ 19 $ $ 12
Contracts n
payable 10 470 ,I
Accrued
liabilities 682 25
Due to other "'!
funds 278 435
Due to other i.j
governments 10
Due to agency ....
Deferred revenue:
Property taxes 67 11 16 ,..,1
Special 154
asaessments j~'
Other 189 89
Interest payable .-
Deferred compensation
payable
Liabilities layable
from restr cted
assets:
Interest payable -, ~
Deposits 566 12
Matured bonds pabable 38 ~~
I Bonded debt paya Ie
Other long-term debt
payable
Total liabilities S 2.346 S 77 S 143 S 917
See Notes to Financial Statements.
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CITY OF IO~A CITY, IO~A .,
COMBINED BALANCE SHEET I
, I
ALL FUND TYPES AND ACCOUNT GROUPS
June 30, 1992 "'I
(Page 3 of 3)
(amounts expressed in thousands) ,I
(continued) Governmental Fund Tvoes ...
LIABILITIES, Special Debt Capital IIi
EQUITY AND OTHER Generel Revenue Service Pro1ects
CREDITS 'i
Total liabilities j'
~. I
forwarded $ 2.346 $ 77 S 143 S 917
Equity and other .-,
credits:
Investment in
general fixed $ $ $ $
assets
Contributed .~
cali tal ....
Reta ned earnings:
Reserved by ,-
Bond ordinence
i Reserved for
I Health insurance
I Unreserved
, Fund balance:
i Reserved for:
I Encumbrances 186 1,032
i. ,Long tem
receivables 121 67
Employee
retirement
commitments 5,009
Johnson County
Council of
Governments
I Perpetual care 69
Unreserved:,
Designated for:
Future improve.
ments 514 982
Undesignated 5,168 3,614 807 "',
Total equity
and other
credits $ 6.058 $ 8,690 $ 807 $ 2.014
Total liabili.
ties, equity
and other
credits $ 8,404 $ 8,767 S 950 $ 2,931
See Notes to Financial Statements,
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CITY OF IOIlA CITY, IOIlA
COMBINED STATEHI!NT OF REVENUE, EXPENDITURES
AND CHANGES IN FUND BAlANCES
ALL GOVERNMENTAL FUND TYPES AND EXPENDABLE TRUST PUNDS
Year Ended June 30, 1992
(amounts expressed in thousands)
Governmental
General Special
Revenue
I REVENUES
I Property taxes $ 10,785 $ 2,388
I Licenses and permits 452 . .
I Intergovernmental 2,682 6,143
Charges for services 915 593
I Use of money and property 358 182
Miscellaneous 1.992 4
Total revenues $ 17.184 $ 9,310
EXPENDITURES
Current operating: $ $
Community protection 7,338
Human development 4,670
Home and community environment 2,528 3,520
Policy and administration 3,919 47 >-,
cabi tal outlay 625 24
De t service: r-',
Principal 4
Interest "'
Total expenditures $ 19,084 $ 3,591
Excess (deficiency) of revenues $ (1.900) $ 5,719
over (under) expenditures --,
OTllER FINANCING SOURCES (USES)
Operating transfers: $ 4,605 $
From other funds ,
(To) other funds (2,886) (4,445) ,
Bond proceeds $
Total other financing sources (uses) 1.719 $ 14,445)
,'-
Excess (deficiency) of revenues
I . and other financing sources
over (under) expenditures and $ (181) $
I other financing uses 1,274
I
FUND BALANCES, BEGINNING AS RESTATED $ 6,282 $ 2,893
Residual equity transfers in 207 4,523 ~
Residual equity transfers out (250)
FUND BALANCES, ENDING $ 6.058 $ 8.690
See Notes to Financial Statements.
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CITY OF IOiA CITY, IOiA
COMBINED STATEMENT OF REVENUE, EXPENDITURES AND OPERATING
TRANSFERS, NON-GAAP BASIS
BUDGET AND ACTUAL
ALL BUDGETED FUNDS
Year Ended June 30, 1992
(amounts expressed in thousands)
(Page 1 of 3)
, General Fund
,
I Variance
,
, Favorable
{ BuMet Actual (Unfavorable)
,
I REVENUES '.. I
I Property taxes $ 10,603 $ 10,665 $ 62
! Licenses and permits 322 389 67
Intergovernmental 1,508 2,741 1,233
Charges for services 2,839 792 (2,047)
Use of money and property 272 302 30
Miscellaneous 206 ~ 2:001
Total revenues t 15. 750 1 0 6 $ 1 346
EXPENDITURES '
Current operating: $ 7,483 $ 7,272 $
Community lrotection 2ll
Human deve opment 4,761 4,511 250
Home and community environment 4,012 2,309 1,703
Policy and administration 3,814 3,840 (26l
cabi tal outlay 836 (836
De t service $ 20.070 4 (4) L..
Total expenditures $ 18.772 $ ' 1. 298
OTHER FINANCING SOURCES (USES):
Operating transfers from other funds $ 5,325 $ 4,930 $ (395) ,
operating transfers (to) other funds (3,681) (3,268) 413
Sale of onds
Total other financing $ 1.644 $ $
sources (uses) 1.662 18 -,
I Excess (deficiency) 'of revenues and
other financing sources over (under) /'-4
expenditures and other financing $ 12,676) $ $
uses . non.GAAP basis (14) 2,662
Adjustments to GAAP 1167\ "
Excess (deficiency) of revenues and
, other financing sources over (under)
expenditures and other financing $ 118!)
uses - GAAP basis
See Notes to Financial Statements.
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CITY OF IOllA CITY, IOllA
COMBINED STATEMENT OF REVENUI!, EXPENDITURES AND OPERATING
TRANSFERS, NON-Gill BASIS I
BUDGET AND ACTUAL
ALL BUDGETED FUNDS ,
Year Ended June 30, 1992 ,
(amounts expressed in thousands) I
(Page 2 of 3)
i
Canita1 Pro1ecta Funds I
Veriance
Favorable -, I
( continued) Bud~et Actual (Unfavorable) I
. ,
REVENUES
Property taxes $ $ $ .-,
Licenses and permits
Intergovernmental 502 227 (275) ,
Charges for services 10 10 I,
Use of money and property 327 327
Miscellaneous 40 40 ....,
Total revenues $ 502 $ 604 $ ill r..,
EXPENDITURES
Current operating: ,.,
, Community rrotection $ $ $ i'l
Human deve opment
Home and community environment
,Policy and administration .'"
, "
cagital outlay 6,627 5,267 1,360 !
De t service ....
Total expenditures $ 6,627 $ 5.267 S 1. 360
"
OTHER FINANCING SOURCES (USES)
Operating 'transfers from other funds $ 2,331 $ , 3,954 $ 1,623 -,
operating transfers to other funds (3,299) (3,299)
, Sale of onds ' 2.321 2.321 .-
Total other financing i,
sources (uses) $ 2.331 $ 2,976 $ 645 ~,:
I
Excess (deficiency) of revenues and !'"
other financing sources over (under)
expenditures and other financing ~,
uses - non-GAAP basis $ 13.794) $ (1,687) $ 2.1OZ
'-.',
Adjustments to GMP 1.275
'.-
Excess (deficiency) of revenues and
other financing sources over (under)
expenditures and other financing uses $ (412)
- GMP basis
See Notes to Firiancial Statements.
. 26 -
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CITY OF IOWA CITY, IOWA
COMBINED STATEMENT OF REVENUE, EXPENDITURES AND OPERATING
TRANSFERS, NON-GAAP BASIS I
BUDGET AND ACTUAL
ALL BUDGETED FUNDS
Year Ended June 30, 1992
i: (amounts expressed in thousands)
(Page 3 of 3)
Total
Variance
Favorable
(continued) Bud~et Actual (Unfavorable )
REVENUES
Property taxea $ 15,567 $ 15,640 $ 73
Licenses and permits 322 390 68
Intergovernmental 6,495 8,244 1,749
Charges for services 16,281 16,610 329
Use of money end property 3,270 1,814 (1,456)
Miscellaneous 1 248 ntlli rim
Total revenues $ 43:183 46 025 2 84
EXPENDITURES
Current operating: $ $
Community trotection 7,487 7,274 $ 213
Human deve opment 4,761 4,511 250 '..
Home and community environment 20,336 . 17,170 3,166
Policy and administration 3,903 3,891 12 .-
cacital outlay 6,627 6,512 115 .
De t aervice 8 340 8.405 (65) _'r!
Total expenditures $ 51:454 S 47.763 S 3.691 !
i
OTHER FINANCING SOURCES (USES) f-.'.'
, Operating transfer from other funds $ 17,537 $ 18,770 $ 1,233 . H
Operatin~ transfer to other funds (16,670) (18,912) (2,242)
Sale of onds' . 3.606 3.606 . 11
Total other financing
\ sources (uses) $ 867 S 3.464 S 2.597 ;1
Excess (deficiency) of revenues Ii I
and other financing sources over
(under) expenditures and other $ (7.404) $ 1,726 $ ,..1
financing uses - non-GAAP basis 9.130
Adjustments to GAAP 1.241 ~' I I
1 1
Excess (deficiency) of revenues and i-I i
other financin~ sources over I
(under) expend tures and other ,..
$ I
financing uses - GAAP basis 2.967 .
1
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See Notea to Financial Statements. !
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CITY OF IOWA CITY, IOWA
COMBINED STATEMENT OF REVENUE, EXPENSES AND CHANGES IN RETAINED
EARNINGS/FUND BALANCES,
ALL PROPRIETARY FUND TYPES AND SIMILAR TRUST FUNDS
Year Ended June 30, 1992
(amounts expressed in thousands)
proorietary Fund Tvoes
Internal
Enterorise Service
OPERATING REVENUES
Charges for services $ 16,032 $
Interest
Contributions
Miscellaneous 409 d:lli
Total operating revenues S 16 .441
OPERATING EXPENSES I...'
Personal services $ 4,874 $ 2,309
Commodities 547 804 .""\
Services and charges 5.049 655 ,I I
$ 10,470 $ 3,768 ,
Depreciation 2.598 o:lli I
Total operating expenses S 13.068 t';;l
. ,
, ,
$ 3,373 $ ,j ,
Operating income 120 I
NONOPERATING REVENUES (EXPENSES) ....1
Gain on disposal of property and equipment $ 125 $ 2 ,
, Operating grants 488 -- '"<01
Interest income 909 142
Liquidation transfer out -- '-,
Interest expense CBft) S
Income before operating transfers . 264
OPERATING TRANSFERS
\ From other funds $ 1,443 $ 131
(To) other funds (597) _..
Total operating transfers in S 846 S 131
Net income (loss) $ 2,230 $ 395
Depreciation on assets acquired by contributed I
capital that reduces contributed capital 137. I
RETAINED EARNINGS/FUND BALANCES, BEGINNING 24,813 4,143
1
Reaidual equity transfera out I
(174) I
I
RETAINED EARNINGS/FUND BALANCES, ENDING $ 27.006 $ 4.538 !
See Notes to Financial Statements.
- 30 -
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9
CITY OF IOWA CITY, IOWA ...1
COMBINED STATEMENT OF CASH FLOWS
ALL PROPRIETARY FUND TYPES
Year Ended June 30, 1992 -
(amounts expressed in thousands)
Proorietarv Fund Tvoes
Total
Internal (Memorandum
Enternrise Service Only)
Gash flows from operating activities:
Operating income $ 3,373 $ 120 $ 3,493
Adjustments to reconcile operating income to net
cash provided by operating activities:
Depreciation ' 2,596 447 3,043
Changes in assets and liabilities:
. (Increase) decrease in receivables from
operating activities (107) 284 177
(Increase) decrease in inventory 23 (79) (56)
Increase in deposits 32 32
Increase (decrease) in accounts and
interfund payables for operating activities (200) 200
Increase in accrued liabilities for operating
activities 123 221 344 I'~I
Total adjustments S 2.467 $ 1. 073 S 3.540
Net cash provided by operating activities $ 5.840 $ 1.193 $ 7;033 ~..\
, .
;1
Cash flows from non-capital financing activities: $ $
Operating grants received 1,133 $ 1,133 ,,,,., "
Operating transfers - from other funds 1,443 131 1,574 , '
Operating transfers - (to) other funds (597) (597)
Net cash provided by non-capital financing $ 1.979 $
activities 131 $ 2.110 ,.,
.Cash flows from capital and related .......-
financing activities: $ $
\ Bond proceeds transferred in 1,410 $ 1,410 t"l
Acquisition and construction of property' i
and equipment (4,150) (605) (4,755) c.
Principal paid on bonded debt (1,361) (1,361)
Interest paid on bonded debt (3,537) (3,537)
Proceeds from the sale of property and equipment 205 2 207
Capital contributed for property and equipment 1,099 204 1,303
Capital contributed 55 146 201
Residual equity transfers out (174) (174)
Transfers to restricted bond reserves 3,787 3,787
Pa~ents from restricted bond reserves (6.121) (6.121)
et cash used for capital and related
financing activities $ (8.787) $ (253) $ (9.040)
Cash flows provided by inveating activities _ $ $ $
interest on investments 832 100 932
Net increaae (decrease) in cash and cash equivalents $ (136) $ 1,171 $1,035
Cash and cash equivalents, beginning $ 4.898 $ 2.850 $ 7.748
Cash and cash equivalents, ending S 4.762 $ 4.021 $ 8,783
See Notea to Financial Statements,
- 32 -
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CITY OF IOWA CITY, IOWA
NOTES TO FINANCIAL STATEMENTS
June 30, 1992
NOTE 1. SUHHARY OF SIGNIFICANT ACCOUNTING POLICIES
,
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The City of Iowa City, Iowa (the "City"), was incorporated April 6, 1853, and
operates under the Council/Manager form of government. The City provides a broad
range of services to citizens including general government, public safety,
streets, parks and cultural facilities. It also operates an airport, parking
facilities, a mass transportation system, water, sewer, and sanitation utilities,
and a housing authority.
The financial statements of the City have been prepared in conformity with
generally accepted accounting principles ("GAAP") as applied to government units.
The Governmental Accounting Standards Board ("GASB") is the accepted standard-
setting body for establishing governmental accounting and financial reporting
principles. The more significant of the City's accounting policies are described
below. .
.J
The Reporting Entity
For financial reporting purposes, the City includes all funds, account groups,
agencies, boards, commissions and authorities that are component units of the
City government. The criteria used to evaluate this relationship with the City
relates to the oversight responsibility exercised by the City Council, including
governing authority selection and continuing relationships, budget adoption,
taxing authority, debt responsibility and obligation of the City to finance any
deficits that may occur, or receipt of significant subsidies from the City.
Based on the foregoing criteria, the Johnson County Council of Governments is
included in the City's general purpose financial, statements as an expendable
trust fund. The Mayor's Youth Employment Program and Project Green each act
under the direction of an autonomous board and do not meet the component unit
criteria. The City does, however, act as financial custodian for the funds of
these entities and, therefore, includes them in its general purpose financial
statements as agency funds.
The Iowa City Community School District is administered by an autonomous board,
created under the authority of chapters of the Iowa Code separate and distinct
from the City and thus their financial statements are not included in this
report. The Iowa City Conference Board, which governs the Iowa City Assessor's
Office, also did not meet the above criteria and is excluded from this financial
report,
Description of Funds and Account Groups
These financial statements include all funds and account groups owned or ad-
ministered by the City, for which the City acts as custodian, or that were
determined to be component units of the City.
The City maintaina its records on a modified cash basis of eccounting under which
only cash receipts, cash disbursements and encumbrances, investments and bonded
debt are recorded. These modified cash basis accounting records have been
adjusted to the accrual or modified accrual basis, as necesaary, to prepare the
accompanying financial statements in accordance with GAAP.
The accounts of the City are organized on the basis of funds or account groupa,
each of which is considered to be a separate accounting entity. The fund types
are governmental, proprietary and fiduciary. The account groups are general
fixed assets and genera11ong-term debt. Each fund or account group is accounted
for by providing a separate set of self-balancing accounts that comprise its
assets, liabilities, equity, revenue and expenditures or expenses, as appropri-
ate. The funds and account groups are presented as follows:
t',-'
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CITY OF IOWA CITY, IOWA
NOTES TO FINANCIAL STATEMENTS
June 30, 1992
GOVERNMENTAL FUND TYPES
The General Fund accounts for all financial resources of the City, except for
those required to be accounted for separately. The revenue of the General Fund
is primarily derived from property taxes, charges for services, fines and
forfeitures, licenses and permits, and certain revenue from atate and federal
sources. The expenditures of the General Fund primarily relate to general
administration, police and fire protection, streets and public buildings
operation and maintenance, and parks and recreation.
The Special Revenue Funds account for revenue derived from specific sources that
are required to be accounted for as separate funds. The funds in this category
include the Community Development Block Grant Fund, Other Shared Revenue and
Grants Fund, Urban Development Action Grant Fund, Employee Benefits Fund and the
Housing Authority Fund.
The Debt Service Fund accounts for the accumulation of resources and for the
payment of general long-term debt principal, interest and related costs.
The Capital Projecta Funds account for all resources to be used in . the
acquisition and construction of capital facilities and other major fixed assets,
with the exception of those that are financed by proprietary fund monies. The
funds in this category include the Bridge, Street and Traffic Control Construc-
tion Fund and the Other Construction Fund.
, ,
..,
PROPRIETARY FUND TYPES
\
The Enterprise Funds account for operations and activities that are financed and
operated in a manner similar to a private business enterprise, and where the
costs of providing goods or services to the general public on a continuing basis
is expected to be financed or recovered primarily through user charges, or where
the City has decided that periodic determination of revenues earned, expenses
incurred, and/or net income is appropriate for capital maintenance, public
. policy, management control, accountability, or other purposes. The varioua
enterprise funds include the Parking Fund, Pollution Control Fund, Water Fund,
Sanitation Fund, Airport Fund, Mass Transportation Fund, and the Broadband
Telecommunications Fund.
The Internal Service Funds account for goods and services provided by one
department to other City departments on a cost reimbursement basis. The funds
in this category are the Equipment Maintenance Fund, Central Services Fund, and
the Loss Reserve Fund. '
I."
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FIDUCIARY FUND TYPES
The Trust and Agency Funds account for assets held by the City in a trustee or
custodial capacity and include the following funds:
1,,1
,.,
Pension Trust Funds
Fire Pension and Retirement Trust Fund
Police Pension and Retirement Trust Fund
EXDendable Trust Funds
Johnson County Council of Governments Trust Fund
Water Revenue Bonds Funded Trust Fund
Sewer Revenue Bonds Funded Trust Fund
Sewer General Obligation Bonds Refunding Trust Fund
- 34 .
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CITY OF IOWA CITY, IOWA
NOTES TO FINANCIAL STATEMENTS
June 30, 1992
AEencv Funds
Project Green Fund
Mayor's Youth Employment Program Fund
Employee Deferred Compensation Fund
ACCOUNT GROUPS
-,
The General Fixed Aasets Account Group accounts for all City general fixed assets
except for property and equipment associated with the operations of proprietary
funds.
The General Long-Term Debt Account Group accounts for all City general obligation
and other long-term debt expected to be financed from governmental fund types.
Basis of Accounting
The accounting and financial reporting treatment applied to a fund is determined
by its "measurement focus". All governmental funds and expendable trusts are
accounted for using a current financial resources measurement focus, which
generally includea only current assets and current liabilities on the balance
sheet. The modified accrual basis of accounting is used for these funds along
with the agency funds. Under the modified accrual basis, revenue is recognized
when susceptible to accrual, which is in the period in which it becomes both
available (collectible within the current period or soon thereafter to be used
to pay liabilities of the current period) and measurable (the amount of the
transaction can be determined). Revenue accrued includes property taxes (if they
are collected within 60 days after the year end), intergovernmental and interest
earned on investments. Expenditures are recorded when the related fund liability
is incurred. Principal and interest on general long-term debt are recorded as
fund liabilities when due.
All proprietary funds, non-expandable trust funds and pension trust funds are
accounted for on a flow of economic resources measurement focus, which includes
all assets and liabilities associated with the operations of these funds on the
balance sheet. The accrual basis of accounting is used for these funds.
Therefore, revenue is recognized in the accounting period in which it is earned
and expenaes are recognized in the period incurred.
Caah and Investments
The City maintains one primary demand deposit account through which the maj ority
of its cash resources are processed. Substantially all investment activity is
carried on by the City in an investment pool, except for those funds required to
maintain their investments separately. The earnings on the pooled investments
are allocated to the funds on a systematic basis. All investments are stated at
cost or amortized cost, except the investments in the Employee Deferred
Compensation Fund, which are stated at market value.
For the purpoae of the statement of cash flows, non-restricted investments with
a maturity of three months or less are considered cash equivalents. Only
restricted investments with a maturity of less than one day are considered cash
equivalents.
Receivables and Revenue Recognition
Property taxes receivable are recognized at the time they are levied by the local
taxing authority, the County of Johnson, State of Iowa. Property taxes levied
for the fiscal year ended June 30, 1992, were certified on March 15, 1991, baaed
on the 1990 assessed valuations establishing a lien date of June 30, 1990. Taxes
are payable in two installments, due September 1 and March 1, with a IX per month
penalty for delinquent payment. That portion of the property taxes receivable
that is recorded in the governmental fund types and similar trust funds, and that
is not available for the current year's operations, is shown as deferred revenue.
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CITY OF IOWA CITY, IOWA
NOTES TO FINANCIAL STATEMENTS
June 30, 1992
Special assessments receivable are recorded at the time of the levy, and that
portion that is not available for the current year's operations is shown as
deferred revenue. Interest revenue on special assessments is recognized when
collected.
Subatantially all other shared revenue is recognized when received by the
collecting authority.
Federal and state grants, primarily capital grants, are recorded as receivables
and the revenue is recognized during the period in which the City fulfills the
requirements for receiving the grant awards.
Income from investments in all fund types and from accounts and unbilled usage
receivables in proprietary fund types is recognized when earned. Licenses and
permits, fines and forfeitures, fees and refunds, charges for services (in
governmental fund types), miscellaneous and other revenue a are recorded as
revenue when received in cash because they are generally not measurable until
actually received.
Inventories
Inventories are recognized only in those funds in which they are material to the
extent of affecting operations. For the City, these are the Water Fund,
Equipment Maintenance Fund, and the Central Services Fund, all of which are
Proprietary Fund types. Inventories are reported at the lower of cost (first-in,
first-out) or market. The costs of governmental fund type inventories are
recorded as expenditures when purchased.
Property and Equipment
Property and equipment in the General Fixed Assets Account Group are reported at
original cost, or at fair market value at date of donation when received as
donated properties. The City fo11owa the policy of not capitalizing infrastruc-
ture fixed assets such as streets, bridges, lighting systems, sidewalks and
individual assets with a cost less than $500. Depreciation is not recorded for
general fixed assets.
Property and equipment asaociated with the proprietary fund types are reported
at original cost, or at fair market value at date of donation when received as
donated properties. Assets with an individual cost less than $500 are not
capitalized. Depreciation is computed using the straight-line method over the
following estimated useful lives:
Buildings and structures
Improvements other than buildings
Vehicles '
Other equipment
20-50 years
15-50 years
5-20 years
5-30 years
In the Mass Transportation Fund, the City restores to retained earnings the
depreciation on certain buses that have been acquired through federal grants, by
a corresponding reduction of the contributed capital. This application is
limited to the depreciation on the buses acquired by these granta as the City
anticipates that these buses will be replaced through additional federal funding.
Property that is being acquired under lease purchase contracts has been capital-
ized in the financial statements in accordance with generally accepted accounting
principles.
Interest is capitalized on proprietary fund aascts acquired with tax-exempt debt.
The amount of interest to be capitalized is calculated by offsetting interest
expense incurred from the date of the borrowing until completion of the project
with interest earned on invested proceeds over the same period.
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CITY OF IOWA CITY, IOWA
NOTES TO FINANCIAL STATEMENTS
June 30, 1992
Bond Issuance Costs and Discount
Costs incurred by proprietary fund types in connection with the issuance of
bonded debt have been recorded as an asset and are being amortized over the term
of the related debt.
....,
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Debt issued at a discount ia recorded net of the unamortized discount, with the
discount being amortized over the term of the debt.
Compensated Absences
Permanent City employees accumulate vacation and sick leave hours for subsequent
use or for payment upon death, retirement or termination. If sick leave is paid
upon death, retirement or (except firefighters) termination, the total accumu-
lated hours are paid at one-half of the then effective hourly rate for that
employee or at the sick leave payout amount as of June 28, 1985, whichever is
less. Employees hired on or after June 29, 1985 are not eligible for payment of
accumulated sick leave upon termination, death or retirement.
For governmental fund types, the amount ~f accumulated unpaid vacation and sick
leave that is payable from available resources is recorded as a liability of the
respective fund, and the remaining amount is recorded in the General Long-Term
Debt Account Group. The vested amount of unpaid vacation and sick leave of
proprietary fund type employees is recorded as a liability of the appropriate
fund.
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Budgetary and Legal Appropriation and Amendment Policies
The City preparea and adopts an annual program budget, as prescribed by Iowa
statutes, for all funds except pension trust, internal service and agency funds.
This is formalized in a separate budgetary report, the Financial Plan. This
budget is adopted on or before March 15 of each year to become effective July 1
and constitutes the City's appropriation for each program and purpose specified
therein until amended. The adopted budget must include the following:
a. Expenditures for each program:
Community Protection
Human Development
Home and Community Environment
Policy and Administration
b. The amount to be raised by property taxation
c. Income from aources other than property taxation
d. Tranafers in and transfers out
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The legal level of control (the level at which expenditures may not legally
exceed appropriations) is the program level for all funds combined rather than
at the individual fund level. Management can transfer within program, within
fund type, without approval of the governing body. It is necessary, therefore,
to aggregate the expenditures of the budgeted activities within the governmental
fund types with the expenditures of the budgeted activities within the enterprise
funds on a program basis and to compare such program totals to program budgeted
totals in order to demonstrate legal compliance with the budget. The City'a
budget for revenue focuses on the individual fund revenue rather than on
aggregated fund totals.
The City formally adopts budgets for several funds that are not required by state
law to be included in the annual program budget. Annual operating budgets are
adopted for the internal service funds . These budgets are adopted and amended
at the same time and in the same manner. as the City's annual program budget.
A City budget for the current fiscal year may be amended for any of the following
purposes as prescribed by Iowa statute:
- a. To permit the appropriation and expenditure of unexpended unencumbered
cash balances on hand at the end of the preceding fiscal year.
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CITY OF IOWA CITY, IOWA
NOTES TO FINANCIAL STATEMENTS
June 30, 1992
b. To permit the appropriation and expenditure of amounts anticipated to be
available from sources other than property taxation.
c. To permit transfers between funds.
d. To permit transfers between programs.
A budget amendment must be prepared and adopted in the same manner as the
original budget. The City's budget was amended as prescribed and the effects of
that amendment are shown in the financial statement presentation. Individual
amendments were not material in relation to originally appropriated amounts.
Appropriations as adopted or amended, and not encumbered, lapse at the end of the
fiscal year.
Statements of budget and actual revenue and expenditures have been presented on
a fund type basis and disclosures are presented that compare budget and actual
expenditures on the legal program budget basis for the City as a whole. The
statements reflect the City's modified cash basis method of budget preparation.
Encumbrancea
Encumbrances represent commitments related to unperformed contracts for goods or
services. Encumbrance accounting-under which purchase orders, contracts and
other commitments for the expenditure of resources are recorded to reserve that
portion of the applicable appropriation-is utilized in the governmental funds.
Encumbrances outstanding at year end are reported as reservations of fund
balances and do not constitute expenditures or liabilities because the commit-
ments will be honored during the subsequent year. For budgetary control
purposes, encumbrances provide authority to complete those transactions as
expenditures during subsequent years. Encumbrances are reflected for all funds
in the budgetary statements contained in this report, and expenditures that
occurred as a result of a prior year's encumbrance, for which the budget was not
amended, have been eliminated.
Total Columns on Combined Statementa
, ,
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The total columns on the combined statements are captioned "memorandum only" to
indicate that they are presented only to facilitate financial analysis. Data in
these columns do not present financial position, results of operations or cash ,,'
flows in conformity with generally accepted accounting principles. Neither are
such data comparable to a consolidation because interfund transactions have not
been eliminated in the aggregation of this data.
Reclasaifications
Certain amounta from prior year have been rec1asaified to conform with the
current year's presentation. The Perpetual Care Fund, previously reported as a , ,
non-expendable trust fund, and the Eldercraft Shoppe and Library Foundation
funds I previously reported as agency funds, have been reclassified into the
Ceneral Fund. This caused the beginning fund balance of the General Fund to
increase by $80,926. The Housing Authority Fund waa previously reported as an
enterprise fund. The City has reclassified it aa a special revenue fund to
better reflect its measurement focus. This resulted in its fund balance being
decreased by $2,157,276 aa a result of the transfer of property and equipment to
the General Fixed Asset Account Group.
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CITY OF IOWA CITY, IOIIA
NOTES TO FINANCIAL STATEMENTS
June 30, 1992
NOTE 2. COMPLIANCE AND ACCOUNTABILITY
"
,
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At June 30, 1992, the Bridge, Street and Traffic Control Construction Fund has
a deficit fund balance of $139,213. This deficit doea not represent a violation
of any law and results primarily from expenditures in excess of funding provided
to date on several individual capital projects. The deficit will be financed in
the future from grants, transfers from other City funds, and proceeds from
general obligation bonds.
At June 30, 1992, the retained earnings balance for the Airport Fund is a deficit
of $504,748. This deficit balance does not represent a violation of any law.
It is a result of Airport operations. The operating subsidy provided by general
property taxes has always been calculated for cash baais funding requirements of
operations, which does not consider depreciation expense, which primarily relates
to assets funded through contributed capital.
At June 30, 1992, the Sewer Revenue Bonds Funded Trust Fund has a deficit fund
balance of $15,138. This deficit fund balance does not represent a violation of
any law and occurred because the principal amount of the debt exceeded the cost
of the investments purchased to pay the bonds and interest as they mature. The
yield on the investments will be greater than the debt service requirements over
the remaining life of the bonds.
Disbursements during the year ended June 30, 1992, exceeded the amounts budgeted
in the Debt Service program by $65,000. Chapter 384.20 of the Code of Iowa
states in part that public monies may not be expended or encumbered except under
an annual or continuing appropriation.
NOTE 3. RESIDUAL EQUITY TRANSFERS
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The Equipment Maintenance Fund accounts for the provision of maintenance and
replacement of City vehicles and equipment for City departments from a central
vehicle pool. If a fund requires, additional vehicles, the fund purchases the
vehicle from that fund's resources and then transfers the vehicle to the
Equipment Maintenance Fund. During the year ended June 30, 1992, there were four
such residual equity transfers into the Equipment Maintenance Fund. The General
Fund transferred out $29,610, the Pollution Control Fund transferred out $10,886,
the Water Fund transferred out $14,400 and the Sanitation Fund transferred out
$148,650 to the Equipment Maintenance Fund, which recorded the transfers as
contributed capital. Also, the General Fund made a $10,428 equipment transfer
to the Water Fund that was recorded as contributed capital. The Capital Projects
Streets and Bridges Fund made a $22,971 equipment transfer to the Water Fund.
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CITY OF IOIlA CITY, IOIlA
NOTES TO FINANCIAL STATEMENTS
June 30, 1992
NOTE 4. CASH AND INVESTMENTS
The City maintains a cash and investment pool that is available for use by all
funds. Each fund type's portion of this pool is presented on the combined
balance sheet as "Equity in Pooled Cash and Investments",
Deposits
At June 30, 1992, the carrying amount of the City's cash and deposits, including
certificates of deposit, was ~19,032,543, The bank balances totaled $19,921,219.
Of the bank balances, $7,140,945 was covered by federal depository insurance and
$12,780,274 was covered by collateral held by the bank's agent in the City's
name. Iowa statutes require collateral pledged for public deposits to be held
in the City's name by an independent depository bank other than the pledging
bank, at a minimum of 110 percent. '
Invastmenta
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Iowa statutes authorize the City to invest in obligations of the U. S. Government,
its agencies and instrumentalities, commercial paper rated A-I by Standard.&
Poor's Gorporation or P-1 by Moody's Commercial Paper Record, bankers'
acceptances, and repurchase agreements, The Pension Trust Funds are authorized
to also invest in corporate bonds rated AA or better by Standard & Poor's
Corporation, Aa or better by Moody's Bond Ratings, or corporate indebtedness as
defined by the Code of Iowa, Chapter 97B.
Upon establishment of the Funded Bonds Trust Funds and the Refunding Bonds Trust
Fund, specific purchases of U. S, government obligations were made with the monies
deposited into the respective trust funds, in accordance with the respective
trust agreements.
The City's investments are categorized to give an indication of the levelof risk
assumed. The categories are defined as:
.',
(1)
Insured or registered in the City's name, or securities held by
the City or its agent in the City's name.
(2) Uninsured and unregistered securities held by the counterparty's
trust department or agent in the City's name.
(3) Uninsured and unregistered securities held by the counterparty
or by its trust department or agent but not'in the City's name.
- 40 -
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CITY OF IOllA CITY, IOWA
NOTES TO FINANCIAL STATEMENTS
June 30, 1992
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The following is a summary of the City's investmenta, including restricted
assets, at June 30, 1992:
--1
u. S. Government
securities
Investments in:
Annuity contracts
Iowa Public
Agency
Investment
Trust
Employee deferred
compensation
funds
Mutual funds
1
$ 805,630
Categorv
2
$ --
$
3
Carrying
Amount
Market
Value
$ 833,316
2,191,636
19,250,000
1,738,053
196.318
$24.209.323
The aforementioned annuity contract~, Iowa Public Agency. Investment Trust,
employee deferred compensation funds, and mutual funds represent investments in
. pools managed by others. Therefore, these investments are. not categorized
because they are not evidenced by securities that exist in physical or book entry
form. .
The City's investments during the year did not vary substantially from those at
June 30, 1992, .in type, amounts or level of risk. '.,
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$ 805,630
2,191,636
19,250,000
1,738,053
200.000
$24 .185.319 .
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CITY OF IOVA CITY, IOWA
NOTES TO FINANCIAL STATEMENTS
June 30, 1992
As of June 30, 1992, the composition of general fixed assets by type and function
was as follows: .
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Comoosition bv Tyee and Function
Improve-
ments Construc-
Buildings Other Equipment tion
and Than and in
Land Structures BuildinEs Vehicles PrOEress Total
Community
Protection:
Police
protection $ $ 418,603 $ $ 651,663 $2,017,558 $3,087,824
Fire protection 41,581 340,641 1)158,844 1,541,066
Inspection
services 5.271 90.630 - 95.901
Total Community S 41.581 S 764.515 S S1.901.137 S2.017.558 S4.724.791
Protection
Home and Communi tv
Environment:
Physical $ 12,812 $ 40,157 $131,717 $ $ $
environment 27,863 212,549
Community
development 1,946,819 2,651,190 56,525 292,455 27,311 4,974,300
Streets and
traffic
engineering 180.805 91.640 272.445
Total Home and
Community S1.959.631 . S2.872.152 S188.242 S 411.958 S 27.311 S5.459.294
Environment
Human Develooment: $ 971,768 $4,366,296 $579,901 $ $ 75,571 $ 6,148,726
Parks 155,190
Recreation 931,263 11,189 224,298 18,650 1,185,400
Library 155,000 3,471,691 714, 343 7,594 4,348,628
Senior Center 1.226.210 1.850 148.822 1.376.882
To tal Human
Development Sl.126.768 S9.995.460 S592.940 S1.242.653 S101.815 $13.059.636
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Administration S 66.000 S2.003.502 S 16.748 S 759.339 Sl.727.836 $ 4.573.425
Total General
Fixed Assets S3,193.980 ~15.635.629 S797.930 S4.315.087 S3.874.520 ~27.817.146
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CITY OF IOWA CITY, IOWA
NOTES TO FINANCIAL STATEMENTS
June 30, 1992
During the year ended June 30, 1992, general fixed asset acquisitions and
disposals by function were as follows:
Changes bv Function
Communi tv Protection:
Police protection
Fire protection
Inspection services
Total Community Protection
Home and Communi tv
Environment:
Physical environment
Community development
Streets and traffic
engineering
Tota1'Home and Community
Environment
Human Develooment:
Parks
Recreation
Library
Senior Center
Total Human Development
. Policy and Administration
Total General Fixed Assets
Balance
July 1. 1991
$ 1,119,265
1,508,935
91. 800
$ 2.720.000
$ 195,376
1,522,295
261. 056
$ 1.978.727
$5,965,969
1,121,559
. 4,305,328
1.349 . 371
S12.742.227
$ 2.859.894.
$20.300.848
. 44 -
Acquisitions
and
Transfers
$2,058,610
37,546
29.679
S2.125.835
Disposals
and 'Balance
Transfers June 30. 1992
$ 90,051
5,415
25.578
S 121. 044
$ 28,111 $ 10,938
3,457,391 5,386
11.389
$3.496.891 $ 16.324
$ 400,927
63,841
80,151
28.611
S 573.530
$1.750.809
$7.947.065
$ 218,171
36.851
1.100
S256.122
$ 37.278
$ 430.768
$ 3,087,824
1,541,066
95.901
S 4.724.791
$ 212,549
4,974,300
272.445
$ 5.459.294
$ 6,148,726
1.185,400
4,348,628
1 316 882
$13 : 059 : 636
$ 4.573.425
$27.817.146
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CITY OF IOIIA CITY, IOWA
NOTES TO FINANCIAL STATEMENTS
June 30, 1992.
NOTE 6. PENSION AND RETIREMENT SYSTEMS
Municipal Police and Fire Retirement Syatem of Iowa
Prior to January 1, 1992, the City's police officera and fire fighters, appointed
under the civil service laws of Iowa, participated in a retirement system which was
administered by the City's Police Retirement and Fire Retirement Boards of Trustees.
This plan was established by the Code of Iowa and provided for contributions and
benefits established by law. Due to a change in the law aa of January I, 1992, the
City's retirement system was terminated and the City paid an actuaria11y determined
contribution of $17,778,000 to a newly established statewide system called the
Municipal Police and Fire Retirement System of Iowa.
Therefore, as of January 1, 1992, the City is a participating employer in the
Municipal Police and Fire Retirement System of Iowa (the Plan), which is a cost-
sharing multiple-employer public police and fire employees retirement system.
The Plan is administered by a Board of Trustees. All fire fighters and police
officers appointed under civil service participate in the Plan except for those in
cities who were not required by law to participate. The Plan provides retirement,
disability and death benefits which are established under State statute. A member
may retire at age 55 with 22 years of employment and receive full benefits which are
equal to fifty-four percent of the average of the highest three years' wages for a
member retiring after July 1, 1990 and before July I, 1992. After July 1, 1992, the
percentage multiplier of the average of the highest three years' wages increases by
2% each July 1 until reaching sixty percent. Other benefits are also calculated as
varying percentages of the highest three years' wages. Benefits vest after four
years of service.
Member contribution rates are established by statute. For the fiscal year ended
June 30, 1992, members contributed 5.1% of earnable compensation if they were less
than 46 years old. An additional 1% of earnable compensation is to be contributed
for each year of age, to a maximum contribution rate of 9.1%. Contribution rates
increase in each subsequent year by 1% of earnable compensation, to a maximum of
9.1%, through the fiscal year ending June 30, 1996.
The City's contribution rate is based upon an actuaria11y determined normal contri-
bution rate. The normal contribution rate is provided by State statute to be the
notarial liabilities of the plan less current plan assets, the total then being
divided by 1% of the actuaria11y determined present value of prospective future
compensation of all members, further reduced by member contributions. Legislatively
appropriated contributions from the State may further reduce the City's contribution
rate. However, the City's contribution rate may not be less than 17% of earnable
compensation.
'For the aix mdnths ended June 30, 1992, the City's contribution was 17% of the
earnable compensation of each member. The contribution paid by the City for the six
months ended June 30, 1992 totaled $279,516 and the contribution paid by the
employees totaled $95,633. The total payroll for employees covered by the Plan was
$1,644,209 and total payroll for all City employees was $7,598,747 for the six
months ended June 30, 1992. The City's employer and employee contribution during
the six months ended June 30, 1992 represented ~% of total contributions of all
participating entities.
The .penaion benefit obligation. is a standardizad disclosure measure of the present
value or pension benefits, adjusted for the effects of projected salary increases
and step-rate benefits, estimated to be payable in the future as a result of
employee service to date. The measure, which is the actuarial present value of
credited projected benefits, is intended to help users assess the Plan's funding
status on a going-concern basis, assess progress made in accumulating sufficient
assets to pay benefits when due, and make comparisons among public employee
retirement systems and among employers. The Plan does not make separate measure-
ments of aasets and pension benefit obligation for individual employers. At June
30, 1992, the most recent date for which information is available, the pension
benefit obligation for the Plan as a whole, determined through an actuarial
- 45
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CITY OF IOllA CITY, IOWA
NOTES TO FINANCIAL STATEMENTS
June 30, 1992
\
valuation performed as of that date was approximately $ * . The Plan's net
assets available for benefits on that date valued at cost were approximately $--!
(valued at market were approximately $ * ), leaving an unfunded pension benefit
obligation of $ * .
Historical trend information showing the Plan's progress in accumulating sufficient
assets to pay benefits when due is presented in its annual report.
* Information unavailable from Pension Manager as of this report'a publication date.
Iowa Public Employees Retirement System
The City is a participating employer in the Iowa Public Employees Retirement System
("IPERS"), which is a cost-sharing multiple-employer public employees retirement
system designed as a supplement to Social Security.
All employees earning in excess of $300 per quarter who do not participate in any
other public retirement system in the State are eligible and must participate in
IPERS. The pension plan provides retirement and death benefits that are established
by State statute. Generally, a member may retire at the age of 65, or any time
after age 62 with 30 years or more of service or when age plus years of service
equals or exceeds 92, and receive full benefits. Members may also retire at the age
of 55 or more at reduced benefits. Benefits vest after four years of service or
after attaining the age of 55. Full benefits are equal to fifty-four percent of the
average of the higher three years of covered wages times years of aervice divided
by 30.
The plan is administered by the State of Iowa and the employer's responsibility is
limited to payment of contributions. The contribution rates are actuarially
determined; state statute requires contributions of 3.70% by the employee and 5.75%
by the employer except for public safety employees, in which case the percentages
are 5.63% and 8.44% for fiscal year ending June 30, 1992, respectively. These rates
are applied on the first $31,000 of compensation in calendar yeer 1991 and on the
first ~34,OOO of compensation in calendar year 1992. The contribution paid by the
employer for the year ended June 30, 1992, totaled $578,797 and the contribution
paid by employees totaled $372,443. The total payroll for employees covered by
IPERS for the year ended June 30, 1992, was $10,066,032 and the total employer
payroll was $15,381,595. The City's employer and employee contributions during the
year ended June 30, 1992, represented 0.38% of total contributiona of all
participating entities.
The "pension benefit obligation" is a standardized disclosure measure of the present
value of pension benefits, adjusted for the effects of projected salary increasea
and step-rate benefits, estimated to be payable in the future as a result of
emp10y~e service to date. The measure, which is the actuarial present value of
credited projected benefits, is intended to help users assess IPERS funding atatus
on a going-concern basis, assess progress made in accumulating sufficient assets to
pay benefits when due, and make comparisons among public employee retirement systems
and among employers. IPERS does not make separate measurements of assets and
pension benefit obligation for individual employers. At June 30, 1992, the pension
benefit obligation for IPERS as a whole, determined through an actuarial valuation
performed as of that date, was $5,597,572,968. IPERS' net assets available for
benefits on that date valued at cost were $5,646,470,378 (valued at market were
$6,225,257,155), leaving no unfunded pension benefit obligation.
Historical trend information showing IPERS' progress in accumulating sufficient
asaets to pay benefits when due is presented in its annual report. IPERS does not
invest in obligations of the State of Iowa or its political subdivisions.
- 46 -
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CITY OF IOiA CITY, IOiA
NOTES TO FINANCIAL STATEMENTS
June 30, 1992
NOT!! 7. D!!FERRED GOMP!!NSATION AGREEMENT
\'
The City offers its employees deferred compensation plans administered by the
International City Manager's Association, Washington National, AETNA Life Insurance
Companies, IDS Financial Services, Inc. and Ohio National Life. These plans are
created in accordance with the provisions of Internal Revenue Code Section 457. The
plans, available to all City employees, permit them to defer a portion of their
salary until future years. The deferred compensation and accumulated earnings
thereon, totaling $1,738,053 at June 30, 1992, is not available to employees until
termination, retirement, death or unforeseeable emergency.
The plans are fully funded by the City as the deferred compensation is earned by the
employees. Plan assets, and the related liability to employees, are accounted for
in the Employee Deferred Compensation Fund, an agency fund, at the current market
value of the investments.
All amounts of compensation deferred under the plans, all property and rights
purchased with those amounts, and all income attributable to those amounts,
property, or rights, are, until paid or made available to the employee or other
beneficiary, solely the property and rights of the City and are not restricted to
the provision of benefits under the plans. Plan assets are subject to the claims
of the City's general creditors. Participants' rights under the plans are equal to
those of general creditors of the City in an amount equal to the fair market value
of the deferred account for each participant.
It is the opinion of the City's legal counsel that the City has no liability for
losses under the plans, but does have the duty of due care that would be required
of an ordinary prudent investor. The City believes that it is unlikely that it will
use the assets to satisfy the claims of general creditors in the future.
- 47 -
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CITY OF IOWA CITY, IOWA
NOTES TO FINANCIAL STATEMENTS
June 30, 1992
.~
NOTE 8. BONDED AND OTHER LONG-TERM DEBT
""
The following is a summary of changes in bonded and other long-term debt for the
year ended June 30, 1992:
Various iasues of general obligation bonds, totaling $14,550,000, are outstanding
as of June 30, 1992. The bonds have interest rates ranging from 5.30% to 8.80%
and mature in varying annual amounts ranging from $125 ;000 to $500,000 per issue,
with the final maturities due in the year ending June 30, 2002. Interest and
principal payments on all general obligation bonds, except tax abated portions
recorded in the enterprise funds, and refunded portions recorded in the
expendable trust funds, are accounted for through the Debt Service Fund.
Portions of aevera1 general obligation bond issues have been used to acquire or
expand the enterprise fund facilities. In soma instances, revenue generated by
the enterprise funds is used to pay the general long-term debt principal and
interest. The liability for those bonds that are expected to be paid by the
enterprise funds is included in those funds.
Revenue Bonds
As of June 30, 1992, the following unmatured revenue bond issues are outstanding:
Parkin~ Pollution Control
-
Original issue amount $6,560,000 $38,950,000
Interest rates 5.2% to 10% 7.6% to 7.8%
Annual maturities $105,000 to $725,000 to
. $515,000 $3,400,000
Amount outstanding $5,570,000 $36,950,000
- 48 -
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CITY OF IOVA CITY, IOVA
NOTES TO FINANCIAL STATEMENTS
June 30, 1992
The revenue bond ordinances required that pollution control and parking system
revenue be set aside into separate and special accounts as it is received. The
use and the amounts to be included in the accounts are as follows:
Account
(a) Revenue Bond and Interest
Sinking Reserve
(b) Revenue Debt Service
Reserve
(c) Improvement Reserve
Amount
Amount sufficient to pay current bond and
interest maturities.
25% of the amount required to be depoaited
in the Revenue Bond and Interest. Sinking
Reserve until the reserve balance equals
the maximum debt service due on the bonds
in any succeeding fiscal year.
$20,000 per month to a maximum reaerve
balance of $2,000,000, for pollution
control bonds and $5,000 per month to a
maximum reserve balance of $300,000 for
parking bonds.
Summary of Bond Isaues
General obligation and revenue bonds payable (excluding funded revenue bonds) at
June 30, 1992, are comprised of the following individual issues:
- 49 .
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CITY OF IOWA CITY, IOWA
NOTES TO FINANCIAL STATEMENTS
June 30, 1992
Funded Revenue Bonds
Funded Water Revenue Bonds:
On June 30, 1986, the City created an irrevocable self-administered trust,
the Water Revenue Bond Funded Trust. This trust was established when
$652,894 from the Water Fund was converted to U.S. Government securities for
the express purpose of paying the principal and interest on the outstanding
Water Revenue Bond Issues, Series 1961 and 1967, which totaled $706,000. At
the same time, a residual equity transfer was made to the Water Fund, in the
amount of $59,110, which increased the contributed capital of the Water Fund.
The remaining bonds have an interest rate of 4.2% and mature the year ended
June 30, 1993, with a principal payment of $35,000 and interest of $735.
Funded Sewer Revenue Bonds:
On July 1, 1986, the City created an irrevocable, self-administered trust,
the Sewer Revenue Bond Funded Trust. This trust was established when
$694,361 from the Pollution Control Fund was converted into U.S. Government
securities for the express purpose of paying the principal and interest on
the outstandin~ bonds from Sewer Revenue Bond Issues, Series 1965 and 1966,
which totaled ~800,OOO. At the same time, a residual equity transfer was
made in the amount of $105,639 to the Pollution Control Fund, which increased
the contributed capital of the Pollution Control Fund. The bonds have
interest rates ranging from 3.40% to 3.75% and mature in annual amounts of
$100,000 with final maturities due in the year ending June 30, 1995. The
annual debt service requirements of the bonds are as follows:
Year Ending
June 30
..,
..-.:
,.-
princioa1
Interest
1993
1994
1995
100,000
100,000
100,000
10,725
7,150
3,575
Refunding of Parking Revenue Bonds
. The 1978 Series Parking Facility Revenue Bonds with a total outstanding balance
of $4,730,000 were refunded in November 1985, by the issuance of $3,795,000 1985
Series Parking System Revenue Bonds. An irrevocable trust was created with an
unrelated third party whereby the proceeds from the 1985 Series Bonds were
converted into U.S. Government securities. These securities were placed in an
escrow account for the express purpose Qf paying the principal and interest on
the refunded bonds as they come due. For financial reporting purposes, the debt
has been defeased and the liability has therefore been removed from the Parking
Fund. Aa of June 30, 1992, the amount of defeased debt outstanding but removed
from the Parking Fund amounted to $3,735,000.
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I !' CITY OF IOllA GITY, IOWA
.. NOTES TO FINANCIAL STATEMENTS
: i June 30, 1992
.,.j
r-; Summary of Principal and Interest Maturities
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Annual debt service requirements to service all outstanding bonded debt, other
than the funded water revenue bonds and the funded sewer revenue bonds, as of
June 30, 1992, are as follows:
General Obligation
Bonds
Princioa1 Interest
Year Ended
June 30
1993
1994
1995
1996
1997
1998
1999-2003
2004-2008
2009-2113
2,140,000
2,150,000
1,825,000
1,850,000
1,375,000
1,260,000
3,950,000
936,023
796,377
653,102
535,402
414,627
329,740
585,000
$14.550.000
$4.250.27~
Revenue Bonds
princioal Interest
1,010,000
1,190,000
1,295,000
1,365,000
1,460,000
1,590,000
9,595,000
10,340,000
14 6 5 000
42 520 000
3,264,075
3,206,418
3,112,375
3,010,933
2,902,360
2,784,360
11,787,634
7,796,375.
3 03 125
40 901 655
Debt Legal Compliance
Legal Debt Margin:
As of June 30, 1992, the general obligation debt issued by the City did not
exceed its legal debt margin computed as follows:
Assessed.valuation:
Real property
Utilities
Total valuation
Debt limit, 5% of total assessed
valuation
Debt applicable to debt limit:
General obligation bonds
Legal debt margin
- 51 -
$1,530,801,536
68.545.450
S1. 599.346.986
$ 79,967,349
$ 14.550.000
$ 65.417.349
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CITY OF IOWA CITY, IOWA
NOTES TO FINANCIAL STATEMENTS
June 30, 1992
NOTE 9. GONTRACTUAL COlfMITMENTS
The total outstanding contractual commitments for all construction projects as
of June 30, 1992, are as follows:
EYM
Pr01ect
Storm sewer and bridge
construction
Moun t
Bridge, Street and Traffic
Control Construction
$ 542,600
Other Construction
Civic Center, other renovations,
and equipment purchases
Relocation study
Cable television consulting
451,706
36,320
56,291
103,573
Airport
Broadband
Parking
Pollution Control
Ramp construction and maintenance
Sewer trunk design
and construction
600,565
208,797
Sanitation
Landfill expansion and consulting
Water
.water supply study
228.460
$2.228.312
NOTE 10. ,CONTINGENT LIABILITIES
\
During the year ended June 30, 1992, the City purchased property, liability and
workers' compensation insurance under a program that provides for a $50,000 self-
insured, retention per occurrence on property losses and a $100,000 self insured
retention per occurrence on liability and workers' compensation losses, with an
annual aggregate retention of $500,000. The insurance provides coverage for
claims in excess of the aforementioned self insured rentention to a maximum of
$5,000,000' annual aggregate of losses paid. The operating funds pay annual
premiums to the Loss Reserve Fund, an internal service fund. Accumulated monies
in the Loss Reserve Fund are available to cover the self-insured retention
amounts and any uninsured losses. Fiscal year 1992 was the first year that the
workers' compensation insurance was obtained on a self insured retention basis.
The City is partially self-insuring, through stop-loas insurance, for employee
health care coverage, which is available to all of its permanent employees. This
insurance provides stop-loss coverage for claims in excesa of $50,000 per
employee with an aggregate stop-loss of approximately $1,700,000. The operating
funds are charged premiums by a Health Insurance Reserve, which is accounted for
in the Loas Reserve Fund. The City reimburses a health insurance provider for
actual medical costs incurred plus a claims processing fee from the Health
Insurance Reserve. The reserve's fund balance is available to cover the cost of
incurred but not paid claims.
Various claims and lawsuits were on file against the City as of June 30, 1992.
It is estimated that the potential aett1emonts against the City, not covered by
insurance, would not materially affect the financial position of the City. The
City has the authority to levy additional taxes (outside the regular limit) to
cover uninsured judgments against the City,
- 52 -
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CITY OF IOWA CITY, IOWA
NOTES TO FINANCIAL STATEMENTS
June 30, 1992
NOTE 11. LEASE COMHITHENTS
The City's leasing activities principally consist of the leasing of varioua
office and warehouse space under leases classified aa operating leases. '
The following is a schedule of minimum future rentals on non-cancelable operating
leases as of June 30, 1992:
Year Ended
June 30
~
1993 $ 24,690
1994 12.345
S 37.035
Rent expense for the year ended June 30, 1992, was $117,221.
, NOTE Ii. INTERFUND RECEIVABLES AND PAYABLES
As of June 30, 1992, interfund receivables and payab1es were as follows:
Community Other
Development Shared
Block Revenue Pollution
~: General Grant' and Grants Control Water Sani tat ion Total
Due From:
General $ $30,000 $ $ - . $ $248,087 $278,087
Parking 58,500 - . 58,500
Other
Construction 10.938 37.400 rlH:I U rlft:lli
Total S69.438 $30.000 S37.400 265 204 121 1 $248.087 1 846
- 53 -
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CITY OF IOWA CITY, IOWA
NOTES TO FINANCIAL STATEMENTS ..,
June 30, 1992 1
11
NOTE 13, SEGMENT INFORMATION FOR ENTERPRISE FUNDS .., I
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The City maintains eight enterprise funds, These funds operate primarily from
~roceeds of user charges. Segment information as of and for the year ended June ,..:;;
0, 1992, is as follows (amounts expressed in thousands): ' .
',I
Pollution
Parkin~ Control Water Sanitation ".::\
Results of operations: I
Operating revenues $ 2,233 $ 5,956 $ 3,551 $ 3,676 , ,
Depreciation 313 1,597 283 13
Operating income (loss) 898 2,362 1,072 1,207
Gain (losa) on disposal ~"-\
of fixed assets 127 (2) , ,
Operating grants
operatinf transfers (214) (7) 8 (29) ~"'I
. in (out, net ,
Interest expense 385 3,025 101 !
Net income (loss) 623 (167) 1,068 1,254 ,."
. Financial position: .'
Total aasets 12,471 70,761 10,068 3,421
Net working capital 3,720 8,994 2,502 1,683 ,....'
Property and equipment 434 1,229 820 1,078
additiona -
Bonded ,debt payable 5,503 38,334 1,640
Retained earnings ",
(deficit) 6,280 12,788 4,882 3,114
,Current capital 715 384
contributions
Total equity 6,336 30,823 7,992 3,151 ..
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CITY OF IOWA CITY, IOWA
NOTES TO FINANCIAL STATEMENTS
June 30, 1992
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CITY OF IOI1A CITY, IOWA
NOTES TO FINANCIAL STATl!lIl!NTS
June 30, 1992
NOTE 14. POST-RETIREMENT BENEFITS
All full-time employees that retire or become disabled are offered the following
post-employment health care benefit options:
Health insurance - The option of continuing with the City's health
insurance plan at the individual's own cost.
Life insurance - The option of converting the employee's Gity paid
policy from term insurance to whole life insurance at the indivi-
dual's expense with the City's life insurance carrier.
Long-term disability. The option of converting the employee's City
paid group policy to a personal policy at the individual's expense
with the City's long-term disability insurance carrier.
Terminating employees and their dependents have the opportunity to continue
health insurance, at the individual's expense, under the Consolidated Omnibus
Budget Reconciliation Act of 1985 or Chapter 509B of the Code of Iowa,
Continuation and Conversion of Group Health Insurance. Length of coverage is
determined by the qualifying event and the option chosen.
NOTE lS. SUBSEQUENT EVENTS
On July 1, 1992, the City called a portion, $1,135,000, of the outstanding May
1, 1986 parking revenue bonds. The "call" was financed by the issuance of new.
parking revenue bonds in June, 1992, as reflected in the financial statements.
On July 8, 1992, the City issued $4,870',000 of general obligation bonds to
finance the refunding of $4,550,000 of outstanding November 1, 1985 and August
1, 1986 issued general obligation bonds. The new bonds have interest rates
ranging from 3.4% to 5.5% and mature in varying' annual amounts ranging from
$80,000 to $1,000,000, with the final maturity due in the year ending June 30,
2002.
On September 29, 1992, the Gity issued $3,450,000 of general obligation capital
loan notes to finance a portion of the funds needed for improvements to the
City's parking system. The bonds have interest rates ranging from 4.75% to 5.2%
and mature in varying annual amounts ranging from $170,000 to $320,000, with the
final maturity due in the year ending June 30, 2007.
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The Special Revenue Funds are utilized to account for revenue derived from
specific sources which are required to be accounted for aa separate funds. The
funds in this category and their purpose are aa follows: .
Community Development Block Grant Fund. accounts for revenue from U.S.
Department of Housing and Urban Development Community Development Block
Grant programs. .
Other Shared Revenue and Grants Fund - accounts for revenue from various
sources, including road use tax monies and. reimbursable programs funded by
federal and state grants, .
Urban Development Action Grant Fund . accounts for the repayment of the
Urban Development Action Grant funds loaned to the downtown hotel,
Employee Benefits Fund - accounts for the employee benefits related to
those City employees who are paid through governmental fund types, which
are funded by a property tax levy,
Housing Authority Fund. accounts for the operations and activities of the
City' a low and moderate income housing assistance and public housing
programs.
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CITY OF IOWA CITY, IOWA
COMBINING STATEMENT OF REVENUE, EXPENDITURES
AND CHANGES IN FUND BALANCES
ALL SPECIAL REVENUE FUNDS
Year Ended June 30, 1992
(amounts expressed in thousands)
Other
Community Shared Urban
Development Revenue Development
Block and Action . ,
Grant Grants Grant
..,
REVENUES
Property taxes $ $ $ ,,'
Intergovernmental 502 3,329
Charges for services 68 ~,
Us.e of money 143 ~ I
and roperty 4
Misce laneous n:cl
Total revenues S 570 S 4 ""1
EXPENDITURES .',
Current operatin~:
Home and commun ty ,.."
environment $ 527 $ 110 $
Policy and
administration
Capital outlay $ 527 r::TIQ $
Total expenditures
Excess (deficiency) of
revenues over (under) $ S 3.364 S
expenditures 43 4
OTHER FINANCING USES
Operating transfers (34) (2.154) ,1-..
I to other funds (94)
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Excess (deficiency) of I
revenues over (under)
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FUND BALANCES, BEGINNING 2,340 90 ,
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FUND 8ALANCES, ENDING $ 9 $ 3.550 $ I
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CAPITAL PROJECTS FUNDS
, The Capital Projects Funds are utilized to account for all resources used in the
acquisition and construction of capital facilities and other ma10r fixed assets,
with the oxception of those that are financed by proprietary Eund monies. The
funds in this category are as follows: , .
Bridge, Street 'and Traffic Control Construction Fund accounts for the
construction or replacement of infrastructure fixed aasets such as
streets, bridges, dams, aidewa1ks, lighting systems, and storm sewers.
Other Construction Fund - accounts for the construction or replacement of
other City general fixed assets such as administrative' buildings with
various funding sources, including general obligation bonds, inter-
governmental- revenues, and contributions. . .
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CITY OF IOWA CITY, IOWA
-
COMBINING BALANCE SHEET , I
ALL CAPITAL PROJECTS FUNDS
Year Ended June 30, 1992 I
(amounts expressed in thousands) :"1 I
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Bridge, . ,
Street and
Traffic ..,
Control Other ,
ASSETS Construction Construction Total
Equity in pooled cash -,
and investments $ 8 $ 2,878 $ 2,886
Interest receivable 45 45
Total assets $ 8 $ 2.923 $ 2.93\ -,
"
LIABILITIES AND FUND BALANCES:
Liabilities:
Accounts payable $ $ 12 $ 12
Contracts payable 147 323 470
Due to other funds 435 435
Total liabilities $ 147 S 770 $ 917
Fund balances:
Reserved for encumbrances $ 543 $ 489 . $ 1,032
Unreserved - designated for '-
future imErovements' (682) , 1.664 ".982
Total fund a1ances $ (139) S 2.153 $ 2.014 .-,
Total liabilities and \....;
fund balances $ 8 U.923 $ 2.93\
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CITY OF IOWA CITY, IOWA
COMBINING STATEMENT OF REVENUE, EXPENDITURES AND
CNANGES IN FUND BALANGES
ALL CAPITAL PROJECTS FUNDS
Year Ended June 30, 1992
(amounts expressed in thousands)
REVENUES
Intergovernmental
Charges for services
Use of money and property
Miscellaneous
Total revenues
EXPENDITURES
Home and community
environment
Policy and administration
Capital outlay
Total expenditures
Deficiency of revenues under
expenditures
OTHER FINANCING SOURCES (USES)
Operating transfers
From other funds
(To) other funds
Bond proceeds
Total other financing
sources
Deficiency of revenues
and other financing sources
under expenditures and
other financing uses
FUND BALANCES, BEGINNING
Residual equity transfers out
FUND BALANCES, ENDING
8ridge,
Street and
Traffic
Control
Construction
$
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5
6
238
$
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$ (640)
$ 605
S 605
$ (35)
$ (80)
(24)
$ (139)
- 65 -
Other
Construction
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331
42
378
$
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$(3.361)
$ 3,302
(2,419)
2.101
$ 2.984
$ (377)
$ 2,904
(374)
$ 2.15~
Total
$
227
10
331
48
616
S
6
27
4 584
$ 4:617
$(4.001)
$ 3,907
(2,419)
2.101
S 3.589
$ (412)
$ 2,824
(398)
$ 2.014
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The Enterprise Funds are utilized to account for operations and activities that
are financed and operated in a manner similar to a private business enterprise,
and where the costs of providing goods or service a to the general public on a
continuing basis is expected to be financed or recovered. primarily through user
charges, or where the City has decided that periodic determination of revenues
earned, expenses incurred, and/or net income is appropriate for capital
maintenance, public policy, management control, accountability, or other
purposes. The funds in this category are as follows:
Parking Fund - accounts, for the operation and maintenance of all the
City's "on" and "off" street public parking facilities.
PolLution Control Fund - accounts for the operation and maintenance of the
City's water pollution control facility and sanitary sewer system.' ,
Water Fund - accounts for the operation and maintenance of the City's.
water system.
Sanitation Fund - accounts for the operation and maintenance'of the City's
solid waste collection system and landfill.
Airport .Fund - accounts for the operation and maintenance of the City's
airport facility. . ,
Mass Transportation Fund - accounts for the operation and maintenance of
the City's public transportation system.
Broadband TeLecommunications Fund . accounts for the operation and
maintenance of the Broadband Telecommunications Commission which oversees
the franchise agreement with the cable television company, including the
productions and broadcasting on the government television channels.
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CITY OF IOWA CITY, IOllA
COMBINING BALANCE SHEET 9
ALL ENTERPRISE FUNDS I
, I
June 30, 1992
(amounts expressed in thousands) ".j
Pollution : I
ASSETS Parking Control Water
Cash on hand $ 1 $ $ J:.l
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Equity in pooled cash and investments 841 158 1,388 (I
Receivables:
Accounts and unbi11ed usage 24 764 542
Interest 31 74 30 '9
Due from other funds 265 122 ,I
Due from other governments 10
Inventories 210
Restricted asaets - "1
Equity in pooled cash and investments 3,455 9,327 646 ,I
Bond issuance costs 33 94
Property and equipment: 1,480
Land 366 77 .....,
Buildings and structures 8,882 38,066 3,969 ,.1
Improvements other than buildings 10 31,154 6,540
Equipment and vehicles 151 166 1,112
Accumulated depreciation (2,959) (9,747) (4,837) r"
Property purchased for resale 28
Construction in'progress 522 36 269 :...
Total asaets $ 12.471 $ 70.761 S 10.068 ,-
LIABILITIES AND EQUITY l...
Liabili ties:
Accounts payable $ 51 $ 37 $ 69
Contracts payable 255 29
Accrued liabilities 70 94 92
Due to other funds 59
Due to other ~overnments 13
I Interest paya Ie 11 ' ,
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Liabilities payable from
. restricted assets:. ' I-~',
Interest payable 197 1,444
Deposits - - 251 ~
Bonded debt payable 5.503 38.334 ~
Total liabilities S 6.135 S 39.938 o 6 .'.,
Equity: -
Contributed capital $ 56 $ 18,035 $ 3,110 .
Retained earnin~s (deficit):
Reserved for ond ordinances 3,258 7,883 395
Unreserved 3.022 4.905 d1H
Total equity S 6.336 S 30.823
Total liabilities and equity $ 12.47\ $ 70.76t t 10.068
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--) Sanitation AirDort TransDortation Telecommunications Total
i $ $ $ 1 $ $ 2
, 1,261 4 784 324 4,760
..., 425 7 1,762
,
19 14 5 173
.-, 248 635
23 33
I 210
J 30 13,458
127
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i 176 1,914 293 40,087
I J 24 31 3,017 110 4,611
I (76) (1,152) (2,185) (34) (20,990)
28
1. 078 44 48 1.997
10 . ,
$ 3.421 $ 2.358 $ 4.406 S 436 $J03.921 I
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135 7 426
laI' 78 4 144 15 497
U 59
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-1 $ $ 3i8' $ 454H I
$ 270 37 45 $ 48:8
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3.114 Lilli) 240 207 15.470 I
S 3.151 S 4.088 391 55.102
$ 3.421 $ 2.358 $ 4.406 $ 436 $103.92\
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CITY OF IOWA CITY, IOWA ....
COMBINING STATEMENT OF CASU FLOWS . ,
ALL ENTERPRISE FUNDS
Year Ended June 30, 1992 ..,
(amounts expressed in thousands)
Pollution
Cash flows from operating activities: Parkin~ Control
Operating income (loss) $ 898 $ 2,362
Adjustments to reconcile operating income (loss)
to net cash provided (used) by operating activities: $
Depreciation 313 $ 1,595
Changes in assets and liabilities:
(Increase) decrease in receivables from
operating activities 2 (109)
Decrease in inventory
Increase (decrease) in deposits
Increase (decrease) in accounts and interfund
payables for operating activities 298 (411)
Increase (decrease) in accrued liabilities for
operating .activities (22) 36
Total adjustments S 591 S 1.111
I Net cash provided (used) by operating activities $ 1.489 $ 3.473
Cash flows from non-capital financing activities:
, Operating grants received $ $
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I Operating transfers . from other funds 9
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Operating transfers - (to) other funds (214) (16)
Net cash provided (used) by non-capital $
financing activities (214) S l7)
Cash flows from capital and related financing ~
activities:
Bond proceeds transferred in $ 1,190 $ 220
Acquisition and construction of property and equipment (512) (1,229)
\ Principal paid on bonded debt (220) (943)
Interest paid on bonded debt (396) (3,018)
Proceeds from the .sale of property and equipment 205 - - ~
Capital contributed for property and equipment 715
Capital contributed
Residual equity transfers out (11)
Transfers to restricted bond reserves 818 2,860 t-."
Payments from restricted bond reserves (2.302) (3.646)
Net cash used for capital and related ,-
financing activities S(1.217) $15.052)
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Cash provided by investing activities $ $
interest on investments 183 484 .-
Net increase (decrease) in caah and caah equivalents $ 241 (1,102)
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Cash and cash equivalents, beginning $ 601 $ 1.260
Cash and cash equivalents, ending $ , 842 $ 158 . ,
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The Internal Service Funds are utilized to account for goods and services'
'provided by one department to other'City departments on a cost reimburaement
. basis. The funds in this category are:
Equipment Maintenance Fund - accounta for the provision of maintenance for
City vehicles and equipment, and vehicle rental to other City departments
from a central vehicle pool.
Central Services Fund - accounts for the printing services and office
supplies inventory provided to other City departments.
Loss Reaerve Fund - accounts for the property and liability insursnce
premiums and claims activity for all City departments, including the self-
insured retention portion. .
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CITY OF IOIIA CITY, IOIIA
COMBINING BALANCE SHEET
ALL INTERNAL SERVICE FUNDS
June 30, 1992
(amounts expressed in thousands)
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CITY OF IOWA CITY, IOWA
COMBINING STATEMENT OF REVENUE, EXPENSES
AND CHANGES IN RETAINED EARNINGS I
ALL INTERNAL SERVICE FUNDS
Year Ended June 30, 1992 I
(amounts expressed in thousands)
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OPERATING REVENUES
'1 Miscellaneous $ 2,118 $ 250 $ 1,967 $ 4,335
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Personal services $ 657 $ 32 $ 1,620 $ 2,309
"l Commodities 750 51 3 804
J Servicea and charges 195 160 300 655
$ 1,602 $ . 243 $ 1,923 $ 3,768
Depreciation 422 25 447
- Total operating expenses S 2.024 S 268 S 1.923 S 4.215
I :.1 Operating income (loss) $ 94 $ (18) $ 44 $ 120
NONOPERATING REVENUES
0 Gain ondiaposa1 of 2
property and equipment 2
Interest income 54 9 79 142
'Fl Income before operating
I :- transfers 150 (9) 123 264
OPERATING TRANSFERS
J From other funds 131 131
\ Net income (loss) $ 150, $ (9) $ 254 $ 395
-.-\ RETAINED EARNINGS, BEGINNING 2.587 274 1.282 4.143
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RETAINED EARNINGS, ENDING' $ 2.737 $ 265 $ 1.536 $ 4.538 I
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COMBINING STATEMENT OF CASH FLOWS
ALL INTERNAL SERVICE FUNDS I'
Year Ended June 30, 1992
(amounts expressed in thousands) ..,
Equipment Central 11
Maintenance Services
Cash flows from operating activities: -'
Operating income (loss) $ 94 $ (18)
Adjustments to reconcile operating income (loss)
to net cash provided by operating activities:
Depreciation 422 25
Changes in assets and liabilities:
Decrease in receivables from
operating activities 266 18
Increase in inventory (79)
Increase (decrease) in accounts and interfund
payables for operating activities 1 (13)
Decrease in accrued liabilities
for operating activities oH ~
Total adjustments
Net cash provided by operating activities $ 732 $ 14
Cash flows from non-capital financing activities: :
Operating transfers - from other funds ....1
Cash flows from capital and related financing ""
activities: i
Acquisition and construction of property 1_.
and equipment . . $ (600) $ (3)
Proceeds from the sale of equipment 2
Capital contributed for property and equipment 204
Capital contributed
Net cash provided (used) for capital and $ (394) $
related financing activities (3) t'l
Cash provided by investing activities _ ....A
\ interest on investments $ 36 $ 6 I
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Gash and cash equivalents, beginning $ 1.563 $ 158 I
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FIDUCIARY FUNDS
TRUST AND AGENCY FUNDS
The Trust and Agency Funds are used to account for assets held by the City in a
trustee or custodial capacity for the City's two pension and retitement funds,
three bond trust funds, and for other entities, such as individuals, private
organizations, or other governmental units. These fund types are categorized as
follows: .
Pension Trust Funds
The City maintains two pension trust funds for City employees as follows:
Fire Pension and Retirement Trust Fund
Police Pension and Retirement Trust Fund
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As of January 1, 1992, the responsibility for these Police and Fire Syatems
was transferred to the newly created statewide multiple-employer system, the
Municipal Police and Fire Retirement System of Iowa.
Expendable Trust Funds
Johnson County Council of Governments Trust Fund - accounts for the financial
activities of the metropolitan/rural cooperative planning organization.
Water Revenue Bonds Funded Trust Fund - accounta for the investments placed
in a self-administered trust, which, along with the earnings thereon, are
expected to pay the outstanding water revenue bonds and the related interest
aa they mature.
Sewer Revenue Bonds Funded Trust Fund - accounts for the investments placed
in a ae1f-administered trust, which, along with the earnings thereon, are
expected to pay the outstanding sewer revenue bonds and the related interest
as they mature.
Sewer General Obligation Bonds Refunding Trust Fund - accounts for the
investments placed in a self-administered trust, which, along with the
earnings thereon, are expected to pay the outstanding tax-abated portions of
the general obligation bond issues that had been a liability of the Pollution
Control Fund.
Agency Funds
The City acta as custodian for the following funds:
Project Green - accounts for donations that are received to plant and develop
yards and lawns, both public and private, within Iowa City.
Mayor's Youth Employment Program - accounts for State grants and local
contributions to provide jobs for disadvantaged youth in Johnson County at
various' private non-profit, public organizations and private sector work
sites.
Employee Deferred Compensation Fund - accounts for assets held for emp10yeea
in accordance with tho provisions of Internal Revenue Code Section 457.
Eligible employees are allowed to defer a portion of their salary until later
years.
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COMBINING STATEMENT OF REVENUE. EXPENSES
AND CHANGES IN FUND BALANCES
ALL PENSION TRUST FUNDS ..
Year Ended June 30, 1992 I
(amounts expressed in thousands)
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! Fire Pension Police Pension I
& Retirement & Retirement 1
J Trus t Trust Total
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, OPERATING REVENUES
._! Interest $ 1,179 $ 1,049 $ 2,228
Contributions o:m r::dH 2.m
Total operating revenues $
OPERATING EXPENSES
Peraonal aervices:
Pension benefits $ 106 $ 51 $ 157
Disability benefits 146 117 263
Death benefits 25 23 48
Total personal aervices $ 277 $ 191 $ 468
--, i
1 Income before operating I
..J transfers 1,200 1,127 2,327
..., NON OPERATING EXPENSES !
I Liquidation transfers out (9.244) (8.534) m.778)
1..1
Net loss $ (8,044) $ (7,407) $(15,451)
n FUND BALANCES, BEGINNING 10,503 9,472 19,975
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Residual equity transfers out (2.459) (2.065) (4.524)
:; FUND BALANCES, ENDING $ $ $
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CITY OF IOWA CITY. IOWA
COMBINING BALANCE SHEET
. ALL EXPENDABLE TRUST FUNDS
June 30, 1992
(amounts expressed in thousands)
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Council of Bonds Funded
ASSETS Governments Trust Trust
Equity in pooled cash and investments $ 42 $ 35
Intereat receivable 1
Due from other governments 4
Total assets $ 47 $ 35
LIABILITIES AND FUND BALANCES
Liabilities:
Accrued liabilities 8
Interest cayable
80nded de t payable 35
. Total liabilities S 8 $ 35
Fund balances:
Reserved for .Johnson County $ $
Council of Governments 39
Unreserved
Total fund balances $ 39 $
Total liabilities
I and fund balancea $ 47 $ 35
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CITY OF IOWA CITY. IOWA
COMBINING STATEMENT OF REVENUE. EXPENDITURES AND
CHANGES IN FUND BALANCES
ALL EXPENDABLE TRUST FUNDS
Year Ended June 30, 1992
(amounts expressed in thousands)
REVENUES
Intergovernmental
Charges for services
Use of money and property
Total revenues
EXPENDITURES .
Current operating:
Home and community environment
Debt service:
Interest and fiscal charges
. Total. expenditures
Excess (deficiency) of revenues
over (under) expenditures
OTHER FINANCING SOURCES (USES)
Operating transfers from other funds
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Total operating transfers in (out)
Excess (deficiency) of revenues
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FUND BALANCES, BEGINNING
,FUND BALANCES, ENDING
- 86 -
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Council of Bonds Funded
Governments Trust Trust
$ 96 $
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OTHER SUPPLEMENTAL INFORMATION
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CITY OF IOIIA CITY, IOWA
GENERAL GOVERNMENTAL* EXPENDITURES BY FUNCTION AND TRANSFERS TO OTHER FUNDS
Last Ten Fiscal Years
General Fund
Fiscal Year Home and Debt Service
Ended Community Human Community Policy and Capital & Long-term
June 30 Protection! Deve10oment2 Environment3 Administration\ Out1av Leases
1983 $3,302,480 $2,200,152 $2,222,301 $1,980,321 $542,939
1984 3,700,870 2,329,385 2,329,256 2,549,846 553,341
p,-'
1985 3,791,213 2,524,013 2,234,655 2,450,267 593,781 14,935
1986 4,076,151 2,625,124 2,538,923 3,049,805 950,667
,..'
1987 4,869,507 2,702,979 2,451,956 2,665,556 540,926 124,615
1988 5,111,978 2,820,531 2,596,722 3,439,164 987,322 126,094
1989 5,432,653 3,302,076 2,583,718 3,327,315 469,993 87,839
1990 5,826,264 3,686,333 2,721,937 3,449,316 429,895 123,839
1991 6,450,056 3,927,401 3,459,993 3,465,776 806,321 32,852
1 1992 7,337,927 4,670,023 2,527,674' . 3,918,755 625,036 3,987
!
:
,
*Genera1 Fund, Debt Service Fund and Special Revenue Funds.
**Housing.Authority was an Enterprise Fund prior to .fisca1 year ended.June 30, 1992.
I
!Inc1udes Police, Fire, Housing and Inspection Services, Traffic Engineering.
2Inc1udes Recreation, Library, Senior Center, Parks, Animal Control.
3IncludeaEngineering, Streets Maintenance, Forestry & Cemetery, Public Works Adminiatra-
tion.
\Iricludes Legislative, Executive, Financial Administration, Government Buildings, Escrows,
Clearing Accounts, Planning & Program Development,
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Communi ty Other Shared Urban
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:..! Block Grant and Grants Action Grant Benefits Authori t:y
$1,224,944 $139,742 $ $687,583 $ **
-
U 1,034,447 50,413 704,888 **
{ 561,209 62,146 688,357 **
! ...
I! 802,524 164,230 724,026 **
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!: 775,607 181,436 100,000 90,104 **
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t 965,106 103,172 1,260 53,039 **
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~ ['. 717,032 21,538 74,679 **
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i r 526,991 110,360 47,000 2,907,767
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CITY OF IOWA CITY, IOiA "'l
: I
GENERAL GOVERNllENTAL* EXPENDITURES 8Y FUNCTION AND TRANSFERS TO OTHER FUNDS
Last Ten Fiscal Years
, (Page 3 of 3) "I
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(continued) ~,l
Fiscal Year ,I
Ended Transfers to
June 30 Debt Service Other Funds Total :-I
1983 $1,595,353 $2,786,392 $16,682,207
1984 1,575,052 2,705,233 17,532,731 '"
,
1985 1,785,773 3,249,739 17,956,088 ,I
1986 1,934,725 3,061,493 19,927,668 ~,;"
1987 2,733,690 3,629,289 20,865,665 ,_.
1988 3,014,113 4,217 ,900 23,436,401
1989 2,946,043 4,274,238 23,234,396
1990 2,587,466 6,320,807 25,959,106
1991 2,760,575 5,978,096 27,739,501
1992 2,906,943 7,332,547 32,915,010
*Genera1 Fund, Debt Service Fund and Special Revenue Funds.
**Housing Authority was an Enterprise Fund prior to fiscal year ended June 30,
1992. . .
lIncludes Police, Fire, Housing and Inspection Services, Traffic Engineering. .
zIncludes Recreation, Library, Senior Center, Parks, Animal Control.
3Inc1udes Engineering, Streets Maintenance, Forestry & Cemetery, Public Works
Administration.
IIncludes Legislative, Executive, Financial Administration', Government
Buildings, Escrows, Clearing Accounts, Planning & Program Development.
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CITY OF IOIIA CITY, IOWA
GENERAL GOVERNHENTAL* REVENUES BY SOURCE AND TRANSFERS FROM OTHER FUNDS
Last Ten Fiscal Years
Fiscal Year Intergov-
Ended Property Licenses and ernmental Charges for Fines and
June 30 Taxes Permits Revenue Services Forfeitures
1983 $8,790,134 $314,665 $4,075,418 $1,226,069 $285,157
3,736,106 f"..'
1984 8,831,566 343,605 1,383,799 311,117
1985 9,531,554 243,680 3,662,155 1,405,759 328,934 -
,
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1986 10,526,175 310,341 4,000,077 1,560,871 365,709
1987 11,333,554 332,213 3,854,607 . 1,735,282 345,455 -.
,
1988 13,222,936 367,403 3,883,193 1,890,655 391,710 h.,
1989 13,899,249 403,831 4,240,781 2,195,845 381,292
1990 14,462,683 458,409 4,136,160 2,334,487 450,884 ;..,
1991. 15,090,665 415,403 4,574,624 2,553,766 448,035
. .1992 15,803,215 452,476 8,824,731 .1,508,899 **
*Includes General Fund, Debt Service Fund and S~ecia1 Revenue Funds.
**Reclassed as miscellaneous revenue in Fiscal 1 92. .
\ NOTE: As of Fiscal 1992, the Housing Author~ty Fund is reported as a Special Revenue
Fund.
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1 $238,089 $723,259 $1,744,884 $17,397,675
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249,101 569,205 1,749,899 17.174,398
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I 279,051 500,553 2,443,657 18,395,343
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'I 428,130 594,832 2,860,066 21,484,139
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l 561,920 1,045,364 2,804,432 25,532,714 !
-
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:1 703,013 861,086 4,453,430 29,100,022 I
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CITY OF IOWA CITY, IOIIA
PROPERTY TAX RATES & TAX DOLLARS BUDGETED
-., Last Ten Fiscal Years
.1 Tax Ratesl ,
Fiscal Agri- I
~ Year Total cultural I
,I Ended Employee Tort Debt City Land
June 30 General Benefits Liabilitv Service Transit Tax Rate Tax Rate
1 1983 $8.100 $1.570 $.369 $2.602 $ - . $12.641 $3.004
1984 8.100 1.691 .089 1.848 .180 11.908 3.004
. I 1985 7.718 .758 .166 1.830 .180 10.652 3.004
,hl
1986 7.510 .693 .370 1.952 .360 10.885 3.004
1987 7.107 .415 .835 1.892 .360 10.609 3.004
1988 7.143 .709 .696 2.520 .481 11.549 3.004
1989 7.991 .619 2.545 .540 11.695 3.004
1990 8.100 1.135 2.253 .540 12.028 3.004
1991 8.100 1.336 2.152 .540 12.128 3.004
1992 8.100 1.927 2.103 .540 12.670 3.004
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0 FiScal Tax Dollars BudEeted
Year Agri- .
Ended Trust Tort Debt cultural
['" June 30 General & A~encv Liability Service Transit Land I9.lli
d 1983 $5,602,550 $1,077,570 $253,030 $1,786,481 $ $7,752 $8,727 , 383
1984 6,055,152 1,255,169 66,369 1,372,150 133,638 8,106 8,890,584
:l 1985 6,901,472 673,852 147,338 1,626,935 159,991 9,386 9,518,974
1986 7,247,084 664,657 355,300 1,872,145 345,354 9,508 10,494,048 .
\oJ 1987 . 7,555,463 438,917 882,438 2,003,195 380,077 9,702 11,269,792
\ 1988 8,072 ,129 757,208 743,438 2,700,618 513,520 9,881 12,796,794 .
-, 1989 9,490,012 700,982 2,900,091 611,413 8,327 13,710,825
I 1990 9,733,205 1,302,139 2,600,000 619,399 8,233 14,262,976
....i 1991 .10,146,497 1,603,083 2,600,000 647,911 6,943 15,004,434 ,
1992 10,313,580 2,363,751 2,600,000 662,290 6,647 15,946,268 !
I
ITax rate per $1,000 of taxable valuation. I
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CITY OF IOllA CITY, IOllA
ASSESSED AND ESTIMATED ACTUAL VALUE OF TAXABLE PROPERTY
AND I!XI!lIPT PROPIlRTY
Last Ten Fiscal Years
Collection Taxable Property
Assessed Value/
Assessment Year Ended Estimated Exemp t
J anuarv 1 June 30 Actue1 Value Pronertv Value
I 1983 1985 $1,124,655,722 $48,265,500
! 1984 1986 1,170,515,229 48,265,500
_J
1985 1987 1,249,035,135 50,934,100
, I 1986 1988 1,246,381,671 60,943,030
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I 1987 1989 1,291,185,431 60,986,750
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I 1988 1990 1,308,653,903 62,575,700
I 1989 1991 1,380,338,603 67,777,410
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I 1990 1992 1,416,495,886 74,864,125
I 1,.,
f 1991 1993 1,554,754,159 76,185,008
,
I'l 1992 1994 1,599,346,986 84,432,207
H
f'.iI NOTES:
, I
bi Proparty is reassessed in the odd number years to make adjustments to all property values
according to current market values.
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Source: Gity of Iowa City Assessor's Office
Aa per the Code of Iowa, Volume II, Chapter 441, paragraph 441.21 La., "All real and
tangible personal property aubject to taxation shall be valued at its actual value and,
except as otherwise provided, snaIl be assessed at one hundred percent of its actual value,
and the value ao assessed shall be taken and considered as the aasesaed value and taxable
value of the property upon which the levy shall be made."
Taxable property includes real property, buildings and structures, industrial plant and
fixtures, commercial equipment assessed as real property, utilities distribution property
and, through 1985 assessment year, personal property.
Exempt property includes that owned by religious and educational institutions, charitable and
benevolent societiea, low rent housing, and associations for war veterans. Each must apply
for property tax exempt status with the City Assessor, who determines if the property
qualifies under state guidelines. Exempt property is assessed each year like other taxable
property. Property owned by govarnmental entities is not taxable and is not included in
"Exempt Property."
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CITY OF IOIlA CITY, IOWA '1
PROPERTY TAX RATES . ALL DIRECT AND OVERLAPPING GOVERNHENTS 1>1 I
Last Ten Fiscal Years
(per, $1,000 asseased valuation) Ii
Iowa City Kirkwood Ratio of
, Collection School City of Johnson Area State yf Iowa City ""
,
, ~ ,
f Year District Iowa City Count;y Iowa Total ,to Total
1 , ,
I
I 1982-83 $13.657 $12.641 $5.526 $.466 $ - - $32.290 39.1%
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1 1983.84 13.367 11.908 5.768 .459 31.502 37.8
f ,.
i 1984-85 11.374 10.652 5.164 .444 .015 27.649 38.5
! ....
1985-86 11.247 10.885 4.894 .445 .010 27.481 39.6
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1986-87 11.381 10.609 4.915 .445 .005 27.355 38.8
....
1987-88 10.928 11.549 4.912 .472 .005 27.866 41.4
-.-. I
1988-89 10.817 11.695 5.043 .475 .005 28.035 4L7
1989.90 1L 042 12.028 4.992 .482 .005 28.549 42.1
!
1990-91 11.347 12.128 5.327 .481 .005 29.288 4L4
1991-92 lL 081 12.670 5.667 .502 .005 29.925 42.3
Source: "Tax Levies for Johnson County, Iowa," compiled by the Johnson County Auditor. ,-
IUntil 1983-84, the county levied a tax for testing livestock for brucelloais and ..
tuberculosis. Beginning in 1984-85, this tax is levied bl, the State of Iowa.
2Inc1udes Johnson County, Assessor and Agricultural Extens on levy.
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! CITY OF IOWA CITY, IOWA
PRINCIPAL TAXPAYERS AND EHPLOYl!RS
~ Fiscal Year Ended June 30, 1992
% of Total
Taxable Assessed
Ten largest taxpayers!: Tyoe of Business Valuation Valuation
....,
, Iowa-Illinois Gas & Electric2:
1 Public Utility $ 58,290,354 3.64%
J Old. Capitol Center Partners Shopping Center 18,684,180 1.17
James & Loretta Clark Apartments 16,478,749 1.03
'I & Pentacreat Garden
Procter & Gamble Personal Products 15,916,379 . 1.00
Manufacturing
Southgate Development Real Estate Developer 15,617,220 0.98
'I United Technologies Automotive Automotive Products 12,297,344 0.77
, Manufacturing
,__i Ora1-B Laboratories Brush Manufacturing 12,041,381 0.75
H.P. Smith Paper Co. Paper Manufacturing 10,895,622 0.68
I .American College Testing Educational Testing 10,831,906 0.68
Service
\<..J Sycamore Mall Shopping Center 10.235.940 0.64
TOTAL $181.289.075
,-,
I ! I Total Assessed Value $1,599,316,986
! Id Ten Largest Taxpayers as a Percent of Total Assessed Value 11.34%
I
10 Ten maj or employers3:
I
pl University of Iowa 20,117
i I Mercy Hospital 1,067
\", Iowa City Community Schools 1,050
Veterans Administration Hospital 1,049
~ City .of Iowa City 1,025
American College Testing 880
United Technologies Automotive 875
\ National Computer Systems 866
Procter & Gamble 721
] Hy-Vee 492 I
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Sources: I
..I !City of Iowa City Assesaor's Office I
2State Department of Revenue I
3Job Service of Iowa and the respective employer
(including full and part-time employees)
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CITY OF IOWA CITY, IOWA
SPECIAL ASSESSMENT COLLECTIONS
Last Ten Fiscal Years
,
f. Fiscal Year Special Special Ratio of Total
\
t Ended Asseasments Assessments Collection to Outstanding
:/ June 30 Billed Collected Amount Billed Assessments
~
j 1983 $57,851 $90,080 155.7% $346,691
,
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I 1984 48,793 32,701 67.0 314,915
I 1985 53,015 57,208 107.9 405,779
1986 52,827 83,017 157.1 731',452
1987 80,371 106,462 132.5 614,990
1988 64,816 75,193 116.0 543,851
1989 62,102 79,373 127.8 464,479
1990 207,181 273,976 132.2 240,778
1991 46,058 59,117 128.4 181,662
1992 29,005 35,047 120.8 154,165
Source: Johnson County Treasurer's Office .
'Special Assessments Collected' include the amounts received on the. special
assessments, past due assessments and the future inatallments. , .
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CITY OF IOWA CITY, IOl/A
{- RATIO OF ANNUAL DEBT SERVICE EXPENDITURES FOR
GENERAL BONDED DEBT TO TOTAL GENERAL GOVElllOO!NTAL* EXPENDITURES I
Last Ten Fiscal Years I
Total I
General
Fiscal Year Governmental Ratio of Debt ,
Ended Total Expenditures Service to General I
June 30 Princina1 Interest Debt Service and Transfers Exnenditur.es I
I
1983 $1,036,713 $558,640 $1,595,353 $16,682,207 $.10 : 1.00
1984 948,799 626,253 1,575,052 17,532,731 .09 : 1.00
1985 1,203,720 582,053 1,785,773 17,956,088 .10 : 1:00
1986 1,278,670 656,055 1,934,725 19',927,668 .10 : 1.00
- I
1987 1,709,623 1,024,067 2,733,690 20,865,665 .13 : 1.00
1988 2,072,138 941,975 3,014,113 23,436,401 .13 1.00
1989 2,014,905 931,138 2,946,043 23,234,396 .13 1.00
1990 1,750,708 836,741 2,587,449 25,959,106 .10 : 1.00
1991 1,938,161 822,385 2,760,546 27,739,501 .10 1.00
1992 2,080,450 826,493 2,906,943 32,915,010 .09 1.00
*Ganeral Fund, Debt Service Fund and Special Revenue Funds.
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Clear Creek .
Total
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CITY OF IOWA CITY, IOWA
COMPUTATION OF DIRECT AND OVERLAPPING DEBT
June 30, 1992
Total General
Long-Term
Bonded Debt
Outstandin~
Amount
Applicable
to the
City of
Iowa City
$10,929,385
1 326
llo. 930: 711
% Applicable
to the
City of
Iowa Citv
$10,929,385
~62 64~
$11. 92:02
100.0%
.20%
Per capita assessed value
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Per Caoita
$183
$183
$26 . 773
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CITY OF IOWA CITY, IOWA -I
SCHEDULE OF REVENUE BOND COVERAGE ' 1
Last Ten Fiscal Years
~
Fiscal
Year Net Revenue Annual Debt Service
Ended Available for Ratio of
June 30 Revenue Exnensesl Debt Service Princinal Interest Total Govera~e
Parking Revenue2
1983 $1,132,348 $575,427* $ 556,921 $105,000 $335,483 $440,483 1.26
1984 1,243,865 714,304 529,561 115,000 331,290 446,290 1.19
1985 1,605,764 879,798 725,966 120,000 323,065 443,065 1.64
1986 1,723,721 868,109 855,612 130,000 319,934 449,934 1.90
1987 1,946,716 908,235 1,038,481 60,000 490,388 550,388 1.89
1988 2,033,581 931,347 1,102,234 165,000 460,838 . 625,838 1.76
1989 2,186,770 954,264 1,232,506 170,000 448,388 618,388 1.99
1990 2,271,200 983,193 1,288,007 180,000 435,113 615,113 2.09
1991 2,345,059 982,676 1,362,383 195,000 418,859 613,859 2.22
1992 2,430,052 1,021,905 1,408,147 220,000 385,014 605,014 2.33 ....'
Sewer Revenue3
1983 $1,624,226 $751,993 $872,233
1984 1,658,726 821,689 837,037
1985 1,803,449 858,948 944,501
1986 1,793,385 965,058 828,327
1987 3,077,248 978,509 2,098,739
1988 4,784,726 983,028 3,801,698
1989 5,637,6941,034,639 4,603,055
1990 4,901,5971,407,522 3,494,075
1991 6,024,0161,757,711 4,266,305
1992 6,458,9511,997,200 4,461,751
\
Note:
$65,000
65,000
70,000
70,000
$36,637 $101,637 8.58
35,340 100,340 8.34
33,070 103,070 9.16
30,298 100,298 8.26
794,426 794,426 2.64
3,022,550 3,022,550 1.26
3,022,550 3,022,550 1.52
2,997,850 3,647,850 .96
2,925,650 3,550,650 1.20
3,025,108 3,750,108 1.19 --
650,000
625,000
725,000
:-.
*The fiscal year ended June 30, 1983 expense amount is stated at $190,720 less than the June
30, 1983, Parking Fund operating expenses, due to parking lot improvements that were
expensed and should not be considered for revenue bond coverage purposes.
IExc1udes depreciation.
2Parking Revenue bonds ratio of "Net Revenue Available for Debt Service" to "Total Annual
Debt Service" is required to be at least 1.25.
3Sewer Revenue bonds ratio of "Net Revenue Available for Debt Service" to "Total Annual Debt
Service" is required to be at least 1.10.
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Source: U.S. Department of Commerce, Bureau of the Census
IPercent of Population completing 12 years of formal schooling or more.
NA - Not Available
*Iowa Retail Sales & Use Tax Report, State of Iowa Department of. Revenue & Finance.
School Enrollment Unemployment
Fiscal Year Public' Private'. Rate'
1983 . 8,226 632 3.7
1984 8,278 613 2.9
1985 8,222 617 1.9
1986 . 8,355 611 2.1
1987 8,595 616 1.7
1988 8,693 626 1.9
1989 8,971 649 1.1
1990 9,103 677 1.7
1991 9,380 729 1.7
1992 9,658 746 2.3
Notes:
2Source: Iowa City Community School District Office
3Source: Local Private School Offices
'Source: Job Service of Iowa
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,CITY OF IOWA CITY, IOWA '4
, ,
PROPERTY VALUE, BUILDING PERMITS AND BANK DEPOSITS
Last Ten Fiscal Years -
. ,
Fiscal New Construction
Year Prooertv Value! Number
Ended of Value
June 30 Real Personal Exemot Permits of Permits2 l'
1983 $1,093,527,819 $31,127,903 $48,265,500 305 $31,198,875
~
1984 1,139,387,378 31,127,851 48,265,500 322 39,031,017 .',
1985 1,217,907,203 31,127,932 50,934,100 152 15,007,197
,~
1986 1,246,381,671 60,943,030 160 17,628,326 ' i
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1987 1,291,185,431 60,986,750 178 12,749,684
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1989 1,380,338,603 67,777,410 229 42,280,347
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1990 1,416,495,886 74,864,125 238 40,654,531 1
, '
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1991 1,554,754,159 76,185,008 234 27,166,679
~'
1992 1,599,346,986 84,432,207 256 31,069,885
!Source: Iowa City Assessor's Office .'
2Permit values are based on estimated construction costs. . .
3Loca1 Bank Offices - Hills Bank & Trust, Perpetual Savings, Iowa State Bank & Trust,
Hawkeye State Bank, First National Bank, Mid-America Savings Bank, Federal Employees
Credit Union, New Pioneer Co-op Credit Union, Moore Business Forms Employees Credit
Union, and the University of Iowa Community Credit Union. .. .
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i Reoair and Add tions
',.i Number Value Number Value Credit Union
of Permits of Permits2 of Permits of Permits DeDositsl
;J 227 $8,091,460 532 $39,290,335 $585,016,818
230 4,533,696 552 43,564,713 711,728,141
0 302 5,879,171 454 20,886,368 527,099,643,
265 5,961,549 425 23,589,875 552,479,139
0 321 7,418,621 499 20,168,305 578,988,052
337 9,491,296 505 25,160,157 583,625,877
0 276 5,942,952 468 48,223,299 609,260,674
302 8,184,805 540 48,839,336 655,388,971 i
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CITY OF IOIlA CITY, IOIlA
MISCELLANEOUS STATISTICAL DATA
Fiscal Year Ended June 30, 1992
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Sewers:
Lift stations (active)
Miles of sanitary sewers (approx.)
, . Cemetery
Recreation:
Municipal parks
Number of parks
Number of acres
Municipal swimming pools
Golf courses - non-municipal
Other municipal facilities:
Recreation Center
Ball diamonds.
Tennis courts
Senior Center
Parking:
Parking ramps/spaces
Parking lots/spaces
On-street meters
Landfill :
Number of account receivable customers
Tons (charge and cash)
Sanitation:
Number of customers
Tons
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April 6, 1853 I
CouncilfManager
13,961 acres
208
11
2,312
1 -
56 1
,
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3 r-
50
15,554
6,700,000
190
12 ,
179
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8/515
870
244 I
79,898 I
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i.!/ ERNST & YOUNG
. fir~t COfpor.lll' Place . Phone: 319 ]631090
100 fjrsl 51re'I 5,IV, Ij2~U~1 f.lX: JI9 J6J ~768
P,O, Bo, 7 ~BBB
CL'CI,lr R,lpids. Iowa 52407.4888
Report of Independent Auditors on the
Schedule of Federal Financial Assistance Programs
-,
The Honorable Mayor and Members of the City Council
City ofIowa City, Iowa
We have audited the general purpose financial statements of the City oflowa City, Iowa
for the year ended June 30, 1992, and have issued our report thereon dated October 28,
1992. These general purpose financial statements are the responsibility of the City's
management. Our responsibility is to express an opinion on these general purpose
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards,
Chapter 11 of the Code of Iowa and Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the general purpose
financial statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the general purpose
fmancial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall general
. purpose financial statement presentation. We believe that our audit provides a reasonable
basis for our opinion.
Our audit was conducted for the purpose of forming an opinion on the general purpose
financial statements of the City of Iowa City, Iowa taken as a whole. The accompanying
schedule of federal financial assistance programs is presented for purposes of additional
analysis and is not a required part of the general purpose financial statements. The
information in that schedule has been subjected to the auditing procedures applied in our
audit of the general purpose financial statements and, in our opinion, is fairly stated in all
material respects in relation to the general purpose financial statements taken as a whole.
,
.~
~
t>~yh
October 28, 1992
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CITY OF IOWA CITY, IOWA
Notes to Schedule of Federal Financial
Assistance Programs
Year Ended June 30, 1992
(1) General
The accompanying Schedule of Federal Financial Assistance Programs
presents the activity of all federal financial assistance programs of the
Gity of Iowa City, Iowa, for the year ended June 30, 1992. The City of
Iowa City reporting entity is described in Note 1 to the City's general
purpose financial statements. All federal financial assistance received
directly from federal agencies as well as federal financial assistance
passed through other government agencies is included on the Schedule.
Expenditures include, where appropriate, the City's matching monies.
(2) Basis of Accounting
The accompanying Schedule of Federal Financial Assistance Programs is
presented using the cash basis of accounting (cash receipts are .recorded
in the year cash is' received by the City and cash disburaements are
recorded in the year the City issued the warrant). Federal financial
assistance revenues are reported in the City's general purpose financial
statements on the modified accrual/accrual basis of accounting, which is
described in Note 1 to the City's general purpose financial atatements.
- 120 -
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S!J ERNST & YOUNG
. First Corpor.lte PI,lCt~ . Phone: 319 363 1090
100 first 5""1 S,\V, IS1~O~1 f.,,: 3193634766
P,O, 60x 74666 .
Ced.u R,lpids. lowel 52,107.4888
Report of Independent Auditors on the Internal Control
Structure in Accordance With Government Auditing Standards
The Honorable Mayor and Members of the City Council
City ofIowa City, Iowa
We have audited the general purpose financial statements of the City of Iowa City, Iowa
as of and for the year ended June 3D, 1992, and have issued our report thereon dated
October 28, 1992.
We conducted our audit in accordance with generally accepted auditing standards,
Chapter 11 of the Code of Iowa and Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards require that we plan and
perform the aullit to obtain reasonable assurance about whether the general purpose
fmancial statements are free of material misstatement.
In planning and performing our audit of the general purpose financial statements of the
City of Iowa City, Iowa for the year ended June 3D, 1992, we considered its internal
control structure in order to determine our auditing procedures for the purpose of
expressing our opinion on the general purpose financial statements and not to provide
assurance on the internal control structure.
The management of the City is responsible for establishing and maintaining an internal
.control structure. In fulfilling this responsibility, estimates and judgments by manage-
ment are required to assess the expected benefits and related costs of internal control
structure policies and procedures. The objectives of an internal control structure are to
provide management with reasonable, but not absolute, assurance that assets are
safeguarded against loss from unauthorized use or disposition and that transactions are
executed in accordance with management's authorization and recorded properly to permit
the preparation of general purpose financial statements in accordance with generally
accepted accounting principles. Because of inherent limitations in any internal control
structure, errors or irregularities may nevertheless occur and not be detected. Also,
projection of any evaluation of the structure to future periods is subject to the risk that
procedures may become inadequate because of changes in conditions or that the effec-
tiveness of the design and operation of policies and procedures may deteriorate.
For the purpose of this report, we have classified the significant internal control structure
policies and procedures in the following categories: cash receipts, cash disbursements,
payroll disbursements, assets and liabilities.
For all the internal control structure categories listed above, we obtained an under-
standing of the design of relevant policies and procedures nnd whether they have been
placed in opemtion, and we assessed control risk.
- 121 -
177
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go ERNST & YOUNG
Our consideration of the internal control structure would not necessarily disclose all
mailers in the internal control structure that might be material weaknesses under
standards established by the American Institute of Certified Public Accountants. A " !
material weakness is a condition in which the design or operation of one or more of the
specific internal control structure elements does not reduce to a relatively low level the
nsk that errors or irregularities in amounts that would be material in relation to the
general purpose financial statements being audited may occur and not be detected within
a timely period by employees in the normal course of performing their assigned
functions. We noted no matters involving the internal control structure and its operation
that we consider to be material weaknesses as defined above.
However, we noted certain matters involving the internal control structure and its
operation that we have reported to the management of the City in a separate letter dated
October 28, 1992.
This report is intended for the information of the City, the cognizant oversight agencies
and other federal and state grantor agencies. This is not intended to limit the distribution
of this report, which is a matter of public record.
~fh
October 28, 1992
t-
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S!J ERNST & YOUNG
. First Corpor,llc PI,lec . Phone: ]19 J6J 1090
100 fillt 51"'1 5,W, 1;24041 fa>: 3193634768
P,O, Box 74888
(roM R.1pids, low.1 52~07.-l866
Report of Independent Auditors on Compliance
With Laws and Regulations in Accordance With
Government Auditing Standards
The Honorable Mayor and Members of the City Council
City of Iowa City, Iowa
We have audited the general purpose financial statements of the City of Iowa City, Iowa
as of and for the year ended June 30, 1992, and have issued our report thereon dated
Octolier 28, 1992.
We conducted our audit in accordance with generally accepted auditing standards,
Chapter I I of the Code of Iowa, and Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the fmancial statements
are free of material misstatement.
Compliance with laws, regulations, contracts and grants applicable to the City is the
responsibility of the City's management As part of obtaining reasonable assurance about
whether the financial statements are free of milterial misstatement, we performed tests of
the City's compliance with certain provisions of laws, regulations, contracts and grants.
However, the objective of our audit of the general purpose financial statements was not to
provide an opinion on overall compliance with such provisions. Accordingly, we do not
express such an opinion.
The results of our tests indicate that, with respect to the items tested, the City complied,
in all material respects, with the provisions referred to in the preceding paragraph. With
respect to items not tested, nothing carne to our attention that caused us to believe that the
City had not complied in all material respects, with those provisions.
This report is intended for the information of the City, the cognizant oversight agencies
and other federal and state grantor agencies. This is not intended to limit the distribution
of this report, which is a matter of public record.
~yM
October 28, 1992
. 123 .
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S!J ERNST & YOUNG
. Firsl Corpor.lIC Place . Phone; 319 3631090
100 first 511"1 5,IV, 1524041 f,,,: 319363 476B
P,O, Box 748BB
Ccd.u Rapids, IOlVa 52~07.4888
Report of Independent Auditors on Compliance
With the Specific Requirements Applicable to
Major Federal Financial Assistance Programs
The Honomble Mayor and Members of the City Council
City of Iowa City, Iowa
We have audited the general purpose financial statements of the City of Iowa City, Iowa
as of and for the year ended June 30, 1992, and have issued our report thereon dated
October 28, 1992.
We also have audited the City's compliance with the requirements governing types of
services allowed or unallowed; eligibility; matching, level of effort, or earmarking;
reporting; claims for advances and reimbursements; and special tests and provisions that
are applicable to each of its major federal fmancial assistance programs, which are
identified in the accompanying schedule of federal financial assistance, for the year ended
June 30, 1992. The management of the City is responsible for the City's compliance with
those requirements. Our responsibility is to express an opinion on compliance with those
requirements based on our audit.
We conducted our audit of compliance with those requirements in accordance with
. generally accepted auditing standards, Chapter 11 of the Code of Iowa, Government
Auditing Standards, issued by the Comptroller General of the United States, and OMB
Circular A.128, Audits of State and Local Governments. Those standards and OMB
Circular A.128 require that we plan and perform the audit to obtain reasonable assurance
about whether material noncompliance with the requirements referred to above occurred.
An audit includes examining, on a test basis, evidence about the City's compliance with
those requirements. We believe that our audit provides a reasonable basis for our
opinion.
The results of our audit procedures disclosed immaterial instances on noncompliance '
with the requirements referred to above, which are described in the accompanying
schedule of findings and questioned costs. We considered these instances of non-
compliance in forming our opinion on compliance, which is expressed in the following
paragraph. .
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In our opinion, the City complied, in all material respects, with the requireme~ts
governing types of services allowed or unallowed; eligibility; matching, level of effort, or
earmarking; reporting; claims for advances and reimbursements; and special tests and
provisions that are applicable to each of its major federal financial assistance programs
for the year ended June 30, 1992.
This report is intended for the information of the City, the cognizant oversight agencies
and other federal and state grantor agencies. This is not intended to limit the distribution
of this report, which is a matter of public record.
October 28, 1992
~~"h
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'"'
S!J ERNST & YOUNG
. First Corpor"le Pl,lCe . Phone: ]19 J63 1090
100 filii 51reel 5.IV, 1;24041 fax: 319 3D3 4768
P,O, Box 74888
(,d,lf Rapids, Iowa 52407,488B
,
.!
Report of Independent Auditors on Compliance
With the General Requirements Applicable to
Major Federal Financial Assistance Programs
-,
,
--;
The Honorable Mayor and Members of the City Council
City ofIowa City, Iowa
We have audited the general pUIpose financial statements of the City of Iowa City, Iowa
as of and for the year ended June 30, 1992, and have issued our report thereon dated
October 28, 1992.
We have applied procedures to test the City's compliance with. the following require-
ments applicable to each of its major federal financial assistance programs, which are
identified in the schedule offederal financial assistance, for the year ended June 30, 1992:
political activity, Davis-Bacon Act, civil rights, cash management, federal flDancial
reports, Drug-Free Workplace Act, allowable costs/cost principles and administrative
requirements.
Our procedures were limited to the applicable procedures described in the Office of
Management and Budget's Compliance Supplement for Single Audits of State and Local
Governments. Our procedures were substantially less in scope than an audit, the
objective of which is the expression of an opinion on the City's compliance with .the
requ!rements listed in the preceding paragraph. Accordingly, we do not express such an
oplDlon.
With respect to the items tested, the results of those procedures disclosed no material
instances of noncompliance with the requirements listed in the second paragraph of this
report. With respect to items not tested, nothing carne to our attention that caused us to
believe that the City had not complied, in all rnaterial respects, with those requirements.
However, the results of our procedures disclosed immaterial instances of noncompliance
with those requirements, which are described in the accompanying schedule of findings
and questioned costs.
This report is intended for the information of the City, the cognizant oversight agencies
and other federal and state grantor agencies. This is not intended to limit the distribution
of this report, which is a matter of public record.
~~fh
...J
October 28, 1992
- 125 -
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S!J ERNST & YOUNG
· Firsl CorllOf,lle PIJce . Phone: 319 363 1090
100 fir" 5t",t 5W, 1524041 f'.I: 3193634768
P,O, Box 74888
Cedar R,lpids, IOW.1 j2.J07..J888
Report of Independent Auditors on Compliance
With Specific Requirements Applicable to Nonmajor
Federal Financial Assistance Program Transactions
The Honorable Mayor and Members of the City Council
City ofIowa City, Iowa
We have audited the general purpose financial statements of the City of Iowa City, Iowa
as of and for the year ended June 30, 1992, and have issued our report thereon dated
October 28, 1992.
In connection with our audit of the general purpose fmancial statements of the City,and
with our study and consideration of the City's internal control structure used to
administer federal financial assistance programs, as required by Office of Management
and Budget Circular A- 128, Audits of State and Local Governments, we selected certain
transactions applicable to certain nonmajor federal fmancial assistance programs for the
year ended June 30, 1992. As required by Circular A- 128, we have performed auditing
procedures to test compliance with the requirements governing types of services allowed
or unallowed and eligibility that are applicable to those transactions. Our procedures
were substantially less in scope than an audit, the objective of which is the expression of
an opinion on the City's compliance with these requirements. Accordingly, we do not
express such an opinion.
With respect to the items tested, the results of those procedures disclosed no material
instances on noncompliance with the requirements listed in' the preceding paragraph.
With respect to items not tested, nothing came to our attention that caused us to believe
that the City had not complied, in all material respects, with those requirements.
This report is intended for the information of the City, the cognizant oversight agencies
and other federal and state grantor agencies. This is not intended to limit the distribution
of this report, which is a matter of public record.
~-fh
October 28, 1992
. 126 -
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S!J ERNST & YOUNG
. FilS! Corpor.llt' PI.lee . Phone: J19 ]6] 1090
100 firll 5tre'l 5,W, 1;14041 f,,,: 3193634768
P,O, BUI 74888
Cedar Rapids, Iowa 52407.4888
Report of Independent Auditors on the Internal Control Structure
Used in Administering Federal Financial Assistance Programs
...,
The Honorable Mayor and Members of the City Council
City ofIowa City, Iowa
We have audited the general purpose financial statements of the City of Iowa City, Iowa
as of and for the year ended June 30, 1992, and have issued our report thereon dated
October 28, 1992. We have also audited the City's compliance with requirements
applicable to major federal financial assistance programs and have issued our report
thereon dated October 28, 1992.
.' ,
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....
We conducted our audits in accordance with generally accepted auditing standards;
Chapter II of the Code of Iowa; Government Auditing Standards, issued by the
Comptroller General of the United Stutes; and Office of Management and Budget (OMB)
Circular A- 128, Audits of State and Local Governments. Those standards and OMB
Circular A- 128 require that we plan and perform the audit to obtain reasonable assurance
about whether the general purpose financial statements are free of material misstatement
and about whether the City complied with laws and regulations, noncompliance with
which would be material to a major federal financial assistance program.
In planning and performing our audits for the year ended June 30, 1992, we considered
the City's internal control structure in order to determine our auditing procedures for the
purpose of expressing our opinions on the City's general purpose financial statements and
on its compliance with requirements applicable to major programs and not to provide
assurance on the internal control structure. This report addresses our consideration of
internal control structure policies and procedures relevant to compliance with require-
ments applicable to federal financial assistance programs. We have addressed policies
and procedures relevant to our audit of the general purpose financial statements in a
separate report dated October 28. 1992.
The management of the City is responsible for establishing and maintaining an internal
control structure. In fulfilling this responsibility, estimates and judgments by manage-
ment are required to assess the expected benefits and related costs of internal control
structure policies and procedures. The objectives of an internal control structure are to
provide management with reasonable, but not absolute, assurance that assets are safe-
guarded against loss from unauthorized use of disposition, that transactions are executed
in accordance with management's authorization and recorded properly to permit the
preparation of general purpose financial statements in conformity with generally accepted
accounting principles, and that federal financial assistance programs are managcd in
compliance with applicable laws and regulations. Because of tnherent limitations in any
internal control structure, errors, irregularities. or instances of noncompliance may never-
theless occur and not be detected. Also, projection of any evaluation of the structure to
future periods is subject to the risk that procedures may become inadequate because of
changes on conditions or that the effectiveness of the design and operation of policies and
procedures may dcteriorate.
II
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go ERNST & YOUNG
For the purpose of this report, we have classified the significant internal control structure
policies and procedures used in administering federal financial assistance programs in the
following categories:
General Requirernents
. Davis-Bacon Act
. Cash management
. Allowable costs/cost principles
. Administrative requirements
. Political activity
. Civil rights
. Federal fmancial reports
. Drug-Free Workplace Act
Specific Requirements
. Types of services allowed
or unallowed
. Reporting
. Special reporting requirements,
if any
. Matching, level of effort,
or earmarking
For all the internal control structure categories listed above, we obtained an under-
standing of the design of relevant policies and procedures and determined whether they
have been placed in operation, and we assessed control risk. '
. Eligibility
. Claims for advances and
reimbursements
. Special tests and provisions
During the year ended June 30, 1992, the City expended 94% of its total federal financial
assistance under major federal financial assistance programs.
We performed tests of controls, as required by OMB Circular A-128, to evaluate the
effectiveness of the design and operation of internal control structure policies and
procedures that we considered relevant to preventing or detecting material noncompliance
with specific requirements, general requirements, and requirements governing claims for
advances and reimbursements and amounts claimed or used for matching that are
applicable to each of the City's rnajor federal financial assistance programs, which are
identified in the accompanying schedule of federal financial assistance. Our procedures
were less in scope than would be necessary to render an opinion on these internal control
structure policies and procedures. Accordingly, we do not express such an opinion.
Our consideration of the internal control structure would not necessarily disclose all
rnatters in the internal control structure that might b~ material weaknesses under
standards established by the Arnerican Institute of Certified Public Accountants. A
material weakness is a condition in which the design or operation of one or more of the
specific internal control structure elements does not reduce to a relativelr low level the
risk that noncompliance with laws and regulations that would be matenal to a federal
financial assistance program may occur and not be detected within a timely period by
employees in the normal course of performing their assigned functions. We noted no
matters involving the internal control structure and its operation that we consider to be
rnaterial weaknesses as defined above.
".,
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- 128 .
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J
However, we noted other matters involving the internal control structure and its operation
that we have reported to the management of the City in a. separate letter dated October 28,
1992. .
This report is intended for the information of the City, the cognizant oversight agencies,
and other federal and state grantor agencies. This is not intended to limit the distribution
of this report, which is a matter of public record.
~fh
. October 28, 1992
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City of Iowa City, Iowa
Schedule of Findings and Questioned Costs (continued)
Year ended June 30, 1992
Grant Title/Number
Questioned
Cost
Finding/Noncompliance
Recomrnendation
It is our recommendation
that the City keep copies of
notices mailed to private
mass transportation compa-
nies.
City's Response
We will keep copies of all
notices mailed to private
mass transportation compa-
nies.
Department of Transporta- During our review of pro-
tion, Section 9 Operating gram expenditures, it was
Assistance Grant IA-90- noted that $192,000 was
XI20, 131 being deposited in a savings
account for future
operations and were also
being claimed as. eligible
operating expenditures for
determining the eligible
grant amount on the Project
Budget Worksheet. These
amounts are considered
ineligible and, when ex-
cluded, reduce the grant
amount that the City is
eligible to receive. How-
ever, by reducing the local
share on the worksheet used
to support transit opera-
tions, the City is eligible to
receive the full amount of
the grant.
Recommendation
We recommend that the
ineligible expenditures be
excluded from the Project
Budget Worksheet and that
the local share be reduced
in order to receive the max-
imum allowable grant
award.
$-0-
- 131 -
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City ofIowa City, Iowa
Schedule of Findings and Questioned Costs (continued)
Year ended June 30, 1992
Finding
Finding/Noncompliance
City's Response
We will exclude the ineli-
gible expenses from the
Project Budget Worksheet
and reduce the local share
so that we may receive the
maximurn allowable under
the grant.
Community Development During our review of the
Block Grant-Metro Entitle- project files, we noted a
ment B91-MC-19-ooo9 lack of supporting docu-
mentation of the allow-
ability of $8,000.
Grant TitleJNumber
4.
ReCommendation
We recomrnend that the
Community Development
Block Grant personnel more
closely review their files to
ensure that adequate docu-
mentation of all applicant
information is included.
City's Response
We reviewed the above
files and have corrected all
deficiencies note above.
We will also review all files
in greater detail to ensure
that proper documentation
of all items is obtained.
- 132 -
Questioned
Cost
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S!J ERNST & YOUNG
. First Corporatl' PI,lCl! . Phone 319 363 1090
IQOfirst5tre,t5,W,(;1,1Q,1) fox: 3193(,347(,8
P,O, Box 74888
Ccdar Rapids, Iowa 524074888
J
Thc Honorable Mayor and Members of the City Council
City of Iowa City, Iowa
In planning and performing our audit of the general purpose financial statements of the
City of Iowa City, Iowa ("the City") for the year ended June 30, 1992, we considered its
internal control structure to determine our auditing procedures for the purpose of
expressing our opinion on the general purpose financial statements and not to provide
assurance on the internal control structure. Our consideration of the internal control
structure would not necessarily disclose all matters in the internal control structure that
might be material weaknesses under standards established by the American Institute of
Certified Public Accountants. A material weakness is a condition in which the design or
operation of one or more of the specific internal control structure elements does not
reduce to a relatively low level the risk that errors or irregularities in amounts that would
be material in relation to the general purpose financial statements being audited may
occur and not be detected within a timely period by employees in the normal course of
performing their assigned functions. However, we noted no matters involving the
internal control structure and its operation that we consider to be material weaknesses as
defined above.
,
,
,
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,
We have the following comments on other matters,
REVIEW OF PRIOR YEAR FINDINGS AND COMMENTS
I
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Our review of prior year findings and comments disclosed that the City had appropriately
considered most of our suggestions noted in prior years during the current fiscal year
ended June 30, 1992, and certain changes had been implemented. However, we continue
to believe that the following prior year comments require continued management
consideration.
Landfill Closure Rescrve
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-
When the City's landfill arca has reached capacity, the City will be required to restore the
area to its previous condition, as well as maintain the area for at least 30 years thereaftcr.
The City should consider the establishment of a funded reserve account during the life of
thc landfill in order to provide the available funds necessary to perfornl these State
mandatcd activities.
-1
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The City docs not rccognize landfill closing costs as an operational expcnse or direct
liability. Thcse inevitable future closure costs are not recognized at thc present time
bccause reasonable cstimates of such costs arc not rcadily available, thereby precluding
dircct liability recognition under gcnerally accepted accounting principles.
Thc first step toward recognizing these costs is to detenninc the types and amounts
rclevant to closing the City's landfill. This study should includc, lit a minimum, final
cover for thc landfill and continuing post-closure carc costs, Final covcr for thc landfill
involvcs onc-timc costs to covcr allllreas of thc landfill. Continuing post-closurc carc
costs arc thosc rcquircd by thc State to maintain and monitor thc IlIndfill sitc aftcr its
capllcity has been reachcd, for a period of nt least 30 YCllrs lIftcr it has bccn closed.
,
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Once the direct liability and related funding requirements have been detennined, the City
should consider adopting a policy concerning the recognition of these closing and .-
postclosure landfill costs as well as a means to accumulate the funds necessary to cover I
these costs. This would provide the City with a proper matching of revenues and
expcnscs for the appropriate pcriod.
._, City's Response:
! The City agrees and will calculate the liability and related funding to comply. A fonnal
-.! policy will be adopted in fiscal year 1993.
Segregation of Duties - Accounting and Programrning
As noted in the prior year, a fundamental concept in controlling electronic data involves
the segregation of duties between programming and user departments. Currently, the
Comptroller, two senior accountants and one accountant have "modify" access to
accounting programs. This type of access, which enables these four individuals to make
changes to the accounting programs, negatively impacts the control environment. We
-1 believe that access to the accounting programs of all personnel other than programmers
..J should be limited to "read" and "execute" access only, in order to ensure the integrity of
the programs.
J City's Response:
J The City agrees and will change the noted individuals access to "read" and "exccute"
only.
CURRENT YEAR FINDINGS AND COMMENTS
!"1 Credit Card Use
J
\ '1 In connection with credit cards issued for employee use, we suggest that the City adopt
written guidelines regarding thc permitted use of the credit cards. This could serve to
~ provide control over the expending of public funds,
"1 City's Response:
1
'-'
The City plans to update its policics regarding thc use of City-issued crcdit cards,
--i
i Travel Reirnbursement and Vehicle Usage Policy
--
The currcnt City policy regarding travel expcnditures does not rcquire scparatc disc10surc
of individual expenditures, We suggest that, for each cxpcnditure, the date, placc (namc
and addrcss or location), public pnrpose scrved and the busincss rclationship bc listcd, A
section for unallowablc cxpenditurcs (liquor, non public purposes, ctc.) should also bc
providcd. This would facilitate thc rcvicw of trltvel cxpenses by acconnting pcrsonnel
and providc clcar guidancc rcgarding reimbursable cxpcnses,
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The current City policy regarding travel has been in effect since 1977. The policy does
not include specific language as suggested by the Auditor of State, We recommend that
the policy be revised to include specific provisions regarding incidental personal use,
commuting, assignment of vehicles, documentation requirements, vehicle use restrictions,
reimbursement by employees for personal use, related additional compcnsation and
public purpose served. This should ease accounting review time and reduce the chance
for misunderstanding.
In addition, we suggest that all travel expenditures be reviewed for proper documentation
prior to reimbursement. This will increase control and accountability for travel
expenditures.
City's Response:
The City is in the process of updating its policies regarding travel and vehicle
expenditures and will implement a revised policy by June 30, 1993. The City's current
policy requires documentation for all expenditures and the missing documentation noted
was a rare occurrence.
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Savings Account
Currently, there are no signature cards on file for the Sewer Trust, Water Trust and
General Obligation Bond Trust savings accounts at Iowa State Bank. We suggest that the
City file new signature cards for these accounts. This will result in better control, and
further ensure that only authorized transactions are allowed.
City's Response:
The City agrees and will file new signature cards for thcse accounts.
Operating Transfers
During the current year there were several operating transfers recorded by the City that
would be more appropriately recorded as interfund transactions. These include
repayments of advances and loans, as well as loans to othcr funds. We suggcst that the
City rcview all operating transfcrs at the cnd of cach year to appropriatcly classify thcse
items.
!
City's Rcsponsc:
Thc City concurs and will makc thc notcd changcs,
Payroll Checks
The currcnt payroll systcm utilizcd by thc City docs not allow for an cfficicnt scarch for
thc clcaring date of a payroll check, A mastcr list of payroll chccks would allow for
casicr revicw and morc cfficient usc of City pcrsonncltimc.
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City's Response:
~ The Finance Department has requested that this type of function be added to the payroll
i system. The data processing depllrtment has agreed to process the request, but has been
"I unable to accommodate this request at the present time.
D Payroll Forms
The City files W-4 and savings bond deduction forms separately from other payroll data
0 in the personnel file. We suggest that all payroll related forms, including W-4, savings
bonds and other authorized deduction forms be stored in thc personnel files. This will
consolidate all information in one location and will reduce the time expended on
n investigating payroll related concerns or changes.
City's Response:
0 The City will file all new and revised payroll deduction forms in the personnel files.
Assisted Housing
0 The City allows disbursements for assisted housing expenditures to be prepared without I
depllrtment head approval. We suggest that check request forms for assisted housing ,
~ expenditures be prepared and approved by the depllrtment head in accordance with City
policy. This will ensure proper authorization of these expenditures. I
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City's Response: , r
, The City has changcd this policy to reflect our recommendation for fiscal year 1993.
.-j
, Construction Change Orders
,
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..J During the current year a construction change order for $52,540 was prepared and
\ /"1 approved by the same individual. Wc suggest that the City implement procedures for
review and approval of change orders by separate individuals. This policy should ensure
~ that change orders have receivcd approprimc supervisory approval and are allowed.
0 City's Responsc:
I The City agrees and will adopt a policy concerning rcview of change orders in fiscal year
:-1 1993.
,
..J Electronic Data Processing Applications
l When a requcst is made for application development or maintenance, a standard rcquest
, fonn is completed by the user and authorized by the manager of the user's dcpartment,
~
The information systems managcr or programmcr analyst then specifies the objective of
the work and estimates the anticipated costs and bcnefits. However, this requcst fornl is
I currently not used to vcrify, at completion, thc authorization for nccepting the work
perfonncd,
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Through discussion with data processing personnel, it is our understanding that a sign-
off/acceptance procedure will be implcmented with the revision of the standard request
form. We recommend that the revised form include the dctails of the testing carried out
and sign-off by the uscr management that the results of the tcsting have been reviewed
and the program is accepted.
City's Response:
The City agrees and will update the form procedures.
Programmer Access to Production Program and Data Files
During our review, we noted that the City's programmers have access to production codes
and are responsible for moving codes from test to production. This type of access
increases the risk that unauthorized changes to production programs and data filcs could
go undetected.
While we recognize that the limited size of thc current data processing staff prevents a
complete segregation of duties in this area, the current procedure does represent an
exposure of which the City should be aware.
City's Response:
The City is aware and attempts to provide proper segregation of duties on an ongoing
basis as plausible.
Controls Over Personal Computers and Loc.11 Area Networks
Thc increased usc of personal computcrs and local area network (LAN) acccss throughout
the City has transferred certain processing capabilities and responsibilities from Data
Processing to the various user departments. Since the need for proper controls in all
computer environments is important, we recommend that City-wide PC/LAN policies be
developcd to ensure that:
. Passwords are changed on a pcriodic basis (Le., monthly, quarterly).
. Tenninals are deactivatcd after a specified period of inactivity (Lc., 30 minutcs, onc
hour).
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. Programs and data filcs arc backed up on a pcriodic basis, and backup copies of
scnsitive informatiou arc storcd in a sccurc off-site location.
. Propcr physical acccss coutrols are prcscnt ovcr pcrsonal computcrs, LAN tcrminals
and data proccssing tcrminals iu thc uscr areas (Le" usc of kcy locks) to ensure that
access to scnsitive information is propcrly rcstrictcd,
City's Responsc:
Appropriatc policies will bc developed as suggested,
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OTHER MATTERS
We have noted certain other matters involving the internal control structure and its
operation concerning cash receipts that we have reported to the management of the City
in a separate letter dated June 10, 1992.
State Compliance Matters
The following comments about the City's operations for the year ended June 30,1992 are
based exclusively on knowledge obtained from procedures performed during our
independent audit of the general purpose financial statements of the City of Iowa City,
Iowa for the year ended June 30, 1992, Since our audit was based on tests and samples,
not all transactions that might have had an impact on the comments were necessarily
examined. The comments involving statutory and other legal matters are not intended to
constitute legal interpretations of those statutes:
Official Depositories - A resolution naming the following official depositories is
on file with the S tate Treasurer:
Maxirnum
Authorized
Deposit Amount
First National Bank, Iowa City
Hawkeye State Bank, Iowa City
Iowa State Bank and Trust, Iowa City
Firstar Bank Cedar Rapids, N.A., Cedar Rapids
MidAmerica Savings Bank, Iowa City
Hills Bank and Trust, Iowa City
$10,000,000
750,000
8,000,000
25,000,000
5,000,000
8,000,000
The maximum deposit amounts stated in dIe resolution were excecded several times
at Iowa State Bank and Trust during the year ended June 30, 1992.
Recommendation - Chapter 453.2 of the Code of Iowa states that only the
maximum amount may be kept on dcposit in each depository approvcd, Thc City
should update and revise its official depository listing,
Response - The official depository resolution was updatcd on June 23, 1992.
However, we will review the currcnt depository resolution for continucd adequacy
and update if ncccssary.
Conclusion - Response acceptcd.
The City had certificates of deposit that were held in dcpositorics ontside of thc
state of lown and not listcd on the official dcpository listing.
Recommendation - Chnptcrs 453.4 and 453,5 of the Codc of Iowa provide, in part,
thut dcposits must bc hcld in thc County, or ndjoiuing County, iu which thc City is
located nnless deposits are refnscd; thcn thc dcposits must be hcld in depositorics
within thc state of lown, Thc City should dcposit funds within statc of lown
institutious.
6
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Rcsponse - Wc will revicw and revisc our policics and deposit only within thc slate
ofIowa.
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Conclusion - Rcsponsc acccptcd.
Ccrtificd Budgct - Disburscments during the ycar ended June 30, 1992 excccded
thc amounts budgctcd in the Debt Scrvice program. Chaptcr 384.18 of the Codc of
Iowa providcs, in part, that public monies may not bc cxpendcd or encumbercd
except undcr an annual or continuing appropriation.
Rccornmcndation - The budget should have been amended in accordance with
Chaptcr 384.18 of the Codc of Iowa before disbursements wcre allowed to exceed
the budget.
Responsc - Thc budget will bc amended properly in the futurc in order to comply
with thc Codc of Iowa.
Conclusion - Responsc acccpted.
3. Questionablc Disburscmcnts - Wc noted no expenditures for parties, banqucts or
other entcrtainment for employccs that wc bclicve may constitutc an unlawful
expenditure from public funds as dcfined in thc Attorney Gcncral's opinion dated
April 25, 1979.
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4. Travcl Expcnse - No expenditures of City money for travel expcnses of spouses of
City officials or employees were noted.
5. Business Transactions - No business transactions between the City and City
officials or employees were noted.
6. Bond Covcragc - Surety bond coverage of City officials and employecs is in
accordance with statutory provisions,
7. Council Minutes - No transactions were found that we bclicve should havc been
approved in the Council minutes but wcrc not.
8. Invcstmcnts - During thc ycar cndcd Junc 30, 1992, thc investmcllls rcsulted in
incomc camcd of $1,822,000,
9. Capital Projccts - Onc capital projcct sclcctcd by us did not have thc propcr
documentation that a public mccting was held as rcquircd by thc public noticc
requircmcnt of thc Codc of Iowa, Chaptcr 384,96.
Recomrncndation - Thc City should comply with Chaptcr 384.96 of thc Code of
Iowa and should rcvicw thcir filcs for propcr documcntation that public mcctings
wcrc hcld,
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public mcctings in the futnrc.
Conclusion - Rcsponsc acccptcd,
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go ERNST & YOUNG
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We would like to thank th~ officials and employees of the City for their cooperation and
courtesies extended during the course of our audit. If you have any questions about the
preceding comments, or if we can be of assistance to you in implementing any of the
recommendations, please contact us.
This report is intended for the information of management and state audit agencies. This
is not intended to limit the distribution of this report, which is a matter of public record.
~1h
Iowa City, Iowa
October 28, 1992
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City ~f Iowa City
MEMORANDUM
Date:
(I1JJruA" ~ .
- - U"'l CoUu t<Y..
February 16. 1993
To:
City Manager
David Schoon. Economic Development Coordinator j) ~
From:
Re: Johnson County Employment Trends. 1980 to 1990
As you are aware. according to Census information the population of Johnson County grew by 18%
' from 1980 to 1990. During that same time period, according to data from the Iowa Department
of Employment Services (IDES), the labor force in Johnson County increased by 30%. The purpose
of this memo is to provide you with information regarding employment growth in Johnson County
during the 1980s. The attached graphs illustrate what sectors of the local economy experienced
job growth.
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The first graphs. Figure 1, illustrate the composition of the labor force by sub-sectors in 1980 and
1990. As the figures demonstrate. the largest single sub-sector of the economy in both 1980 and
1990 was state government employment which is easily explained by the size of the University of
Iowa's workforce. However. state government's percentage of total employment slightly decreased
during this time period. While its percentage decreased the service sub-sector's percentage of total
employment slightly increased.
Figures 2 & 3 illustrate employment growth from 1980 to 1990 in both the total labor force (Figure
2) and within each sector of the economy (manufacturing. non-manufacturing, and government.
Figure 3). Interesting to note that in 1990 non-manufacturing employment nearly equaled
government employment, and when compared with the other two sectors non-manufacturing
employment experienced the greatest percentage increase in employment. (See Appendix A for the
types of businesses classified within each sector or sub-sector.)
Figure 4 demonstrates the total increase in employment by sector from 1980 to 1990. As the
figure shows, the largest increase in employment occurred in the non-manufacturing sector
(+ 7,300 jobs). Figures 5, 6. and 7 further breakdown employment growth within each sector by
sub-sectors. For instance, Figure 5 demonstrates that of the additional 7,300 jobs in the non-
manUfacturing sector. the service sub-sector accounted for 3,600, or 48%, of those new jobs.
Comparing Figure 5 with Figure 6 demonstrates that the service sub-sector added approximately
the same number of jobs during the 1980s as did the state government sub-sector.
The above comments highlight information provided by the attached employment graphs. I am sure
one could make additional comments regarding the information presented in the graphs.
If you have questions about the information presented in the graphs or would like further
information, please give me a call (356-5236).
cc: Karin Franklin
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APPENDIX A
SECTORS & SUB-SECTORS OF THE ECONOMY
The following list provides only an example of those businesses classified within each sector/sub-
sector of the economy.
MANUFACTURING
Non-Durable Manufacturing
Food & Kindred Products
Printing & Publishing
Chemicals & Allied Products
Durable Manufacturing
Electronics & Other Electronic Equipment
Industrial Machinery
NON-MANUFACTURING
Construction & Mining
Construction
General contractors
Special trade contractors
Plumbing, heating, air-conditioning
! Electrical work
1 Mining
i Crushed & broken stone
"
t Finance. Insurance, Real Estata
I Depository Institutions
i Insurance Agents, Brokers, & service
! Real Estate operators & lessors
Retail
Building Materials & Garden Supplies
General Merchandise Stores
Food Stores
Automotive Dealers & Service Stations
Apparel Stores
Furniture &, Homefurnishings
Eating & Drinking places
Miscellaneous Retail
Sporting Goods
Jewelry Stores
Florists
Wholesale Trade
Wholesale Trade - Durable Goods
Motor vehicle supplies & new parts
Medical & hospital equipment
Wholesale Trade - Nondurable Goods
Groceries & related products
Petroleum & petroleum products
Beer, wine, & distilled beverages
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Hotels & Other Lodging Places
Personal Services
Beauty shops
Laundry & dry-cleaning
Business Services
Advertising
Mailing, reproduction, stenographic
Computer & data processing services
Auto Repair. Services. & Parking
Motion Pictures
Amusement & Recreation
Health Services
Dentist & medical doctor offices
Hospitals
Nursing & personal care facilities
Educational Services
Social Services
Engineering & Managemant Services
GOVERNMENT
Federal Government
Post Office
Social Security Office
State Government
State Universities
State Agencies
Court System
Local Government
City Government
County Government
Public School System
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City of Iowa City
MEMORANDUM
Date: February 18, 1993
To: Steve Atkins, City Manager
From: t John Lundell, Transit Manager
Ae: Wheelchair Accessible Buses
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(j~1 ~
Iowa City Transit recently took delivery of two new Gillig transit coaches. These coaches,
which will replace two 1974 GMC buses, are the first wheelchair accessible vehicles in our
21.bus fleet. The front step well of the Gillig buses extends out to form a platform which lifts
the parson in a wheelchair int%ut of the bus. There are sacurement positions for two
wheelchairs in each bus.
The Transit Department is in the process of determining how best to make use of the wheel-
chair lift equipment. While the buses will be placed in service in the near future, the
wheelchair lifts will not be used until a specific route has been identified. Practically speaking,
Iowa City Transit will be limited in how much accessible service can be provided with only
two buses being wheelchair lift equipped. However, we are committed to using them to the
maximum extent possible. I have contacted persons with disabilities and asked them to work
with the transit staff, JCCOG Transportation Planning Division staff, and Johnson County
SEATS staff to determine how to best utilize the wheelchair lift equipment. I will keep you
informed of our efforts to use the accessible buses.
I am proud that Iowa City Transit is the first transit system in this area to begin fixed route
accessible service. In FY95 we will receive three additional replacement buses with lift
equipment, thus allowing expansion of our accessible service. Thank you, and please call me
with any questions or comments.
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CITY OF IOWA CITY
-
February 26, 1993
Ms. Susan Jaecques
2207 J Street
Iowa City, Iowa 52240
\
Oear Ms. Jaecques:
Your application to serve on the Board of Examiners of Plumbers as a
representative of the public was presented to the City Council on February
23, 1993. At the same meeti ng a proposed ordi nance was a 1 so presented
which would combine the duties of the Board of Examiners of Plumbers and
the Board of Appeals. The Council gave the first reading of the ordinance
at the February 23 meeting, and it is anticipated that it will be approved
after two more readings. Therefore, with the abolishment of the Plumbing
Board, no appointments will be made.
The Council hopes this move will not dampen your enthusiasm to serve on
one of Iowa City's boards or commissions. Applications are now being
solicited for the Oesign Review Committee, Planning and Zoning Commission,
Mayor's Youth Employment Board, and the Housing Commission. These
appointments will be made at the March 16, 1993, meeting of the City
Council. Also, another appointment. will be made to the Mayor's Youth
Employment Board and one to the Historic Preservation Commission at the
April 13 Council meeting.
Your willingness to become involved in your City Government is appreciated
and encouraged.
Sincerely yours,
(()J /;
Oarrel G. Courtney
Mayor
cc-: City Counc i1
CII'IC nNHR' 010 LIST WASIIINGTON STRFn' IOWA CtTY, IOWA !lHO' (119) l!lj10
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The Honorable Darrel Courtney
410 E. Washington
Iowa City, IA 52240
'Re: Muscarine Avenue Moffitt Cottage Historic District, 133(}'1322 Muscatine Avenue,
Iowa City, Johnson County
Dear Mayor Courtney:
We are pleased to inform you that the above named property, which is located within your
community, was accepted for nomination to the National Register of Historic Places by the
State Nominations Review Committee at its February 18, 1993 meeting. Once a final
version is received in our office, the nomination will be submitted for final review by the
National Park Service.
Listing in the National Register provides the following benefits to historic properties:
\
--Consideration in the planning for Federal, federally licensed, and federally assisted
projects. Section 106 of the National Historic Preservation Act of 1966 requires
Federal agencies allow the Advisory Council on Historic Preservation an opportunity
to comment on projects affecting historic properties listed in the National Register.
For further information please refer to 36 CFR 800.
--Eligibility for Federal tax benefits. If a property is listed in the National Register,
certain Federal tax provisions 'may apply. The Tax Reform Act of 1986 revises the
historic preservation tax incentives authorized by Congress in the Tax Reform Act of
1976, the Revenue Act of 1978, the Tax Treatment Extension Act of 1980, the
Economic Recovery Tax Act of 1981, and Tax Reform Act of,1984, and as of
January I, 1987, provides for a 20 percent investment tax credit with a full
adjustment to basis for rehabilitating historic commercial, industrial, and rental
residential buildings. The former 15 percent and 20 percent investment Tax Credits
(ITCs) for rehabilitations of older commercial buildings are combined into a single 10
percent ITC for commercial or industrial buildings built before 1936. This can be
combined with a IS-year cost recovery period for the adjusted basis of the buildings.
Certified structures with certified rehabilitations receive additional tax savings because
owners are allowed to reduce the basis by one half the amount of the credit. The Tax
Treatment Extension Act of 1980 provides Federal tax deductions for charitable
contributions for conservation purposes of partial interests in historically important
land areas or structures. For further information please'refer to 36 CFR 67.
o 402 IOIVa Avenue
IOIVa City, IOIVa 52240
(319) 335-3916
A~ Capitol Cumplex
Des Moines. lo\V~ 5U319
(515) 281-5111
o Monl.luk,
Box 372
Clermunl, 11lI1'.1 52135
(319) 0123-7173
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Page 2
--Consideration of historic values in the decision to issue a surface coal mining permit
where coal is located, in accord with the Surface Mining and Control Act of 1977.
For further information, please refer to 30 CFR 700 et seq.
--Qualification for Federal grants for historic preservation when funds are available.
Elected officials, representing the communities within which nominated properties are located
are encouraged to comment concerning the propriety of those nominations and the accuracy
of nomination content. A fifteen day period of public comment, during the period of Federal
review, follows the listing of thi~ nomination in the Federal Register. Any comments
previously
submitted to the State Nominations Review Committee are automatically forwarded as part of
the nomination and need not be repeated for the Federal review. If the owner of a single
property nomination or a majority of private property owners in a district nomination object,
a property will not be listed; however, the Keeper of the National Register can make a
determination of the eligibility of the property for listing in the National Register. If the
property is then determined eligible for listing, although not formally listed, Federal agencies
will be required to allow the Advisory Council on
Historic Preservation an opportunity to comment before the agency may fund, license, or
assist a project which will affect the property.
Should you have any questions about the National Register of Historic Places, or about this
nomination in particular, please feel free to contact me at the Historical Building, Capitol
Complex, Des Moines, Iowa, 50319, or by calling (515) 281-4358.
,\SincerelY, '() \.....JL
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Jjunes E. Jacobseh, Chief
Bureau of Historic Preservation
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319 356 6086~ 3193565009." 1
Feb 24,93 10:40 No.011 P.01/02
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Rev 8Y:XEROX TELEeOPIER 7011 . 2-24-93 10:55AM.
JOHNSON COUNTY AUDITOR TEL:319-356-6086
BOARD OF SUPERVISORS
Patricia A. Meade, Chairperson
Joe Balkcom
Charles D. Duffy
Stephen P. Lacina
Belly Ockcnfcls
February 25, 1993
FORMAL MEETING
Agenda
1. Call to order 9:00 a.m.
2. Action re: claims
3, Action re: minutes
4. Action re: payroll authorizations
5. Business from the County Auditor.
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a) Action re: permits
b) Action re: reports
c) Discussion/action re: resolution transferring from Genllral Basic and
Rural Services Basic to Secondary Roads.
d) Discussion/action re: resolution transferring from General Basic
Fund to General Supplemental Fund.
e) Other
6. Business from the Director of PubJlc Health.
a) Discussion/action re: NACo Achievement Award Application.
b) Other
7. Business from the County Attorney.
a) Report re: other items.
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8. Business from the Assistant Zoning Administrator.
a) 9:30 n.m, . Public Hearing on the following Conditional Use
Permit/discussion/action:
1. Application CU9302 of John Meade, Iowa City, rcquesling a
Conditional Use Permit to operate a Home Business on certain
prop~rly described as being in the NW 1/4 of the SW 1/4 of Section
22; Township 79 North; Range 7 West of the 5th P.M. in Johnson
County, Iowa (The location of this property is on the east side of
James Avenue SW, 112 mile north of !he intersection of Rohret Road
SW and James Avenue SW in Union Twp.).
9. Business fronlthe Board of Supervisors,
\
a) Action re: resolution reducing speed limit both cast and west of
Swisher to 45 m.p.h.
b) Action re: resolution reducing speed limit south of Lone Tl'~e to ,45
m.p.h.
c) Action re: approve 1993 Supplemental Construction Program,
d) Action re: approve 1993 Dust Alleviation Program, private
individuals will contract directly with private contractors for dust
alleviation subject to county approval and standards. Only those who
have used oil in 1991 and/or 1992 will be allowed to use oil in 1993.
e) Action re: dircct County Engineer to place Lower West Branch
Road, Deer Creek Road and 180th Street into experimental Calcium
Chloride Program.
t) Action re: set work session for Five- Year Construction Program for
Thursday, March 18,1993.
g) Action re: resolution placing an 8 ton embargo on various county
roads as needed.
h) Action re: letter to the Department of Public Hcalth endorsing
MECCA programs in Johnson County.
'* i). Motion to rescind the January 7, 1993 motion for a sj~ percent salary
raise for elected officials and deputies for FY '94 and to approve a
four percent' salary raise for elected officials and depuli~s: -:,
j) Other ' -
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10. Adjourn to InfOl'lIlal meeting.
11. Inquiries and reports from tho public.
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12. Adjournment.
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City of Iowa City
MEMORANDUM
Date: February 26, 1993
To: The Honorable Mayor Darrel G. Courtney and Members of the City Council
From: Linda Newman Gentry, City Attorney
Re: Distinction Between Formal "Public Hearings" and "Public Comment on the
Agenda Items"
There has been some discussion, of late, concerning the legal requirements for publishing
notice of a "public hearing," and "public comment on agenda items." Perhaps the following
explanation will help.
Formal Public Hearings
I
I
Formal "public hearings," which must first be preceded by a "public notice" published in a
newspaper, is a legal requirement for certain city actions, the most common of which are:
1'. Amending or adopting a city zoning ordinance, including conditional zoning agree.
ments, H414.4, .5, Code of Iowa (1991).
2. Amending or adopting a comprehensive plan, ~414.4, Code of Iowa.
3. Involuntary annexation, ~36-90, Iowa City Code of Ordinances.
\
4. Setting city utility rates and fees, Chapter 33, Iowa City Code of Ordinance.
5. Urban renewal areas and projects, Chapter 403, Code of Iowa.
6. Public improvement projects over $25,000, hearing required on formal engineering
specifications and contract, ~ ~384.95-.102, Code of Iowa.
7. , Intent to dispose of public property, ~364.7, Code of Iowa.
8. Vacation of public ways, ~364.12(2I(a), Code of Iowa.
9. Special assessments, ~384.50, Code of Iowa.
10. City budget, H384.16, .18 and Chapter 24, Code of Iowa,
11. City Assessor's budget, ~441.16, Code of Iowa.
. . . . . . .
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Public Meetings with Previously Posted Agenda
In contrast to such formal requirements, the City has wider latitude in eliciting or receiving
public comment at a formal public meeting. Howaver, one thing is certain: prior notice of the
meeting must be posted and given to media requesting same at least 24 hours in advance,
unless an emergency.
"Meetings shall be preceded by public notice...and shall be held in open session
unless closed sessions are expressly permitted by law, ...all actions end
discussions at meetings of governmental bodies...shall be conducted and
executed in open session."
~21.3, Code of Iowa (1991)
The public notice of the meeting must include
"...the time, date and place of each meeting, and its tentative agenda, in a
manner reasonably calculated to apprise the public of that Information."
W .4(1 I, Code
While the public must have access to open City Council meetings, the City Council may make,
and enforce, reasonable rules for the conduct of its meetings in order to assure orderly
meetings, ~21.7, Code of Iowa. The Council may also, as it has done in the past, establish
an order for agenda items, including "public discussion for items not otherwise on the
agenda. "
Reading together this Iowa law, plus the City Council practices and resolutions, it is clear the
"open meetings" under state law contemplate a certain amount of "public participation" in the
meetings on agenda items. This is not to say that tha City Council and/or the City Mayor
cannot establish some guidelines or ground rules as to how public, or other comments, should
proceed on an aganda item. Indeed, as aiready stated, such "reasonable rules" are
contemplated in state law.
I trust this will be of soma assistance to you, but please do not hesitate to contact me if you
have further questions.
cc: Steve Atkins, City Manager
Dale Helling, Assistant City Manager
Marian Karr, City Clerk .
n:\mtmo.\pub~,hr,lng
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-SJ
Patricia A. Meade, Chairperson
Joe Bolkcom
Charles D, Duffy
Slcphcll P. Lacina
Belly Ockenfels
March 2, 1993
INFORMAL MEETING
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Agenda
1, Caltto order 9:00 n.m.
2, Review of the minutes.
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3, Business from Brad Neumann, Solid Waste Management Planner fOI'
Jolinson County Council of Governments re: discussion of Johnson
County's Solid Waste policy.
4, Business from the County Auditor.
a) Discussion re: cash flow analysis for January.
b) Other
.
5. Business from the DOal'd of SupervIsors.
\ a), Discussion re: ' County Application for Substance Abuse Funding.
b) Discussion re: meetings for the week of March 7th,
c) Reports
d) Other
6. Discuss,ion from the public.
7. Recess.
913 SOUTH DUBUQUH ST. P,O. BOX l3S0 IOWA CITY, IOWA '52244-1350 THL: (319) 356-0000 PAX: (319) 350,6086
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,Rev BY: XEROX TELEeop I ER 7011 ; 2-26-93 3: 26P~1 ;
JOHNSON COUNTY AUDITOR TEL:319-356-6086
319 356 6086~
Feb 26.93
Jllhll!OIl Coullty
_ \ IOWA ~
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3193565e~ .
15:10 NO.008.P.~
BOARD OF SUPERVISORS
Patricia A. Meade, Chairperson
Joe Bolkcom
Charles D. l)uffy
Stephen P. Lacina
Belly Ockenfels
March 2, 1993
FORMAL MEETING
Agenda
1. Call to order 5:~O p.m.
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2. Public Hearing on the second FY '94 Pl'oposed budget esthnale/discusslon.
3, Discussion/aclion rc: resolution adopting FY '94 budget.
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4. Discussion from the public.
5, Adjournment,
m SOllTH DUDUQUB S'I'. P.O. BOX 13'0 IOWA CITY. IOWA S2244,mo
TaL: (319) 356-6000
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BOARD Oli'SUPERVISORS
Palrlci~ A, Meade, Chairperson
Joe Bolkcom '
Ch1ll'lcs D, Duffy
Stephen P. Lacina
Betty Ockcnfcls
March 2, 1993
FORMAL MEETING
Agenda
'1. Call 10 order 5:30 p.m.
. 2. Second Public Hearing on Ihe FV '94 proposed budget estllllate/dlscusslon.
3. Discussion/action re: . resOlution adopting FY '94 hudget.
4. Discussion from Ihe Imlllie.
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9/) 50VTII DunUQUr. ST, P,O. BOX 13$0 IOWA CITY, IOWA $2244'13'0 1m,: (319) 356,6000 PAX: (ml'$~,6086
5. Adjournment.
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ens -o~ the settlement lund is
;~e. as noted by plaintills,
;uch a lien could have come
e under any theory. would
'ecember 8, 1989-less than
prior to the debtor's Febm.
bankmptcy liling." (Plain-
,11 p, & A" a,t 18),
,r. it is undeniable that the
Is held claims which were
,bts, "Although 'antecedent
dined by the code, essentially
; ,cedent' if it is incurred belore
, ' 4 Collien on Bankruptcy,
547-35, 36 (15th Ed.1983),
Insel were paid lor pre-peti.
on behall 01 class plaintills
,tition claims. In the Court's
at be argued seriously that
1t antecedent obligations,
appears that no unsecured
'A-either unsecured or unse-
inated-would have received
1 distribution in a Chapter 7
; lese class claimants and their
, disclosure statement lor the
I .n of reorganization estimated
,d creditors holding claims 01
JO' would receive a 71 pertent
1 their claims. At the time 01
there were claims estimated
I, and cash lor distribution of
t. these class plaintiCCs who
hich would have been subordi.
I SIO(b) if asserted in this
,t1y have received a dividend
'e pertent or 29.7 pertent on
f their losses, depending upon
,tion one believes, See Are
:an Holders LuckleSJ!. SAN
~ y TRANSCRIPT. De~, 30,
.'tlers To The Daily Tron.
rney CorreclJ Whot ICA
';.'ed. SAN DIEGO DAILY
r, Feb, 13, 1992. The class
(his class action suit would
. ligible to receive any distribu.
I 'ubordinated claims in . Chap-
nil unsecured creditors were
11 U,S,C, ! 726(al,
, Code! 550(a) provides that
a transler is avoided under
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IN REf S & D FOODS, INC.
Clle as 144 B.a. 121 (Dlutty.D.Colo. 1m)
I 547, it may be recovered lor the ben,lit translers in question to the entire cir,
01 the estate Irom the "initial transleree 01 cumstance 01 the transaction,"
;uch transler or the entity lor w~se b~ne- The control tes~ then. as adopted by this
(it the ~nsler was made or any ,Il!'medlate circui~. simply requires courts to step
or mediate transleree 01 such Initial trans. back and evaluate a transaction in its
Ceree," The law firm defe~_dants deny they entirety to make sure that their conclu.
are translerees under! ooO(al. They ar. sions are logical and equiuble, This ap-
gue that they acted as escrow agents o,nly proach is consistent with the equitable
who,l~ter translerred the lunds to a claims concepts underlying bankruptcy law""
admm~tratQr, 848 ~,2d 1196. 1999 (11th Cir,1988)
The Court rej~ts these arguments lor Evaluating this transaction in its entirety,
two reasons. Fll'S~ the Court does not the Court concludes that the defendant law
oolieve a fair construction of the ~tipula' firms cannot deny transferee status under
bon 01 Settlement supports the chum that ! 550la) once all circumstances are c .
the law flrnlS were mere condui~ of the sidered. At the very lellll~ a material iss~~
Cunds, AlthoU~,h they were ~ppom~d es. of lact has been raised which precludes
crow age~ts to ," oversee distributIOn ~I summary judgment on this issue.
that portton of the Settlement Fund that ~, ' , ,
finally awarded by the Court to the Class" . ~IS Memorandum DeCISion, constitutes
(at 25) the Stipulation for Settlement also Imdmgs of fac~~and conclUSIOns of law
rovid~ that the Settlement Fund was to pursuant to FRBJI 7052. Counsel for Mil.
~e applied to the payment of class plain. berg, Weiss, et aL. are directed to prepare
tiffs' attorneys' fees costs expenses and an order in conformance with this Memo-
. int.;'ast (at 25), E.'!h!bit "U" to the Decla. randum Decision within ten (10) days from
ration of Susan Ragsdale shows the Febru. the date oi its entry,
ary 26, 1990, withdrawal of the over $4 ·
million used to pay these fees, It appears 0 1"""."1111'
that these fees we(1! paid by the defen'
dants to themselves,
Se(ond, the defendants have claimed an
interest in the portion of the Settlement
Fund awarded as attorneys' fees by argu.
ing that an attorneys' lien existed on that
portion of the lund. Although In ~ Bu/.
lion Res/l1'e of North America, 922 F,2d
544. 547 (9th Cir.l991) holds that the trans.
leree must 00 in a position to exertise
"dominion" or llcontrol" over the transfer-
red lunds, given their claim 01 an atto..
nel;' lien on these lunds and the lact that
defendants apparently paid themselves out
of the Settlement Fund, there is a strong
suggestion that they exertised "dominion"
and "control" within the definition 01
! 550la), In adopting its definition lor de-
termining whether a "transferee" was im.
mediate, the Bullion Resme court cited
the In re ChlUe and Sanborn Corp. opin'
ion which stated:
The test articulated by our court is a
very nexible. pragmatic one; in deciding
whether debtors had controlled property
subsequently sought by their trustees, Competitor brought adversary pro.
courts must "look beyond the particular ceeding against Chapter 11 debtor, debtor's
121
In re S & D FOODS, JNC.. lormerly
known as Consolidated Pet Foods. Jnc..
alkla Consolidated Pet Food. lnc..
North American Trading Co., Debtor.
Lorry A. LARSEN, Plaintiff.
v.
CONSOLIDATED PET FOODS, INC..
alkla Consolidated Pet Food. Inc..
North American Trading Company.
Donald A. Kunkel. Susan L. Kunkel.
FOS Business Finance Corporation.
United Protein. lnc.. Marks and Clore,
Esc,rowAgent.. nnd City 01 Dodge City.
Kansllll. Delendants.
Bankruptcy No. 89 D 06041 J.
Adv. No. 89 C 0533.
United States Bankruptcy Court.
D, Coloraao,
Aug, 7, 1992,
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144 BA:oIKRI:PTCY REPORTER
president and sole shareholder, president',
wile, debtor's primary prepetition lender,
acquirer 01 debtor's assetJ at sale approved
by bankruptcy court. escrow agentJ. and
city. seeking declaratory judgment tha~
promissory note; related security agree-
mentJ, guaranties. and other loan doc.
umentJ were valid and enlorceable, and
seeking determination about priority 01
liens on debtor's assets. Defendants filed
tort and contract counterclaims against
competitor. The Bankruptcy Court, Fran.
cis G. Conrad, J.. sitting by designation,
held tha~ (I) oral merger contract between
debtor and competitor was lormed either in
fact or by estoppel; (2) relationship be-
tween debtor and competitor was either
partnership or joint venture; (3) amount
given by competitor to debtor constituted a
capibl inlusion. as opposed to a loan, and
thus promissory notes, security documents,
and related agreements, assignments, and
mortgage were null and void ab initio; and
(4) competitor had breached merger agree-
men~ breached fiduciary duty, di$closed
trade secrets in violation of Colorad~'s Un~
lorm Trade Secrets Ac~ tortiously inter-
lered with contract and with prospective
economic advantage, and engaged in lraud
and outrageous conduct
So ordered.
I. Bankruptcy ~2705
Acquirer 01 Chapter 11 debtor's assetJ
in sale approved by bankruptcy court did
not have standing to pursue counterdaims
under Bankruptcy Code's prelerential
transfer, lien avoidance, lraudulent convey.
ance, and equitable subordination provi.
sions against party that had been involved
in pre petition merger transaction with dibt.
or, even though acquirer had been assigned
debtor's contract rights and intangibles.
Bankr,Code, 11 U,S,C.A. II 510(cl. 544(a).
547(b), 5-18,
2. Bnnkruptcy ~2703
Following sale of its assets, Chnpter 11
debtor.in'possession did not have standing
to bring counterclaims under Bankruptcy
Code's prelerential transler, lien avoidance,
(raudulent conveyance, and equitable sub-
ordination provisions against party that
had ,been involved in pre petition merger
transaction with debtor, , Bankr,Code, JJ
U,S,C,A. Ii 510(cl, 544(al, 547(bi, 548,
3. Action ~I
To pursue cause of action under Colo-
rado law, plaintiff must sufler actual inju.
ry to l~lIy protected interest
,
4. Corporatlona ~202
Individunl cannot maintain action on
its own behalf based on shareholder status
in corporation lor alleged wrongs against
corporation without a showing 01 injury in
some c:lpacity apart from shareholder stA.
tus.
5. Bankruptcy ~2703
Under Colorado law, Chapter 11 debt.
or's president and sole shareholder could
not raise counterclaims agninst competitor
that had been involved in prepetition merg,
er agreement with debtor to estent that'
those counterclaims purported to arise
lrom wrongdoings against debtor, whether
based on sbte law or Bankruptcy Code.
6. Contract! ~\47l1, 3)
Under Colorado law, contract should
be construed to give elfect to intent of
partie.I and mwt be construed as a whole.
7. Contracts 4:1143(3)
Under Coloradn law, courts possess no
authority to rewrite contracts, whether oral
or written, but rather courts must enforce
unambiguous contracts in accordance with
their terms.
8. Contract! ~143(l)
Under Colorado law. same rules apply
to oral contract as to one thnt is partially
oral and partially written.
9. Contracts $032
Under Colorado law, threshold ques.
tion about whether pnrties to oral agree-
ment became bound prior to dralting dnd
execution of contemplnted lormnl writing is
largely a question of parties' intent
10. Contract! ~169
Under Colorado Inw. intent to be bound
to oral contract prior to drafting and esecu.
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IN RE S & D FOODS. INC.
C1<. u t44 D,R. lIt IDkncy,O,CoIo. t9911
tion oC contemplated Cormal writing can be
inCerred Crom parties' actions,
11. Frauds. Statute oC (\:0119(1)
. Under Colorado law, statute oC Crauds
is not spplicable iC parties intended to be
bound by agreement and some provisions
are in writin~ and some are oral.
12. Contracts ~32
Lnder Colorado law, amnng Cactors to
be considered in determining whether par.
ties to oral agreement became bound prior
to drafting and execution oC contemplated
Cormal writing are whether there h3Jl been
express reservation not to be bound in ab-
sence oC writing, partial performance,
agreement to all terms, and whether agree.
meot is one usually committed to writing.
13. Corporations ~582
Under Colorado law, business merger
contract was Cormed either in Cact or by,
,estoppel. even though there was uncertain.
ty as to amount oC capital conaibution,
where there was no express reservation in
oral agreement that parties would not be
bound in absence oC writing, there was
substantial performance oC all major provi.
sions. merger was announced, and all ma-
jor provisions were a~on. ..
It Bankruptcy 4=2002
Issue in bankruptcy prooeeding oC
whether underlying events sub judice re-
sult in partnership involving debtor is de-
termined by state law,
15. Joint Adventures ~I
Under Colorado law, substantil'e law
oC partnership applies to joint ventures,
even though joint ventures diCCer Crom
partnerships,
16. Joint Adv~ntures 4=1
Partnership 4=2
Colorado partnership law would jle ap-
plied to resolve' question oC whether prepet.
ition partnership or joint venture had been
Cormed with Chapter 11 debtor,'where the
major events, inciuding the signing oC fi.
nancial documents, occurred in Colorado,
17. Partnenhlp,<l:>1
Lnder Colorado law, "partnership"
may be defined ns express or implied con.
123
tract between two or more persons to place
the~ money, skill, ef{ects or labor into a
business, and to share profit and losses,
Sec publlcalion Word, and Phrases
for othcr judicial conslrucllon' and
deflnitln"~
18. Partnership 4=t8
Under Colorado law, no express agree-
ment is necessary to Corm partnership,
19, Partnership <l:>18
Under Colorado law, partnership may
be Cormed by conduct oC parties,
20, Partnership 4=14
To find that partnership exists under
Colorado law, it is not required that every
parmer participare in day to day manage-
ment oC partnership business.
21. Partnership 4=79
Under Colorado law, management and
control oC partnership business may be del.
egate<! by agreemen~ express or implied,
2%. Partnership 4=20
Under Colorado law, iC parties have
placed themselves in relationship that con.
stitutes partnership, it is not dererminative
that they call, or do not call, themselves a
. partnership,
23. Partnership 4=17
Under Colorado law, whether particu.
lar contract or transaction or series oC
transactions constitures a partnership must
be nscertained by inrention oC parties with
reCerence to entire transaction, and not by
isolawd events,
24. Partnership 4=24
Under Colorado law, party is estopped
to deny exisrence oC partnership when that
party has execured documents on behalf oC
partnership,
25, Partnership 4=20
Under Colorado law, a Cinancing ar.
rangement does not make a partnership,
26. Jnint Adventures <l:>I.1I
P'rtnership 4=20, 21
Under Colorado law, relationship b..
tween parties to merger agreement was
either de Cacto partnership, partnership by
t.f(S
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124
I~~ BANKRt:PTCY REPORTER
estoppel. or joint venture, where one part)'
had made express representations about
partnership, parties laler shared equip'
ment. employees and produc~ parties con.
suited each other regarding business deci.
sions, parties made joint sales calls, and
parties made public announcements about
merger,
27. Evidence e=391121
Under Coloraao law. parol evidence
rule nonnally prevents introduction of evi.
dence about what appears to be integrated
and completed agreements.
28. Evidence e=~50110)
Under Colorado law. parol evidence
rule must give way when question raised
as to purpose of promissory note is b..
twe<!n maker and paYe<! and question per.
tains to note's substantive effect '
31. Joint Adventures Cl=1I1 J
Partnership Cl=10
rnder Colorado law, partners and joint
\'enturers owe fiduciary duties 10 each oth.
er, including duties of loyalty, honesty and
candor, good faith and fair dealing. and
lack of self-dealing,
32. Fraud Cl=1
!l.'nder Colorado law, no party to fiduci.
ary or confidential relationship may pursue
his own personal interest in a way that is
hostile to interest of another so long as the
relationship continues,
33. Fraud Cl=1
Under Colorado law, fiduciary duty
can fonn during negotiations that precede
fonnal execution of written agreemen~
34, Fraud Cl=1
Under Colorado law. each party to fu.
ture potential fiduciary relationship has
duty during negotiations to make full dis.
29. Bills and Noles Cl=516 closure to other parties concerning matters
Under Colorado law, evidence showed that have induced them to enter into the
that $2 million transferred from one party rel~tionship.
to merger agrel!ment to the other party 35. Joint Advenlures e=~())
constituted capital intusion rather than Partnership e=211
loan. and thus promissory notes, security Under Colorado law, fiduciary obli.
documents and interes~ related agree- gations continue after dissolution of part.
ments, assignments. and mortgage signed nership or joint venture and until all part.
by transferee's president were null and nership or joint venture affairs are com.
void ab initio, even though transferee's pletely wound.up. '
president had attempted to repay amount , 36 F d e=1
transferred, and transferee's accounting . Uradu, CoI d I fid' bl'
personnel treated transfer as a loan; trans. ,n er, ora 0 aw" I UCl8ry 0 I'
.: b ked' trans' 'b' , gaUons continue among parties to confiden.
aCwon was 00 10 .eror s usmess ti I I' h' iii II aff . com
accounting records as an investment and la te~ auons dtP un a airs are .
not a loan. transferor's attorney knew that p e y woun 'up.
a loan would put transferee in default with 31. Joint Adventures Cl=ml
ill lender, and amount transferred was Partnership e=211
equal to amount of funds that transferor Under Colorado law, partner, joint ven.
had ~grel!d to invest in the merger. turer, or one in a dissolving confidential
relationship. which still has loose ends dan.
gling. c:lI1not cut-off rights of other part-
ner in dissolved relationship by tactic of
entering into "new" contract to complete
such business:
30. Joint Advenlures <l=>l())
Partnership e=10
Under Colorado law, fiduciary duties
owed by partners to partnership and by
joint venturers to the joint venture include
duties of loyalty, honesty and candor, good
faith and (air dealing, and lack of self.
dealing.
38. Torti <1=>12
Under Colorado law, party in fiduciary
or confidential relationship may not inter.
fere with cumnt or prospective contracts
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IN RE S & D FOODS. INC.
CUtU 144 B.R. lIt IBknoy.D,CoIoo t9911
or business relations of other parties to the president could not be trusted. and that it
relationship, was on verge of bankMlptcy,
39. Contracts G:>337(l)
Under Colorado law, elements of
breach of costract cause of action are: ex'
istence of contrac~ failure of performance
that was promised; and damages.
10., Corporations G:>582
!:nder Colr.:ado law, one party breach.
ed oral merger agreement, where that par.
ty was required by agreement to lend $1.5
million to other party's p'resident as presi.
dent's contribution to new entity, but such
loan did not (,~cur.
125
15. Fraud G:>7
To recover for breach of fiduciary duty
under Colorado law. plaintiff must show:
that defendant and plaintiff were in fiduci.
ary relationship; that defendant breached
fiduciary duty owed to plaintiff; that plain.
tiff incurred damages or losses; and that
defendant's breach of fiduciary duty was
cause of plaintiffs damages,
16. Fraud G:>7
Under Colorodo law, corporation which
had entered into merger agreement with
competitor proved that competitor breach.
ed fiduciary duty, where parties had en.
tered into confidentiality agreemen~ corpoo
rotion had provided full and complete ac-
cess to its books and records, and competi.
tor provided such information to corpora.
tipn's customers alid suppliers:
\
11. Contracts G:>317
Under Colorado law, if one party's per.
formance under contract is prevented by
another party to contrac~ party prevented
, from discharging the required obligation is
to be treated as, though that party per.
formed,
12. Contracts G:>317 ,
Under Colorado law, when one party is
prevented from fully performing contract
by fault of other party, the latter cannot be
allowed to take advantage of the wrong 18, Fraud e>64(l)
and escape liability under contract Under Colorodo law, fiduciary duty
13. Corporation. G:>582 createa fiduciary obligations as a matter of
Under Colorodo law, corporotion had law,
to be treated as having performed obli. 19. Joint Adventures e>4(1)
gations under merger agreement with com.
petitor, even though corporotion's presl. Partnership G:>70
dent did not make required contribution to Competitor who had entered into merg.
new entity, where competitor was required, er agreement with corporotion breached his
to lend president $1.5 million but did not do fiduciary duties as partner or joint ventur.
so. thus prohibiting performance under er where competitor disclosc.d confidential
agreement by corporotion and president information. engaged in self-dealing, made
misrepresentations regarding documents
14. Corpol'1ltlon. G:>582 through its attorney, disclosed to corpora.
Under Colorodo law, competitor tion's customer that merger was 011, sud.
breached confidentiality agreement entered denly withdrew from relationship on pre-
into as part of merger agreement ,.with textual grounds, and suggested the money
corporotion, under which competitor prom. would be "slipped" to corporotion's presi,
ised not to disclose corporation's confiden. dent if corporotion filed bankruptc)',
tial or proprietol'l' information, where com. , .
petitor made numerous contacts via tel.. 50. Fraud G:>5911)
phone and in person to corporation's cus. Under Colorodo law, proof of harm
tomers and suppliers informing them that from breach of fiduciary duty entitles in.
corporotion was in Cinancial trauble, that jur,d party to whom duty was owed to
its accounting records were not. accurate. damages tha~ place injured party in same
that its'inl'entol'l' was overstoted, that its ' position it would have been but for Ciduel.
17. Fraud G:>7
Under Colorado law, breach of fiduci.
ary duty gives rise to constructive froud,
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126
144 BANKRl:PTCY REPORTER
ary breach: place non breaching part)' in
position that it was in before breach: and
equal any profit the breaching fiduda'}'
made as result of committing breach.
51. Joint Adventures <i=411l
. Partnership <i=89
Under Colorado law, when one part)' [0
merger agreemen~ which gave rise [0 part,
nership or joint venture relationship,
breached his fiduciary duty by placing
warehouse lien on other party's propert)',
he had to repay amount that other party
paid on lien,
52. P'!J1nershlp e:>165
Under Colorado law, all parmers 'are
liable. jointly and severally, for everything
chargeable to parmership under statutes
and are joi~tJy ~nd sev~~liable for all
other debts" of partneisiiip, West's
C.R.S.A. if 7-60-113, 7-60-114, HO-I15,
53. Partnership c.ot09
Ordinarily, under Colorado law, part.
ner is not entitled to contribution. from
other partner un'til after settlement show.
ing respeetive equities of the parties.
54. Partnership e>109
'Under Colorado law, partner may be
allowed contribution from other partners
without previous settlement of flrlll ac-
counts when item has been separated /rom
partnership affairs.
55. Joint Adventures e:>411l
Partnership e:>109
Under Colorado low, when purchaser
of Chapter 11 debtor's assets had agreed to
pay 50% of debtor's unsecured unpaid trade
debt, not to exceed $2,5 million, debtor's
partner or joint venturer was obligated to
pay 50% of $1.25 million as his contribution
shnre,
56. Torts e>12'
Under Colorado law, five specific ele-
ments must be met before tort of Intention.
al interlerence with perlonnlUlce of exist.
ing contract WIth third person will be rec-
ognized: existence of valid contract be-
tween plaintiff and third party; knowledge
by defendant of contrac~ or knowledge of
facts that should lead 0 party to inquire as
to existence of contract: intent by defen.
dant to induce breach of contract by third
party; action by the defendant that induces
breach of contract: and damages to plain.
tiff.
57.. Torts >1=27
Under Colorado law, intent element of
tort of intentional interlerence with per-
fortnance of existing contract with third
person may be proven by circumstantial
evidence.
58. Torts >1=12
Under Colorado law, tort of interler.
ence with prospeclil'e advantage is differ'
ent from tort of interference with contrac~
since the fonner looks to protect future
valuable expectancies, while the latter is to
protect what has alread)' been acquired.
1
I
,
,
I
59. Torts e:> 12 ,
Under Colorado law. it is not necessary
to prove underlying contract in order to
prove tort of interference with prospective
advantage, but rather it is sufficient to,
show intentional lUld improper interference
preventing fonnotion of contrac~
.
60. Torts >1=6
, Under Colorado law. improper conduct
is neceasary to recognize tort of interfer'
eoce with prospeetive advlUltage.
61. Torts >1=6, 12
Under Colorado law, one part)' to
merger agreement committed torts of in.
terference with contract and interference
with prospective advantage, where that
part)' called his and other party's major
customers and infonned them that deal
with other party was not going through
and revealed to them trade secrets about
other party's financial condition. and cus.
tomers started demanding payments from
other part)' and restricting credit :ill result
of those calls.
62. Torts e:>10(51
Under Colorado law. revelation of
trade secret is actionable under tort of
interference with prospectil'e advantage,
IN RE S & D FOODS, INC.
Ctlt u 144 B.A. t21IBkncy,D,Colo. tml
68. Bill. Bnd Notes ~103(1)
Guaranty ~20
Secured TransBction. e>fi3
Party to merger agreement was enti.
tied to reacind promissory note, securit)'
agreements, and loan guaranties when
they were executed as result of other par.
I)"s fraud.
63. Contracts ~94(1)
Under ColDrado law, one remedy for
fraud or deceit is rescission of contract and
restitution,
64. Fraud ~28
Under ColDrado law. elements of com.
mDn.law deceit were nDt satisfied upon
commencement of discussiDns to merge
businesses of corporation and cDmpetitor.
but rather were satisfied at later date
when competitor assumed an intent to bol.
ster his own warehouse business to corpo-
ratiDn's detriment and to force corporatiDn
to sell its facilities at distressed sale price,
which occurred when competitor failed to
disclose his intent to consider $2 million
given to corporation to be loan rather than
to capital infusion and that he would en.
force security documents and call default
on loan when it became due, while at same
time cDmpetitor's agent affirmatively mis.
led cDrpora~'s'Bgent about impDrt of doc.
uments and about whether agent's attor.
ney was involved in transactions.
65. Fraud ~20
Under ColoradD law, fraud in the in.
ducement Dccurred when president of one
party to merger agreement .igned security
dDcuments. where agent fDr other party
misled him to import of documents, and
president signed documents because he
trusted Dther party and placed his cDnfi.
dence in him,
66. Fraud ~28
Under CoIDrado law, there was fraud
in the executiDn with respect to signing of
security documents by president of one
party to merger agreemen~ where attor-
ney fDr other party prevented pr'esitjent
from cDnsulting with his corporation'~ at.
tome)' and prevented effective review by
president of the documents,
67. Fraud ~5RIII
Under Colorado law, hurden of proving
: common.law fraud and misreprcsentAtion is
by a preponderance of the evidence.
Wcst's C,R,S,A, i 13-25-127.
~27
69. Fraud ~61
Under Colorado law. party to merger
agreement was entitled to exemplary or
punitive damages against other party when
Dther party had engaged in f.'Sud with re-
spect to execution of security documents.
West's C,R.S,A. ~ 13-21-102.
70. Conspiracy ~l. 19
Under CoIDra~D law, civil conspiracy
requires a showing, by preponderance. of
five elements: two Dr more personSj with
object to be accDmplished; with meeting of
minds on object or cDurse of actiDn to be
accomplished; with one or more unlawful
oyert acts;' and damages as proximate re-
sult thereof,
n. Con.plracy ~18
Under ColoradD law, civil cDnspiracy
claims had to fail when none of the claim.
ants had named any other party to suit as
coconspiratclr,
72. Torts ~10(5)
Under Colorado law, misappropriation
of trade secret occurs if: trade secret is
disclosed; withDut express or implied con.
sent of owner; by person whD knew or had
reason to know that knowledge obtained
was a trade secre~ knowledge obtained
was acquired under cireumstAnces that
give rise to duty to maintAin secrecy or
limit its use; and use or disclosure of trade
secret must be detrimentAl to party whose
secret is revealed, West's C,R,S,A, Ii 7-
;4-102(41,7-74-108,
;3, Torti ~28
Under Colorado law, what cDnstitutes
a trade secret is generally a question of
fac~ West's C,R.S,A, Ii 7-74-10214), ;-
;4-108,
.
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128
144 BANKRUPTCY REPORTER
n Torts ~10(5)
Under Colorado law, agreement not to
disclose conlidential inlonnation is an ~,
knowledgment that inlonnation is "trade
'ecret" West's C,R,S,A, !9 7-74-10214),7-
74-108,
See publication Word, and Ph,,,,,,
ror other judicial con5lruCllon' and
definillon~
, .
75. Torts ~10(5)
To prove violation 01 Colorado's Un~
lonn Trade Secrets Ac~ party must show
that proBpective competitor would have
been required to expend 'money and time to
produce comparable process or develop
comparable inlonnation. West's C,R,S,A.
II 7-74-102(4), 7-74-108,
'.
76. Torts ~tO(5r
Under Colorado law, matters that are
generally known, or which are commonly
known, in a trade or business cannot be
considered "trade secreL" West's C,R.S,A.
II 7-74-102(4), 7-74-108,
77. Torts ~10(5)
, Competitor who had entered inlD merg.
er agreement with corporation had dis.
closed corporation's trade secrets to suppli.
ers, customers, and canneries in pet lood
industry in violation 01 Colorado's Unifonn
Trade Seerets Ac~ competitor discl08ed
corporation'B fmancial condition and an.
nounced that corporation was on brink 01
bankruptcy. West's C,R,S.A. II 7-74-
102(4), 7-74-108,
78. COBts ~194.24
Damagea ~9\(1)
Competitor's revelation of trade se-
crets,ol corporation, which had entered into
merger agreement with competitor, was so
malicious and wanton as to entitle corpora.
tion to recover attorney lees, costs, and
exemplary damages under Colorado's Uni,
lonn Trade Secrets Act; competitor dis.
closed corporation's financial condition and
announced that corporation was on brink 01
bankruptcy. West's C.R,S,A. II 7-74-
104(2), 7-74-105.
79. Damagea ~lt4
Under Colorado law, exemplary dam.
ages equal to 10% of corporation's entire
recovery w3.l warranted" result of com.
petitor's malicious and wanton disclosure
of corporation', trade secrets obtained in
course 01 business m~rger, West's
C,RS,A. !9 7-74-104121. 7-74-1OS.
80. Evidence ~570
Court does not have to embrace every
bit pi evidence that expert provides.
,
81. CorporatlonB e=S82
Damages, ~124(\)
Fraud e=S9(1)
Under Colorado law. damages recover.
able by corporation as result of competi.
tor's breach 01 merger agreemen~ breach
of fiduciary duty, disclosure of trade, se-
crets. tortious interference with contract
and prospective economic advantage. and
fraud would be mid.range value of corpora.
tion's stock minus corporate deb~ corpora-
tion had filed for Chapter It protection
subsequent to those breaches,
8t Attorney and Client ~32(l2)
Under Colorado law, attorneys are pro-
hibired from having direct contact with op-
posing party who is represented by coun.
seI. '
83. Secured TranBactlonB e=61
Under Colorado law, loan security doc.
uments and guaranties had to be rescinded
and declared null and void when attorney
lor purported lender took affinnative ac-
tion to prevent purported borrower's presi.
dent from speaking to his attorney when
those documents were signed. and presi.
dent's attorney never gal'e lender or lend,
er's attorney pennission to talk to presi.
dent.
84. Secured Transoctions ~63
cnder Colorado law, signdtures on
plllmissory note and security agreements
were fraudulently obtained, where attorney
lor purported lender had misrepresented
nature of documents, and parties had not
intended to enter into loan agreement but
had intended that amount translerred
would be a capital contribution to merged
corporation.
::',:';,'''t;:l/:,:~-: :':',' :,~-~t,~,~,~;,,:..> :.'::' :,: ,:.',',":::,;
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8S. Fraud eo61
Under Colorado law, punitive and ex.
emplary damages were appropriate when
one party, to merger agreemen~ by himsell
and through his agents, lraudulently in.
duced signatures 01 other party's president
and ~is wile upon promissory note and
securit). agreements,
IN RE S & D FOODS. INC.
cU,u 144 8Jl, 11118kncy,O,CoIo. 19911
merger agreement with corporation, and
who misrepresented that promissory notes
and supporting documents signed by presi.
dent and his wile would not be enlorced;
enloreement 01 documents caused loss 01 a
Iiletime's work by president and damage to
marriage. as well as lear 01 loss 01 home.
86. Damages eo50.JO. 192
Ta recover upon claim 01 oqtrageou.
conduct under Colorado low. party must
show b" preponderance 01 evidence: ex.
treme and outrageous conduc~ conduct
recklessly, or with intent 01, causing severe
emotional distress; and conduct resulting
in severe emotional distreas.
129
89. Damage, eo12llll
Under Colorado Itiw, damage, to prop-
erty owner lor interference with lease
would be based on equity in lease,
90, Oamage, eo12llll
Under Colorado law, damage, to be "
awarded to partner lor interference wrti;
lease lor which partnership was lessor
would be based on equity in lease multi.
plied by partner's ownership interest in
partnership,
87. Damages eoSO.tO
Under Colorado law, actions by com.
petitor, who hod entered into merger
agreement with corporation, constituted
tort 01 outrngeous conduc~ where competi., G. Appel and M. Guyerson. 01 Rothger.
tor represented to corporation's president ber, Appel. Powers & Johnson, Denver.
and his wile that promissory note and sup- Colo" lor United Protein, Inc, (Protein),
porting 'documents were "stop-gap" mea. I. Kaiser and K, Kramer, 01 Berenbaum
sures with no intention 01 enloreemen~ & IVeinshienk, P,C" Denver, Colo" lor Don.
those representations induced president aid and Susan Kunkel (Kunkell.
and his wile to ,ign documents, tho,e rep-
resentations were contrnry tD competitor's L. Knowles and J, Powers, 01 McGrath,
intentions misrepresentations were made North, Mullin & Kratz, P,C" Omaha, Neb"
by compe;itor's attorney in violation 01 his ror Lam' A, Larsen (Larsen),
ethical responsibilities, and attorney did not, J, l.<Jgan, or Minor & Brown. P.C., Den.
rorward documentation to president's attor. ver, Colo., ror Conso!. Pet Foods, Inc.
ney ror review. (Debtor/Pet),
\
88, Damages eo130(1)
Under Colorado law, $250,000 in dam.
ages would be awarded to corporation's
president and $500,000 in damages to presi.
dent's wire as result 01 outrngeous conduct
on part or competitor. who had enteied into
MEMORANDUM OF DECISION ON AD.
VERSARY PROCEEDING COM.
PLAINT AND COUNTERCLAIM I, I
.FRANCIS G. CONRAD, Bankroprey
Judge.'
TABL~ OF CONTENTS
.
Page
PROCEDURAL POSTURE """""""""""""""""""""""""'" 131
FACTS""""""""""""""",."""""""""""""""""""" 131
I. The Parties"""""""" '" '''''''''''''''''' """""""""""",131
(al Larry A, Larsen """""'''''''''''''''''''''''''''''''''''''''''''' 131
I. FBS Businm Fin:lncc Corporillion Win \'OJ un.
,Iilril}' ditmiucd from (he proceedi~g.
2. ~larks ilnd Clare. E~row Agents, and Clly or
Dodg, Cill', Kans." did nol d,f,nd th. com.
plalnl iJllrial. The Order emanaling from this
. Decision will provide appropnalel~' for them.
. Sluing b~' special design;uion.
lffS
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, .' ", . t ., " , .'
130
1~~ BANKRtP'l'CY REPORTER
i
I'
Pa~e
(b) Consolidated Pet Foods. Ine,,, '" " " """ """ " " " " " ,,,',,, """ 131
Ie) Donald Kunkel.""",.""" """""",.""""""""""""",132
Idl Susan Kunkel"""",."",,:, ,", "" """"""""""""""",132
lei United Protein, Ine,,,,,,,,,, '" """"",,,,,,,,,,,,,,,,,,,,,,,,,, ",132
II. The Witnesses,,,, """'" """ '''''' """",'" "." """""",,,," 132
lal L, Mulherin", ",,,,,,,".. ........, ..,......".."..", "..".. "".. 132
(bl N, Minor ...... ,........".. ".."".."..,.. ,.."........, "" ".. '" 132
(c) C, Miller ...........,................",,,,,....,......,,, .."........ 132
(d) J. SixtA..,...., "",.....'" '" .....,.."".,,,..,,..,,,.,....,,,,,,,,132
(e) D, Cribari .. .."........... ".. ,............ ,.. ,..,....,.."""...... 132
10 T. Dolfay......,....,..,....,.......:..,........,..,....,............, 132
III. The Background,........., ............. ",.."..",..., .... ....""....,,132
la) The Pet Food Industry."...."................""....."..,......... 132
Ib) Larsen and Pet within the Industry ..........,....""",............. 133
IV. Current Events" ..'.. ..... ......,..... ,....... .....".""., ."..... ,.... 133
(a) Preliminary Discussions and Segotiatioas ..""..,.."..",..,.."",.. 133
(b) The Confidentiality Agre1iment., ,.,.. "" ,." """"""'" ""'" "" 13~
(c) The Merger Agreement .........,:.."".".",............"........,135
(d) Documenting.., ".""."", ,.,,",~ """'" ,..., ,..'"" "."""",136
(e) The Merger Announcement..,..",,,..,.........................,,.....13i
If) The Merger of Operations..,......,..""....,............"........" 139
Ig) Sharing...,: ,.. ,...,..,..... ". ".. ,..,...., '''''''''''''' ,.."", ,.., 1~1
Ih) The Grant Application.. ......,..,'.., ....,.. ,,,..,.... .."........ ,.." 1~4
Ii) Financing the Deal..........,....,....,......,..........,........".., 1~5
m Inventory Buildup, ,.... ...,......,.., ,..",.,..""..',.." ,..,.,.. ,.. 150
(k) Tennination of the Venture ....,..........,..",..,.. ,.... ".... .."" 151
CLAIMS OF THE PARTIES ........,..,,, ,.. ..".... ,.... ,.................",154
DISCUSSION .....,.." "..,..,."..' '.. ........, ,.."",.........,..""" ,,,,155
I. Standing to Bring Certain Causes of Action......,............:.....;"", 155
(a) Pet and Protein,....,..,....",................"..............,...... 155
Ib) Donald Kunkel..,..........,....",..,....,..".............".....,,, 155
II. The ~Iaior Issues of Contract....,....".....,....,....".....,..,........ 156
la) Was there a Contract? ,.........",..,..,..,....,,,..,.............,.. 156
(b) Did the agreement to merge result in a PartJlership/Joint Venture
Agreement or merely a loan? ..,..,.........,....................".158
Ic) Was there a fiduciary or confidential relationship under Colorado law'!.... 160
(d) Was there a Confidentiality Agreement? ........:..........,......,.... 161
(e) Was there a breach of the Joint Venture Co\ltraCt, and of the Confiden.
'I' " .
tis Ity Agreement. """"""""" ".:~. ,..,. ... ,... , . , " , , , , . , , ". 161
(f) Was there a breach of fiduciary duty?...........,..,..........,....", 162
(g) Was there a breach of the Partnership or Joint Venture relationship?.... 162
(h) Is Pet entitled to contribution from Larsen for debts paid before and
during the pendency of Pet's bankruptcy? ..,..........,..,.......... 163
III. Issues PertJlinin~ to Interference with Contract and Prospective Economic ,
Ad~antage'"..""..,..,., :::.. ......, ,..",.....".",..,.",...,..",163
IV, Fraud, ~lisrepresentation, Nondisclosure and other TortJl .",........,...." 165
la) Fraud, MisrepresentAtion. and Sondisclosure """"""""""""'" 165
Ib) Civil Conspiracy..,....,...... "."", ,..",. ....."", ,.... ,..",..", 16i
Ic) Breach of Uniform Trade Se<:rets Act"..,............,........,...... 168
V, Damages-Pel.".,,,,.,,,,... "......", ,..'"., ,..""",."",.."..",168
VI. Kunkel's Claim3,.."......,.... ............................"..".." ".. 169
(a) Fraud in the lnducemsnt and Execution....,....,....,......"........ 169
(b) Civil Conspiracy to Acquire Kunkel's Interest in Pet,..,.."...",..... 169
(c) Outrageous Conduct ......,.... ,........ ,.... ,....,............,.. ,..,169
(d) Interference with ~odge City Lease ,..",......",........"....,..,.. liO
(e) Interference with York Lease "..'..,..................,.."..".."" liO
10 Affinnative Defenses........ ....,.. ...... ,,,..,..,......,,....,......, liO
CONCLUSION...."".",..""."" ". ,..", ,..",."...""",'..' ,.."....' liO
I
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IN RE S & D FOODS, INC.
ell... I'" B.R. UIIBkrtc:y.D.Colo. 19921
The present d~pute I centers upon a bered by the liens of FBS Business Finance
monetAry contribution in calendar year Corporation (FBS), whose claims have also
1988, claimed by Larsen to be a loan, but been acquired by Protein.
by the various defendants to be a capital
contribution. Larsen claims the loans are
collateralized. The defendants, counter FAcrs
with fraud and other causes of:.ictlon. We , . The.facts in this adversary proceeding
hold that Larsen loses his suit for the nu. . are uncomplicated but voluminous,
merous and .arious reasons stated in this
~Iemorandum of Decision,
PROCEDURAL POSTURE
Pet filed for bankrupll:y protection under
11 U,S,C, !i 101, el seq. on May 5, 1989.
This ad'l'liSarr groeeeding was commenced
by Larsen through the filing of an original
complaint on May 18, 1989 st!i!king declara.
tory judgment and other relief. The origi.
nal complaint has been amended on two
separate occasions and a "Second Amended
Verified Complaint" naming Protein (for-
merly Consolidated Acquisitions, Inc.). the
acquirer of Pet, and other defendants was
filed and served on or about July 10, \989.
The amended complaint served the purpose
of having all parties to this action, and two
previously initiated State Court actions, in
one forum, On August 14, 1989, Protein
filed its "Answer and Counterclaims" and
shortly thereafter, undel Court Order en.
tered on September 25. 1989, Protein and
others filed their amended answers and
amended counterclaims. Kunkel, on the
eve of the trial, added an amended affirma.
tive defense under 15 U,S.C, !! 1691, et
ieq.
The present dispute centers around a
merger between Pet and Larsen, and upon
an alleged capital contribution or loan
made by Larsen to Pet during late calendar
year 1988. The capital contribution or
loans are allegedly collateralized by certain
assets of Pet that have been acquired by
Protein in the bankruptcy or are encufn.
l, We hnve jurhdiclion 10 he~r this mailer under
2S U,S,C, I IlHlbJ ,nd Ih, s,nm( "rerence 10
this Caun b\' the Umted Slales District Caun for
the Dlmicl of ColorOldo. General Procedural Or.
der No. 1984-J. The: i1ppe<lring and defending
paniesconsenllo anenlry ornnaljudgmenl in
all mailers Ihal arise in this ad\'crsal1' proceed.
I ing. This ~lcmorandum or DecIsion conslilulc~
findings or racI and conclUSions of Iilw under
131
l. The Parties,
lal Larry .4, Larsen.
Plaintiff Larsen is a businessperson who
resides in Omaha, Nebr:iska. He is en.
gaged primarily in freezer storage and
warehouse related services (T.l7)' through
corporations and entities Larsen owns.
His principal busi,ness, Millard Refrigera.
ted Services (Millard), formerly L & B Cor-
poration, d/b/a Millard Warehouse, is also
located in Omaha, Nebraska (T,21), Mil.
lard is the corporate parent of several sepa.
rate corporations and partnerships, and
provides managemen~ accounting. plan.
ning, and legal services for Larsen, as well
as other entities owned and controlled by
Larsen, One of the services provided by
Larsen. via his entities, is the processing of
pet foods, Larsen has done this for ap-
proximately 15-20 yesrs IT,20).
(b) Consolidaled Pel FoodJ, Inc.
Pet was also involved in the pet food
business (T,22). producing and purchasing
products (rom the slaughter industry. Pet
upgraded the product it purchased for sale
to pet food canners IT.595), It has been in
the pet food business for at least four
'l'ears. It was a single entity compsny with
operations and plants in several states, It
is a Chapter 11 debtor under Title 11,
t:,S,Code,
f,R,CII',P, 52, " m,d, 'pplie.:lbl, by
f,R,Bknc)',P, 70S2,
4. References ilre 10 lhe Iranscripl pages. E.,hib.
ilS, for purposes of Ihi~ Memomndum DeCISion,
are deslg!1aled "L" for Larsen: "CAI" ror Pro-
lein: "CPF" for Pel: and, "K" for Kunkel.
~
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132
III DA~KRl'P'I'CY REPORTER
Icl Donald Kunkel,
Kunkel was the President. Chief Execu'
tive Officer. and sole shareholder 01 Pet
1T.59ll, He is Susan Kunkel's first spouse.
He and Susan Kunkel have one child by
their marriage.
Id) Susan Kunkel,
She is Donald Kunkel's second spouse,
\
(e) United Protein, Inc,
Protein purchased substantially all 01 the
assets 01 Pet at a' Bankruptcy Court ap-
proved sale on July 28, 1989ICAI.100, 102).
Included in the sale was all 01 Pet's perSon.
al property. including
[a]1I claims, actions, lawsuits. "chos~s in
ac,tjpn, and other rights dl the Debtor,
whether fIXed, contingen~ matured. un~
matured, liquidated or unliquidated, and
whether arising pursuant to agreement
or in law or equity, and including all
claims or rights 01 the Debtor, pursuant
to 99 544 through 549 01 the Ba.nkruptcy
Code,
. ""ICAI.1021. Thus, Protein is the real party
in interest lor some causes 01 action, but
not lor all 01 Pet's claims in this proceed.
ing,
II. The Witnesses,
In addition to Larsen and Kunkel, each
party called several witnesses, either in
person or by depoaition, to support their
respective positions. We tally only the ma.
jor witnesses here, but will interlineate our
findings with minor players as the lacts
are processed,
lal L. ,1lulherin.
Mulherin, an attorney, is Vice-President
and General Counsel 01 ~1illard. and per-
sonal counsel and linancial advisor to lar-
sen. whose agent he was. ~lulhei;n was an
active participant in the events 01 this ad.
versary proceeding. Mulherin's credibility
is one 01 the keys to the outcome 01 this
matter IT,301h10l),
(b) .v. .Ifinor,
Minor. an attorney, was personal counsel
to Donald Kunkel, and counsel to Pet for
over ten years, ~1inor was an actil'e partic.
ipont at some points in this matter. and at
other junctures he was leit out in cold
storage. Credibility is not an issue with
this witness.
(cl C, .lfiller,
}liller is 0 lonner Vice-President of FBS
BusiQess Finance Corporation. FBS, the
successor 01 Columbia Salings and Loan
Asso<:iation (Columbia), was a named de-
lendant in 1M matter. Miller's knowledge
pertains to Pet's financial po~ition belore.
and during, the events that took place in
this adversary proceeding,
IJl J. SiJ:/a.
Sixta, a present e,mployee 01 Protein. is
the lonner Group Vice-President 01 Pet,
Sixta has substantial knowledge regarding
the matters raised in the complaint, the
defenses, and counterclaims, Sixta was es.
pecially privy to the sales and procurement
activities of Pet (T.90),
(e) D. Cribari.
Cribari was Pet's and Kunkel's Certified
Public Accountant"
(f) To Doljay.
Doltay is a Millard Vice-President ..11.
though to some extent a minor player, Dol.
lay's panonnance during the mnts which
led to the signing of the promissory notes
at issue here, and his courtroom testimony
and demeanor, make him, like ~lulherin. a
cornerstone tr. our findings,
III, The Background,
(al The Pet Food Industry,
Both Kunkel and Larsen agree that the
pet food industry in which ,her operated is
very small and close knit. It contained
approximately five or sL, canners who con.
trolled more than 701< of the pet lood mar.
ket Some names that we all recognize are
Carnation, Gerber, and StarKis~ Without
business lrom the top canners, a companr
has no market lor its product IT.ll21. As
Larsen explained, word 01 insoil'ency or
.....
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IN RE S & D FOODS. INC.
Ctltu t44 BJl. 11t (BkncyJ),c.lo. 19911
bad credit can be disastrous to a company lent asset-based money, not term money;
in the pet food industry (T.l41-142, 691), and term money is what Pet nffiled to pay
i.e" "canners won't do business with you" off Larsen,
!T.36), Because the, num~er of participants During 1988. Pet was erecting a facility
In the pet food bUSiness IS so sm~lI. many at Des Moines, Iowa, FBS provided uo
deals are made verbally. For Instance, term construction financing for this facili.
~oth Larsen 7nd Kunkel completed tran~ac. ty, but intended to finance the receivables,
bons. e~cludlng the matter at. hand, With. inventory, and equipment once Des ~Ioines
out hal'lng \\'ntte~ contracts. The overall came on line IT,902-9031, In fac~ Pet es.
tesbmon}' and e\1dence leads us to con. sentially internally financed the constnlc.
clu~e that both Larsen and Kunkel were Uon in Des ~loines IT.596). Pet also had
bUSinesspersons who made their own deals. fac,'I't' s t' A 'II T d Dod
. I Ie n man 0, ens an ge
and let their attorneys and accountants Citv Kan
work out the details and paperwork later. ' . , sas.
Larsen. via his entities. had a facility in
Friona, Texas (it was near Amarillo, by
Texas geographical standards). Dodge City,
Kansas, and Des Moines, Iowa. Addition.
ally, there were plants in Iowa City, Iowa,
Sioux City, Iowa (IowalNebraska) and Lin.
colo, Nebraska (T. 100-101), Bernie Hur.
'Ie)', Kunkel's ex.father.in.law, is the presi.
dent of Iowa/Nebraska.
One of the key differences ootween Lar-
sen's operation and Pet's operation was
Larsen didn't own product. His entities
processed it (T.22), whereas Pet actually
purchased the product and resold it (T.23),
Nevertheless, both parties competed for
the same raw materials (T.913). The over.
all testimony from all witnesses shows that
Larsen and Pet were competitors, In fact,
competition between the two was extreme-
ly fierce at the Texas and Kansas facilities
IT.9131. There is no doubt from the overall
testimony that Pet's Dodge City plant was
to be a new competitor for Iowa/Nebraska
(T,595, 917-18) when it came on line,
(bl Larsen and Pet within the Industry,
10 August 1988. just prior to the major
events in this adversary procffiling, Pet's
position within the pet food industry in.
valved the procuring and purchasing of
products from the slaughter industry and
upgrading that product for sale to pet can.
ners.
From 1984 to 1988. Pet showed a steady
and substantial rise in its sales calculated
in pounds. The 1984 sales were 9-10 mil.
lion pounds: 1987 sales were 18-19 million
pounds: and 1988 was up to 29-30 million
pounds (T.912),
In August 1988, Pet's payables were cur.
rent (T,803), Its two largest customers
included Carnation and its two largest sup-
pliers were Excel and Monfort IT,911-121,
According to Miller, Vice-President of
FBS (Pet's primary pre-petition lender), Pet
was beliel'ed to be a viable company in
spite of operating losses sustained in 1988
from a shipment of contaminated beef
(T,88&-887),
FBS. via it. predecessor, Columbia, had
provided Pe. with a $2.6 million dollar re-
volling line of credit (later increased to $3
million in 1988). seeured by accounts ~ceiv.
able, invento!')', and equipmen~ In lending
industry terminology, it was an asset.based
loan, with a good rating for that type of
loan, When FilS took over Columbia in
November, 1988, the rating was lowered
but not to a substandard classification, As
will be discussed later, FBS would not fi.
nance the monel' Larsen put into Pet. not
because Pet was a risk, but because FBS
133
IV, Current E~ents.
(al Preliminary Discusaion.t and Nego.
Iialion.s.
Prior to, or during, August, 1988. Pet
was not for sale; was not looking for a
partner or an investor in its business; was
not attempting to sell any specific planlS;
and, was not attempting to obtain long
term financing for any of its facilities
(T,5951, Further, there was no indust!'),
rumor in August, 1988 that Pet was inter.
ested in selling an)' of its facilities IT,172-
73l.
'115
;
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134
144 BANKRUPTCY REPORTER
:-levertheless, on August 15, 19B8, Lar.
sen instructed T, Jackes. one of his employ.
ees, to call Kunkel and inquire whether Pet
was interested in selling its Dodge City
plant IT,21). At the time. Larsen was in
need of upgrading, expanding, and diversi.
fying the Dodge City facility to accommo-
date the needs of his customers IT,596-99,
i6). It made more sense to Larsen to
acquire Pet's plant rather than both Pet
and Larsen having pet food plants in the
Dodge City area (T.76). The purpose of
Jackes' inquiry was to see if opportunities
existed through Pet prior to Larsen ex.
panding his Dodge City facility (T,160),
Although Kunkel told Jackes that Pet
had no interest in selling its Dodge City
facility. Jackes asked if he and Larsen
could visit Kunkel tor further discussion of
the matter (T.598). Kunkel apparentiy ac-
quiesced beeause shortly thereafter Larsen
and Jackes traveled to Denver to discuss
the matter with Kunkel (T,21),
On August 18. 1988, Larsen and Jackes
met Kunkel and Slxta in Denver IT.599-
600). While in Denver they proposed that
Pet and Larsen, start a relationship, not
just at Dodge City, but at all their respec.
tive locations (T,23), To this end, Larsen
proposed that he and Kunkel tour their
respective plants (T,60H02), These dis.
cussions continued by phone over the next
few days (T,24).
On August 24 and 25, 1988, Kunkel and
Larsen, accompanied by Cribari, toured
their respeetive facilities, including Pet's
Des Moines, Dodge City, Amarillo, and
York facilities, and Larsen's Dodge City,
Friona. Texas, Omaha, and Des lloines fa.
cilities IT,602.603, 76. 78, 24), Larsen and
Kunkel travelled in Larsen's privare air-
plane IT,145).
During the tour, Larsen and Kunkel dis.
cussed their respeetive operations IT,25),
Additionally, Cribari discussed with Larsen
basic concepts for combining his and Pet's
operations IT,968). Kunkel also disclosed
to Larsen certain financial problems Pet
had experienced in prior years, including a
loss of approximately $900,000 during fisc
call98i related to a product quality prob-
lem shipped to Spillers in the United King.
dom IT,28I, and that Pet had lost approxi.
mately $500,000 from February 28. 1988
through Augus~ 1988 IT,281, Larsen told
Kunkel his pet food operations had lost
approximately 5300,000 for the year and
that the obvious reason was he and Pet had
competed for the same raw materials, thus
driving up the cost of those materials
(T,605-606).
,
ken was able to estimate the value of
Pet's plants because of his experience in
the coostruction business IT.75). Based on
this valuetion; a financial statement for
Pet for the year ended February 28, 1988;
and conversations with Cribari and Kunkel.
Larsen concluded that Pet was a viable
operation and had an approximate net book
value of $1 million IT,29-301, At the con.
elusion of the August 24 tour. Larsen.
Kunkel. and Cribari met with Mulherin in
Omaha (T.301). At this meeting, Larsen
told Kunkel that he wanted to do a deal
with Pet IT.606). Larsen outlined a deal
where Pet would contribute its assets to a
new entity, Larsen would loan Kunkel $1
million that Kunkel could infuse into the
new entity, and Larsen would contribute an
additional $2 million in cash to the new
entity (T,303). [t was Cribari's under.
standing that the transaction would result
in both Larsen and Kunkel being 50% own.
ers of Pet (T.968); however. no final agree-
ment was resched at that time IT.606),
Larsen and Kunkel met again on August
30 or August 31, 1988 IT. 60i), During this
meeting, they had more discussions about
combining their pet food operations IT.6081,
and further discussed Pet's net book value
IT,29), )Iulherin was later assigned by
Larsen to follow up on the Pet transaction
on a day.lD-day basis IT,851; although at
this date{s). we cannot find a "deal" had
been made,
(b) The Confidentiality Agreement.
)Iulherin was asked to prepare a Conii.
dentiality AgreementlT.302. 354) because
most of Pet's business information that
Larsen wanted to review as part af the
merger was proprietary and confidential
IT,358), )linor first became aware of the
proposed deal between Larsen and Pet in
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IN RE S & D FOODS. INC.
CII... 144 O,R, IZt IOUtcyJl,CoI~ tml
Au~s~ 1988 when Ku~k:1 asked him to Although the Confidentiality Agreement
review the ConfidenUaltty Agrei!ment names Millard and Pet as parties IT,S02-
!T.569-70), Minor revised the Conli,den~al. 303), it would bind not only the corporall!
Ity ,Agreeme~t proP,,<'sed by Mulhenn pnor entities but also their agenu and employ.
to. tU execuUon IT.o70; CAI,B), Although ees, The relationship that the Confidential.
Mmor was sent a copy 01 the Confidentiali. ity Agreement creawd between Larsen anrl
ty A~ment, on August 3~, 1988" by Pet, and their agents, is dilficult to com.
llulhenn s, secretary, Mulhe~n, testified panmentalize, While it is clear there was
that he dtd not know at thiS time who a euphoria 01 trust prior to the e.ecut'
'I' IT 30') I' ^ Ions
,'l~or was ',00, Un severa occmno,ns ollhe Conlidentiality Agreement, its eXf!-
dunng ,t~~ tnal we had p~ble~s with cution pav.d the way lor an exchange 01
llulh~nn s memo!')', I~ our View, tt was a inlormation (mostly flOWing lrom Pet and
selecuve memory, ThIS Court has heard Kunkel to Larsen) which if I d
..: th dl II I I reveae.
man! "mes e, e ense ,my. secretary (or would place the ollier at a competitive dis-
employee) sent tt, but I duln t know about advantage not only betw th I
't" ' b' d d ei!n emse ves,
I ,many num er 01 a versary procei!. but also Wl'th' th' 'd try
, B'h'I" I 'bl meU'mlL!.
lOgs. u. w 0 IS U "mate y responsl e
lor work performed by an employee-the
superior or the emploYei!? We think the
superior. In Mulherin's case, he may have
been too blL!Y to worry about who received.
what was in his view, an "insignificant"
confidentiality agreemen~ but we are not,
We find that Mulherin knew as 01 Augus~
1988 that Minor was Pe~s and Kunkel's
counsel. Moreover, the atromev.dient re-
lationship between Minor. Pe~ a~d Kunkel
was a continuing one; Mulherin could not
reasonably conclude otherwise because he
had no knowledge to the contrary despite
his assumptions and conclusions ill later
testimony.
On September I. 1988, Larsen executed
the Confidentiality Agreement, acknowl.
edging that both he and Kunkel would be
touring and discussing each other's lacili.
ties; would be reviewing confidential busi.
ness inlormation; and. that all inlormation
obtained would be held in confidence IT.83),
The Confidentiality Agreement was intend.
ed to protect all proprietary inlormation
including customer lists 1T,1231-321, Tne
Confidentiality Agreement provides in part:
Each party agrees and acknowledges
that any proprietary inlormation winch it
receives lrom the other party must be
maintained in the strictest conlidence
and used solely and only ror the pUrpose
or .valuating the desirability or proceed.
in~ with the Acquisition,
fCAI.6! Kunkel receil'ed and executed the
Confidentiality A~reement in the first or
the middle part or September. 1988 IT,704),
135
(ci The Merger Agreement.
Although the general terms 01 the deal
between Pet and Larsen were outiined on
August 24 1T.490), it was not until Septem.
ber 10. 1988, ,at a meeting betwei!n Kunkel
and Larsen in Omaha IT.B09), that Larsen
proposed that the two entities merge as
50/50 panners, Larsen ollered to infuse
$2 million of capital into the new entity
(T.B09). Kunkel countered that rrom the
deal he wanwd' $2 million for himself per-
sonally IT.BIOI. Kunkel aceepwd Larsen's
oller and Larsen and Kunkel shook hands
on the deallT,Bll), Thus, as of September
II, 1988, Larsen and Pet (via Kunkel) had
an agreement to merge, Larsen made it
clear to Kunkel at this time that they had
cut a deal and that they should leave all the
legal and accounting work up to the appJ'Oo
priate professionals 1T,6IB), Larsen told
Kunkel that Mulherin would handle all of
his legal and aceounting respon.libilities,
Kunkel likewise informed Larsen that Cri.
bari and Minor' would be handling Pet's
legal and aceounting affairs rr,6141, Thus,
the deal between Larsen and Pet was sub-
stantially similar to a prior deal between
Larsen and 10walNebrnska, I:e" based on a
handshake, with legal and accounting per.
sonnel to rollow.up !Depo, or Hurle)', pp,
10, 111,
There is no doubt Larsen intended to
bind himsell with Kunkel and Pel to a
merger 01 some sort. A deal was struck.
with the details to be ironed out later,
qrr,
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136
144 BANKRUPTCY REPORTER
There was no reservation on either side,
We make this finding not only lrom the
direct evidence submitted by the parties.
but' also lrom wntching both Kunkel and
Larsen testily, Although Kunkel appeared
to be a beaten man due to the financial
difficulties that were a direct result 01 this
transaction, we lind him to be honest and
forthright And, although Larsen ap-
peared to have ice-water in his veins, we
find him no less straightforward. What we
have here are two businesspersons, one
less sophisticated than the other. who made
a deal and left. it lor their ..mploy~s
IMulherin and Minor, as exampl~s) and
agents to work out the details. What the
deal was is subjeet to dispute, Kunkel
looked at it as a partnership, and the evi.
dence shows he had good reason to believe
it was a partnership, '
Immediately therealter, Larsen intro-
duced Kunkel to both Mulherin and Dollay
as his "new partner" (T,613), Larsen and
Kunkel then flew in Larsen's private jet to
Larsen's lacility in Batavia. Illinois.
Again, Larsen introduced Kunkel to Bata.
via's general manager as his "new part.
ner" (T.16). Upon returning from the trip
to Batavia. Kunkel announced to his spouse
that "the deal is done, we've merged"
(T.l067), and thal therealter, he would be
responsible (or managing 10 to 12 plants
and would be traveling extensively beeause
o( the deal (T.l068).
There was, however, no written partner-
ship agreement between Pet and Larsen
(T,725), There was only an oral agreement
and a handshake (T.721-22), with an intent
to later document the terms 01 the deal
(T,723),
(d) Docum..nling,
Mulherin started to document the deal
betw~n Larsen and Pet just alter SeplP.m'
ber ll. This is refleeted by a dralt Letter
01 Intenl dated September 14, 1988. and an
accompanying Asset Purchase Agreement
(T,31-32, 75, 304: LA, 6, 7) and supplement
to the September 14 Letter 01 Intent which
incorporated Larsen's agreement to pay
Kunkel 1500,000 blue sky (T,32),
On September 19, ~luiherin and ~linor
met with Cribari. B, Wells 01 ~linor and
Brown. and Dollay and J. ~larr, both em.
ploy~s 01 Larsen, to discuss the Septem.
ber 14 Letter of Intent IT,483), At this
meeting, Mulherin insisted the merger be
based on book value so that the debits and
credits 01 the deal added up, As we recall
lrom the testimony, ~lulherin wanted to
de4rmine Pet's book value so that III the
loan amount lrom Larsen to Kunkel could
be determined, and 12) a determination
could be made about whether Kunkel
would need to cOiltribuw Pet's 1)odg~ City
(acility, worth approximately $500,000,
which Kunkel owned individually, to make
up any shortfall in Pet's book value IT,981-
83), '
Based in part on Cribari's and Minor's
difficulty in receiving responses and revi.
sions from Mulherin (T,969-71I, the Letter
o( Intent was not fmalized until December
1, 1988, In (acl Mulherin had not com.
menced revising the Letter of Intent until
the morning of November 2S (T.439).
Mulherin prepared the December 1 Letter
of Intent (T.375-76) and dealt directly with
Minor regarding its terms (T.46i). Accord.
ing to lIulherin, prior to obtaining Kunk.
el's signature on the Deeember 1 Letter of
Intenl Mulherin apprised ~linor that he
would be doing so, Mulherin, however, did
not send Minor a copy of the final Letter of
Intent (T. 376); an inaction on Mulherin's
part which we find inexcusable,
The written details, as documented in the
Deeember 1 Letter 01 Inten~ made only
one major change to the September II
agreement IT,721, i331, It refieeted a re-
duction in Pet's net book value lrom $1
million to $500,000 IT,84-85, 69- iOI, This
change had been agreed to previously on
November 2. The change refiects our view
that a deal had been made back in Septem.
ber beeause it was an area that the parties
had agreed was flexible: otherwise. all oth.
er terms remained the same lrom Septem.
ber.
Larsen and Kunkel admit that the De-
cember 1 Letter 01 Intent summarized the
deal between the parties IT,69, 283, 480,
664~5: 1.43), The December I Letter 01
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IN RE S & D FOODS, INC.
Cll.u 144 o,a. 11110kn'l',J),CoIo. t9921
Intent was signed by both Kunkel and Hon Schmehr- Vice-President Oper.
Mulherin, on Larsen's behall IT,69. 48; ations
1.23), Although the Deeember 1 Letter 01 Joe Leamen-Vice-President Trans.
Intent, (CAI.18) was addressed to Kunkel as porlation/Quality Control
Pr~si~e?t 01 Pe~ and ~as signed bl' Kunk. Consolidated Pet Foods. Inc. uill now
ellndlVldually. It was Intended ~. ,a~d did. be able 10 service the pet food indUJtry
bmd both Pet and Kunkel mdlVlduaJly in many arellJ and intends to continue
IT,519}, to be an asset to both the packing in.
dustry and pet food indUJtry. Th. di.
rection of Consolidated is to smic, the
industry and add I'alue. not cosL
Today, truly u'e are a "consolidated"
pet food company servici~g what we
feel is the future of this busine3.!, The
"neu'" Consolidated will allow UJ to
betltr addT'e3.! the needs of both suppli.
ers and CWltomen.
Thank you for your continued support,
Don Kunkel
PreSident & C,E.O.
It was the general consensus in the in.
dustry that the merger between Larsen
and Pet would be beneficial to both enti.
ties. G, Merrick 01 Herelord Bi-Products
in Texas recalls a I;sit by Larsen in the lall
01 1988, at which time Larsen explained
what was going on between him ond Pet
(Depo. 01 Merrick, pp, 15-16), Merrick was
not surprised bl' the news 01 the merger
because Larsen and Pet competed geo-
graphically, and, looking at a mop, it made
sense that they would try to work together
IDepo. 01 Merrick, p, 18), Likewise, B,
Stanley, Larsen's pet lood operations man.
ager, believed the merger between Pet and
Larsen was a good business decision be-
cause they were competing agninst one an.
other for produc~ and by merging, the
competition would be eliminated (Depo. 01
Stanley, pp. 78-19), R. Sutter, the manag.
er 01 Larsen's Friona operation, also
agreed that the merger between the com.
panies was a good business decision be-
cause they had previously competed in the
same cities (Depo, of Sutter. pp, 42-131,
An additional bene lit 01 the merger was
that larger volumes of product could be
run through fewer plants IT,8211,
Both Kunkel and Larsen announced the
merger to their respeetive employees,
Vice-President Kunkel announced to both Sixta and G,
Bedlord, Pet's chief financial officer, that
137
lei The .lEerger Announcement,
Prior to the signing 01 the December 1
Letter 01 Intent, we look back to Septem.
ber 15. 1988, At that time IIour dm alter
agreeing to merge), Kunkel and' Larsen
mailed and telexed a written announcement
to their customers and suppliers in the pet
lood industry, including Spiller. Acacia
~oods, Carnation, Kal-Kan, Quaker Oats.
Ralston, Excel, Monlort, and Iowa Beef
Products. announcing the amalgamation of
their businesses (T,85-88, 183-4; CAI.15l.
Sixta dralted the announcement IT, 914;
, CAI. 15). But prior to sending i~ he laxed
a copy to Larsen lor his approval and
changes. il any, Larsen in lact made
changes to the announcement to clearly
identify himsell as Chairman 01 the Boarrl
of the combined companies. Larsen also
approved the final version of the announce-
ment before it was sent to customers and
suppliers (T,916-17), Because the an.
nouncement is important to an under.
standing 01 the parties' agreemen~ we re-
cite it in full:
I would like to take this opportunity 10
inform you of Ihe merger between Con-
solidated Pet Foods and Millard Hefrig.
eraltd Services pet foods operations.
The merger will mull in one company
which will be Consolidated Pet Foods,
Inc, The result will be a much larger
ond healthier company,
The management of the campanA u,ill
be IlJ follows:
Larry Larsen-Chairman of the
Board
Don Kunkel-President and G.E.O,
Gene Bedford-erecutive Vice-Prcsi,
dent
Joe Sirta-Group
Sales
lf85
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138
IH BANKRUP'TCY REPORTER
Pet and Larsen would be ~ombining their he was considering buying a cold storage
operations IT,951l, and that they should freezer in York. )lebraska and Des lloines
consider Larsen's personnel part of Pet's Cold Storage, Both 01 these Ireezer lacili.
organization and should share all inlonna- ties were doing business with PeL II Lar.
tion with them tT,951l, ' sen could get control 01 Pet, and pull Pet's
Kunkel announced the merger to C. Mil- business out 01 those two Ireezers, it would
ler 01 FBS lIonnerly Columbia Savings) on hurt their IPet's) business such that Larsen
September 15 IT.86l-21, He told Miller would be capable 01 purchasing them !pet!
that Larsen and Pet had reached an agree- (Depo, 01 Sutter. pp, 38-39), This would
ment to merge and that Larsen would be inclease Larsen's coli storage and ware-
contributing $3 million in capital into Pet housing capabilities.
IT,8621. Kunkel told Miller that the deal Further, ae<:ording to Sutter, Larsen an.
with Larsen was a handshake deal. but that nounced on September 15 that his Omaha
documentation would be created in due pet lood operations were to be translerred
course IT,892-3), Miller was insistent that to Pet's Des Moines lacility; his Friona
Kunkel used the tenn "capiUlI" to describe operations to Pet's Amarillo lacility; his
the inlusion 01, cash, To do otherwise Dodge City operations to Pet's Dodge City
,would violate the loan agreement Pet had facility; and his Lincoln operations to Pet';
with FBS. York lacility (Depo. 01 Sutter, pp, 39-101,
Also on September 15, Larsen met with After translerring his pet lood operations
his plant managers (T,89) and announced to Pe~ Pet would then store its product in
the deal with Pet (Depo, 01 Stanley, pp, 18- his warehouses, again increasing Larsen's
19), Ae<:ording to Don Sutter's contempoo warehousing business (Depo, 01 Sutter. p.
raneous notes taken at the September 15 40). Admittedly, these operations were not
managers' meeting, Larsen announced that a substantial part of the various lacilities'
Millard was a growing' company and cited capacities; nevertheless, it is evidence 0/
his involvement with Pet as an example 01 the fact a deal was made.
growth, Specifically, Larsen stated that After the September 15 plant managers'
with the purchase of 10walNebraska, his meeting, Larsen and Kunkel made joint
employees had increased from 550 to 700," sales calls to some 01 their respective cus.
and that with his involvement in Pe~ there tOmers. including Carnation, StarKis~ Kal-
were now 1.000 employees and a total 0119 Kan, and Gerber, to discuss additional sel'
plan13. Additionally, Larsen announced vices that the combined company would
there were now four company presiden13; oller, including buying, selling, and pro-
one for his warehouse group; one ioIr the cessing meat products IT.89-92}, Larsen
Pet group, being Kunkel; lone for Millard believed these trips were a good opponuni.
Processing Systems. a bacon processing fa- ty to show customers the possibilities of
cility; and one for lowa/)lebraska pet the new company IT,1861. lloreover. S'p-
foods. being Hurley IDepo, of Sutter, pp, tember is a criticallllonth in the pet food
3~8). Larsen's announcement at the Sep- industry because contracts for the last
tember 15 plant managers' meeting verifies quarter are negotiated during that month
that he believed he and Pet had a deal; if IT,2541,
not as of September 11. cel'Ulinly four days Larsen and Kunkel also I'isited with
later at the managers' meeting, many 01 their sUPl'liers and customers in
A glimpse of Larsen's motives in associ. the industry to announce the merger, On
ating with Pet may be seen by considering September 19. Larsen and Kunkel visited
statements he made at the September 15 Carnation in Los Angeles, the Canner 01
managers' meeting, At that meeting, ac- Friskies pet foods IT,6171, to announce the
cording to Sutter, Larsen announced that merger of Pet's and Larsen's pet food oper-
5. As will be shown 1:ller, SU, pagl 110, in/rd, II slructure under lhe de:!l.
is nOI clcaf Ir Kunkel underslood this parliculiU
.....
\
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IS RE S & 0 FOODS. INC,
CUt ..144 B.R. 111 (Bkr1c:y.D,Colo. 19911
ations, Carnation was purehasing approxi.
mawly 25 million pounds of mechanically
deboned beef (MOB) and 50 million pounds
of red meat from Pet each !'ear, Around
August. 1988, Pet's annual I'olume was ap'
proximately 150 to t70 million pounds
(1.617-19), Carnation was an important
customer to Pet, R. La!1On, Senior Vice
President in charge of purehasing, distribu.
tion, and administration at Carnation, and
C, Regan, also of Carnation. recall that at
the September 19 visit, the merger an.
nouncement (CA!.IS) was distributed. and
Larsen said he would be investing in Pet
(Depo, of Layton, pp, 6. 10, 11. \4, 21-241
(Depo, of Regan. p. 11; T.620. 90-91),
Larsen and Kunkel also met with Kal-
Kan on September 19. and had basically the
same discussions (1.626). J, Jurczak, pu!'
chasing manager of meats for Kal-Kan
Foods, recalls that at the September 19
meeting, Larsen and Pet announced they
had put their businesses together and tried
to solicit business from KaJ..Kan. Jurczak
also remembers the announcement (Depo,
of Jurczak, pp. 6, 10-13),
Larsen later arranged a meeting with
Gerber, one of his customers, Gerber and
Pet were competitors (T.9441, Larsen con.
trolled this meeting and infonned Gerber
thbt he and Pet were rolling up their pet
food operations and that as part of that
effort, Larsen would be discontinuing its
freezer operation in Dodge City, This
would have an adverse impact on Gerber
(1.93-95, 629; CAI,94), Gerber cut short
the meeting because while Larsen was soli.
citing Gerber's business, Pet's people were
trying to woo Gerber's cusUlmers, Kunkel
and Larsen met with G. Clain, the Chai!'
man of Gerber IDepo, of CIain. pp, ~),
Clain recalls that, at the meeting, Larsen
disclosed that his pet food operations had
merged with Pet's, and that the pet f~d
freezing services previously prol'ided by
Larsen would henceforth be provided by
Pet IDepo, of Clain, pp, 9-111, Larsen ad.
mits that he told people in the last quarter
of 1988 that he and Pet had a new company
IT,2791, Larsen further explained UI Clain
that he would no longer have any function
in the pet food busmm but that all of his
pet food business would be channeled
IUBR-~
139
through Pet IDepo, of Clain, pp, 11-l4). It
appeared to Clain that Larsen and Kunkel
had already reaehed an agreement when
they made the joint presentation (Depo, of
Clain, pp, 14-15), Gerber had pr,viously
l'e(eived a copy of the announcement
Thereafwr, on October 10, Kunkel and
Larsen met with J, Bieree of StarKist in
Los An~eles, again announcing the merger
IT,187, 0301, Approximately two weeks lac
ter, Kunkel and Bierce took a lour of both
Pet's and Larsen's faeilities (1,630-3\).
During the fall of 1988, Kunkel often
used Larsen's private plane, with Larsen's
authorization, for their mutuai purposes,
including taking representatives from KaI-
Kan and StarlGst on a tour of Pet's facili.
ties (T.184-85. 749), The primary obj~tive
of the tour "ith Kal-Kan was to market
Pet and attempt to convince Kal-Kan to
buy product from' Pet (1.873).
In late 1988, Larsen also arranged a
meeting between himself, Kunkel, and T.
Dittner, a partner in Cactus Feeders Com.
pany, to open the door for Pet to purchase
dead animals from Cactus Feeders (1.113-
115),
In OCUlber. 1988, Sixta. Kunkel. Larsen's
accountants, and Mulherin also met with
representatives of Polish Ocean Liners,
who prolided the transportation function to
Pet for expon business, They discussed
the merger between Pet and Larsen and
how it would benefit Polish Ocean by in.
creasing th, amount of containers Pet
shipped overseas (T,431, 922-24). AI.
though documentation had not been com.
pleted at the time of the Polish Ocean
meeting, according to Sixta and Larsen's
people he dealt with, the merger had been
completed IT.954),
.
10 The ,Iferger 0/ Operation.!,
Kunkel's duties with Pet were primaril!'
in operations, although he was its Chief
Executil'e Officer, After September 11.
and the merger, his duties changed, He
reorganized and phas.do()ut operations of
both Pet and Lars.n, Kunkel traveled ex.
t.nsil,.I)' as pan of this phnse-out process
IT-B331. During the last quarnr of 1988,
"'5
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140
W BANKRUPTCY REPORTER
Kunkel managed and controlled both Pet'a
and Larsen's facilities (T,795-96)' AI.
though Larsen disputes that Kunkel was
running his pet food operations IT.l213.
1215), the deposition testimony of B, Stan.
ley. whom Larsen admits was a loyal and
truthful employee, is to the contrary,
SlaIIley was the manager of Lamn's pet
food operations: His duties included moni.
toring product quality, new product acqui-
sition, new tonnage acquisition. customer
service for all of Larsen's plants (Depo. of
Stanley, p. 7), and overseeing the daily
operations of the individual plant managers
at each loeation (Depo, of Stanley. pp, 9-
10), Stanley's employment was terminated
on Deeember 31. 1988 (Depo. of Stanley, p.
7), by Mulherin, who said that because Lar-
sen was no longer processing pet food
products at his plants, but rather at Pet's
plants, Stanley was no longer needed
(Depo. of Stanley, pp. 12-13), Lamn told
Stanley that after he was terminated.
Kunkel would run all the pet food opera-
tions (Depo. of Stanley, p. 641. This is
consistent with Kunkel's testimony tha~ as
of September. 1988, he was in charge of
both Larsen's and Pet's pet fOod opera.
tions.
In early November, Larsen prepared and
provided to Kunkel an organizational chart
outiining the new entity's relationship with
Millard. rr,821; CAI,2), Kunkel objeeted
to the chart beeause it did not refleet Lar-
sen and Kunkel as full partners (T.676);
but rather. reflected Pet as one of Larsen's
wholly-owned entities. Kunkel discussed
his objeetions with Larsen (T.852-53, 8551.
Baso!d on his observations of Larsen and
Kunkel, lUller likewise believed that Kunk.
el and Larsen were partners IT,883-84),
The organizational objection raised by
Kunkel seemed to go nowhere with Larsen,
But Kunkel did not adequately explain it to
us either, Nevertheless, we are still left
with the ftrm conviction that the objeetion
did not sour the "done deal,"
Additional organizational changes were
made from an accounting slandpoln~ spe-
cifically, Larsen's own accounting reeords,
Millard's general ledgers conlain intercom.
pany accounts set up for companies owned
or controlled by Larsen IT,5501, During
October 1988, Larsen created an intercom.
pany account and an investment account
for Pet IT,551-553: CAI.129), This treat,
ment is in accordance with a belief that an
investment had been made.
Kunkel and Larsen evaluated all of their
respeetive geographical areas to decide
whether to close a facility. During weekly
c~ference calls with managers, Larsen
would set target dates for transferring his
closed operations to Pet (Depo, of Sutter,
pp. 83-84).
Kunkel and Larsen jointly deeided to
close Larsen's Omaha and Des Moines fa.
cilities, and move Larsen's equipment into
Pet's operations rr,750). J. Leaman, Pet's
Vice President of operations (Depo. of Lea.
man, pp, 7, 12), understood that Larsen
was discontinuing his pet food operations
in Lincoln. Dodge City, Omaha, and Des
Moines, and that all of that product would
be pro<<ssed at Pet's facilities, Larsen did
close these plants and product was trans.
ferred (Depo, of Leaman. pp. 60-61, 301,
Steps to phase-out Larsen's Omaha and
Des Moines operations commenced in Sep-
tember. 1988 (Depo. of Smnley, p, 27).
Leaman discussed with Stanley, around
September 28, in Omaha, discontinuing
Larsen's operation in Omaha and process-
ing that product in Pet's Des Moines plant
(Depo. of Leaman. p. 47), Larsen's pet
food operation in Des Moines was shut.
down at the same time Pet's Des lfoines
facility came on line. The Larsen Des
Moines shut-down created more product
volume for Pet to run through its facility.
Larsen also stopped pet food processing at
Iowa/Nebraska and shifted all product to
Pet's Des Moines facility IDipO. of Hurley,
p, 18), By closing his plants, Larsen pro-
vided much of the start.up product for
Pet's Des lloines facility IT,259-60).
Prior to the Des Moines start.up, Smnley
put Leaman in touch with Levich, a Larsen
employee in Omaha. to make arrangements
for Pet's trUcks to transport Larsen's prod.
uct from Omaha to Des Maines (Depo, of
Leaman, pp, 66-67). Thereafter, Leaman
worked closely with Levich in getting prod.
uct from Sioux City to Des lloines for the
-..,
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IN RE S & D FOODS. INC.
ttl...I44 B.R. 121 (Bkttcy.D.Colo. 19911
start.Up 01 the Des Moines operations tember, 1988. however, Pet started storing
IDepo, 01 Leaman, p, 68). product in Larsen's warehouses IT.106-
In the latter part 01 Deeember, 1988, 107), Pet beeame a customer 01 Larsen
Larsen and Kunkel also jointly decided to only beeause 01 Larsen's 50% interest in
sell Pet's Grevhound Division shut down Pet (Depo, 01 Sutter, pp, 22-23). Accord.
Pet's Amarillo' plan~ and exp~nd Larsen's ing to Larsen, Pet was going to utilize his
Friona operation 1T,635), In August 01 cold storage warehouse in every location
1988, KunkeJ.did not intend to close Pet's where Pet had a lacility lDepo, 01 Sutter. p,
Amarillo plant IT.635). but had made the 31), Pet's storage 01 produc13 at Larsen's
decision to dil'ersi1y the lacility 1T.735-35), facilities benefitted both parties because
But, there was also testimony that the Larsen had extra warehouse space and Pet
Amarillo plant was constantly being evalu. had' product lDepo, of Sutter. pp, 33-34),
ared for profitability prior to Augus~ 1988, Pet started storing product in Larsen's
After, the ~~rger. Kunkel thought the warehouses in Septemb<!r. 1988, Larsen
Amanl!o ~aclitl)' could, become ~rofi~ble requested that Pet move i13 inventory into
b!' roll,mg It tog~ther ~th Larsen s Fnona his warehouses to ke.p all warehousing
operauon, thus mcreasIDg volume 1T.738- ..",' th I 'I"' IT 690) T 'd
cos~ m e amlY , , 0 avol
39), Larsen, however, demanded that the th'rd arty to .. P t I
. I.p S rage cos~, et wen so ar
Amanllo plant be closed (Depo, 01 Leaman. to tra rt d t I D d C't
pp. 27-28, 82), Amarillo was closed the as nspo pro uc rom ~ ge , IY,
week 01 January 10, 1989 (T,636-37, 987- Kansas a,lI, the way to LaJ:s:n s Fri?na,
88' D IS'" 88)' -- . Texas lactilty. Although additional freight
' epo, 0 u...r, p, ,,,,,,,,en an d ' d h 'd
nounced the closure 01 Amarillo to the cos13 an m.an -out c arges were mcum, '
stalf lDepo. of Stanley, pp. 44-16), This Larsen w~n~ to keep all product Wlthm
control by Larsen supports' many of Pet's the organtzaUon 1T.690), Pe,t also, ~ns.
and Kunkel's affinnative defenses and ported product lrom 113 Amanllo faclitty to
counterclaims, Friona. This se.med ridiculous to S,utter
, . beeause there was freezer space aVllllable
, ~unkel b<!heved ~at ,the Greyhound DI' in Amarillo and 'Pet did not have to incur
\1510n was a growmg mdustly, He was the added cost of transportation (Depo 01
optimistic about i13 potential (T,637-38, Sutte p 21-221 '
8421, Although Kunkel wanted to ke.p the r. p . ,
operation going. Larsen disagreed, empha.
sizing his interest in enhancing the Friona
operation 1T,638-39), The Greyhound Divi.
sion was sold in the latter part 01 Deeem.
b<!r, 1988 IT,639),
After September, 1988, there were daily
discussions in Pet's offices in Denver re-
garding merging operntions, Leaman met
lrequently with !Alvich, Stanley, and B,
Smola (a Larsen employe.) to discuss how
the plan13 would opernte alter the merger
lDepo, 01 !Alaman. p, 40), Leaman also
discussed with Mulherin, in SepUlmbof of
1988, and with D. ~Iiller. Larsen's employ.
ee in charge of bacon processing, on Octo-
ber 21. 1988, joint transportation opportuni.
ties between Larsen and Pet lDepo, of L.!a.
man, pp, 44-15, 641,
Prior to September, 1988, Pet did not
store product, in Larsen's warehouses be-
cause thel' were competitors, After Sell'
141
i
,
i
I
!
I
I
i
I
,
I
i
I
i
I
I
I
!
, Ig) Sharing,
Larsen and Kunkel also discussed per.
sonnel. including hiring and firing of em.
ployees 1T.639), Larsen was not impres1ed
with Bedford, Pet's Vice President in
charge 01 finance, and did not think Bed.
lord had a place in the new entity, Larsen
suggested that &unkel fire Bedlord, and
Kunkel reluctantly did so in the latter part
01 Deeember, 1988 (T.640-41, 819), Kunkel
had never planned to fire Bedlord belore
that time, and without Larsen's suggestion,
would not have done so IT,641), In early
November, Kunkel received a position de-
scription of a Senior Vice President. Legol
and Financial (T,675; CAJ.21 that showed
Mulherin as the Senior Vice President, Le-
gal and Financial. This position was sim.
ilar to that which Bedford held at Pet, and
which Mulherin hod told Miller and Kunkel
l/fS
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142
W BANKRUPTCY REPORTER
he was l.'lking over IT,820)' Kunkel was
,hown as the President 01 Pet.
In addition to liring Bedlord, ocher per,
sonnel changes were made, Stanley. Lar.
sen's manager in charge 01 all pec lood
operations, was directed to report directly
tQ Sixta and Kunkel on a day.to-day basis
IT,634. 810), Levich, 01 IowalNebraska,
also reported tQ Kunkel (T,811), Addition.
ally, employees 01 IowalNebraska were
put on Pet's Des Moines payroll (T.724-
725), Further, Kunkel and Larsen agreed
that Leaman would be the Vice Pnsident
lor the mid.west division 01 the new entity,
in charge 01 pet lood operations in Iowa
City, Sioux City (Iowa/Nebraska), Des
~loines. and York, Also, Pet would be
l.'lking over the management 01 Larsen's
pet lood operations. Larsen provided Pet
with a list (Leaman's Depo, Exhibit 52) 01
employees whom Larsen recommended Pet
hire or were available lor hire if Pet needed
them, Pet did hire various Larsen employ-
ees at its operations lDepo, 01 Leaman. pp.
29-34, 41),
As part 01 the combination 01 their oper-
ations. Pet and Larsen also shared their
manulacturing equipmenl In late 1988,
Kunkel provided Leaman with a complete
list of equipment belonging tQ Larsen.
which was tQ be delivered tQ Pet (Depo. 01
Leaman, pp. 31-32; Leaman's Depo. Exhib-
it 52; CAl.58). Additionally, Stanley was
instructed by Larsen tQ transler equipment
to Pet's plants (Depo. 01 Stanley, p. 23).
Significant amounts or Larsen's equipment
were transCerred to various Pet racilities
during September and October IT,109-110;
Depo. or Leaman, pp, 33, 53), The equip-
ment included nearly all or Larsen's pet
rood equipment and anything else that Pet
requested IDepo, or Stanley, p, 231, includ.
ing certain plate rreelers owned fy Larsen,
which were transrerred tQ Pet's York, Ne-
braska rncility lDepo, or Leaman. p, 3U.
Larsen no longer needed the equipment
because he would no longer be processing
pet foods at his plant IDepo, or Leaman, p.
34),
Larsen specifically instructed Stanley to
transrer all 01 the pet rood equipment at
his Omaha and Des ~Ioines racilities tQ
Pet', racilities because Larsen's product
was to be processed at Pet', plants, Stan.
ley was instructed by Larsen to work with
Kunkel on this matter lDepo, or Stanley,
pp, 24-25). Stanley met with Pet employ-
ees Leaman, l. Clark, and R. ~lueller, on
September 28, 1988, in Omaha, to discuss
the equipment transler and when Pet
w?uld start servicing Larsen', Omaha ac.
c6unts (Depo, 01 Stanley, pp. 31-33).,
There was no written agreement or lease
concerning the equipment transler (T,110).
Prior to September, 1988. Larsen had
never lent any equipment tQ Pet because
they were competitors IT,III-13), Larsen
admits that he made the joint sales calls
with Kunkel, loaned equipment to Pel and
advanced money to Pet to "get the new
company started and !inanced" IT,264-85).
Pet also shared its !inancial, banking,
and customer inrormation with Larsen. On
November I, 2, and 3, R, Ferdig, a CPA
who performed accounting services ror
both Larsen individually, and the ~Iillard
companies since 1969, looked at Pet's books
and records tQ determine their credibility
and to determine Pet's September 30 book
value, as contemplated by the September
II agreement (T.33, 521-25, 316).
The book value determination was neces.
sary beeause it wouid drive the amount
Kunkel would contribute to the new compa.
ny IT.492). Larsen had told Kunkel that
when his accountants were through mak.
ing adjustmeats to Pet's books, Larsen and
Kunkel would make whatever adjustments
were necessary in their deaIIT,i53), Lar.
sen thought the book \'alue amount was
Kunkel's responsibility; and in our view. it
was why he didn't originally veriry it when
he "seal,ed" the deal with Kunkel.
Ferdig's analysis began with Pet's bal.
ance shei!~ dated August 31. 1988, which
reflected a net book value or $999,449.46
(T,525; 1.9) Ferdig was provided access
to, and looked at, Pet's general ledger,
Specifically, he looked at the accounts re-
ceivable, accounts payable. and bank recon.
ciliations (T.527, 532-33; L,14. 15), Ferdig
and ~lulherin were also provided access to
Cribari's working papers (T,960-611, Fer.
.....,
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IN RE S & D FOODS. INC, 143
Clllu 1M B.R. 11lIDUtC')'.D.Colo. 19911
dig was not denied access to any doc- inlonnation was confidential and proprie-
umenlS that he requeSll!d to see IT,5481, tary 1T.925-26), The infonnation would
On :-lovember I, Ferdig dell!nnined that never have been shared with Dolfay, Lar.
Pet's net book value was overstated by at sen, or Millard prior to August, 1988
least $457,000 and was actually closer to (T,926-8; CAW, 42. 45. 46, 47. 50. 59),
S500,OOO than the SI million originally esti- Sixta's last involvement with Dolfay was
mall!d by KunkellTAO. 5281. Additionallv, about December 12, 1988 (T.931), Dolfay,
F'erdig suspeCll!d other problems with Pet:s however, signed two purchase orders on
books, as reflected in noUlS made during behalf 01 Pet during January. 1989
his examination 1L.14, 15), Based on this IT.1I67-081. after Larsen had "ecided
infomation, Kunkel volunll!ered to contrib- Kunkel was not to be part of the deal.
ute the S500.000 of blue sky he was to ' In the fall of 1988. Dolfay also prepared
receive from Larsen to the new entity to a business plan for Millard IT.249; CPF,
make up the shortfalllT.41l-l1, 320-1; L.6), 45}, The business plan refers to Millard
Ferdig again examined Pet's books the and Pet as sisll!r companies (T.251) and
week of November 14 (T.53I), During this discusses Pet throughout (Depa, of Sutll!r.
trip.-Ferdig prepared a Sepll!mber 30 trial pp. 71-72).
balance from Pet's general ledger. and pre- Pet disclosed other infonnation in addi.
pared working papers documenting each 01 tion to that shared with Dolfay, In Se!>,
Pet's asset and liability accountll IT,532; ll!mber, 1988, Sixla ana Levich discussed
GAl, 65), When he lelt, Ferdig look a merging their operations, the lact thatthey
three foot high pile 01 papers with him to would be working very closely together,
Omaha, ineluding copies 01 all Pet's gener. and the sharing 01 scheduling and procure-
al ledgers IT,5321, All the inlonnation ment inlonnation IT,918), During these
used by Ferdig in his analysis was obtained conversations with Levich, Sixta disclosed
lrom Pet and not from any outside sources Pet's customer base. who it was selling to,
1T,536-7), the types 01 products it was selling, and
Dallal', Larsen's person in charge of the prices ,it wa;' r;ceiving ,lor various prod.
marketing and business planning. was sent uct, Agam, ~lS mfonnatlon had not been
to Denl'er in October, 1988, bj' Larsen, to preViously disclosed because Pet and
direct and assist Pet in organizing a mar. Iowa/Nebraska were competitors (T.91B-
keting program and lonnulating a business 19),
plan IT.1I77), Prior to Sepll!mber, 1988, At the Sepll!mber. 1988 Las \'egas Amer.
Larsen had not sent any of his personnel to ican Meat Institull! convention, Kunkel and
assist Pet because he and Pet were compel' Sixta met with Levich and Hurley and
itors IT.107, 1177), again shared purchasing infonnation, sales
Dolfay spent Sepll!mber 19 and 20, 1988, i~fo~ation, ~ontract infonna~ion, .'produc.
and two days before Thanksgiving, at Pet's ~on mfonnatlOn, and marketing mfonna'
offices IT.1I66) directing and assisting Six. tlon 1T,920), ~rom Sep~mb~r. 1988 ,to F:b-
ta in preparing a writll!n sales and market. rua~, 1~89, S~la was 10 d,a~ly contact WIth
ing plan IT,924-25; GAJ.59). Dolfay was LeVlch dlscussmg sale~. pncmg, customers,
shown Pet's sales strall!gy and forecasts, combmmg tra,nsportatlon; and other busi.
including both the actuals for 1988 anj! the ness mfonnatlon IT,951-02),
projections for 1989, by plant, by customer, Larsen was also provided access to Pet's
and by targel customers for 1989, This profit sharing plans, worker compensation
infonnation included plans to increase sales or insurance claims, financial statemenlS,
to various customers and product develo!>, certified audits, interim finnncial state-
ment. 5ixta provided this information 10 menlS, employment agreementll, I'endor
Dolfay in mid. December, 1988, Sixta testi, agreementll, and serl'ice agreemenlS
fied he was reluctant to put this infonna. 11307-309, 961, 311, 315. 374-751.
tion on paper because he had no control During Lenman's meetings with Larsen's
, om where it was going, and because this representatives. he prol'ided infonnation to
1fS
1'.
.....
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-
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l! _ . . . ,
144
Il4 BANKRUPTCY REPORTER
I
1
,them about Pet's operations and allowed
them to tour Pet's facilities and watch pro-
duction procedures, and on ~ovember 14.
Leaman showed Levich how to wash tripe
for export (Depo, of Leaman. pp, 6S-09), all
of which Leaman considered confidential
infonnation. Likewise, Leaman disclosed
Pet's pricing structure and customer lists
(Depo, of Leaman, pp, 55-57).
Some of Larsen's cuslllmer ClIntracts
were transfmed III Pet for handling, in.
cluding Excel, which was transferred at
Larsen's instruction. 'Stanley infonned
Kunkel of the Excel contract transfer on
December 19, 1988, Stanley did not have
III explain III Excel why the contract was
being transferred because it was well
known in the industry that Pet and Larsen
had merged. Also, after Larsen ceased his
Omaha pet food operations, his customers.
including Beef Nebraska, South Omaha
Packing Company, and Shannon Packing
Company were serviced by Pet. Likewise,
in October or November of 1988, when
Larsen shut down his Des Moines and
Dodge City operations. equipment and cus.
lllmers, including Knl-Kan, were transfer-
red III Pet (Depo. of Stanley. pp, 25-11).
Miller first met Mulherin on September
27, 1988. Miller understood that lfulherin
was Larsen's point man who would be over-
seeing Larsen's investment in Pe~ review.
ing Pet's operations, and generally provid.
ing financial and administrative input
Mulherin lllld Miller that he was III be the
chief financial officer of the new entity and
the person in charge of the entity's bank.
ing activities (T,371, m. 863-641.
On September 27, lliller discussed Pet's
banking relationships with Mulherin, llil.
ler reviewed the audited financial stAte-
ments of Millard and Larsen that were
provided by llulherin, llulherin requested
that Miller keep the financial infonnation
discreet and not talk about it with anyone
from Pet because it was confidential infor-
mation IT, 86S-07), Prior to discussing
Pet's banking relationships with llulherin,
Miller had never discussed Pet's banking
relationships with any other company Pet
had done business with because it was priv.
ileged and confidential information, lliller
disclosed the infonnation to llulherin only
because he was authorized to do so by
Kunkel (T.86H8), In late October, Kunk.
el also sent Mulherin copies of Pet's prom.
issory notes due Columbia Savings IT,479-
80)<
lliller also discU.!lsed with Mulherin the
Columbia letter agreement that had in.
creased Pet's operating line to $3 million,
It included a summary of the tenns and
ClInditions of Pet's credit facility (T,868;
CAl.96), The letter agreement sets forth
restrictions on borrowing by Pet that spe-
cifically, prohibited any borrowing other
than nonnal trade debt without Columbia's
approval. Mulherin reviewed the letter
agreement IT,86S-09). We find from our
opportunity to observe llulherin that he
had the financial sophistication III under-
stand the significance of the letter agree-
ment rei debt restriction,
(h) The Grant Application.
On behalf of the new entity created by
the merger between Larsen's and Pet's pet
food operations, a grant application was
filed with the State of Nebraska. J. llarr.
a Larsen employee, began working on the
grant ,application as early as September 19.
1988 (T.418-19). The purpose of the grant
application was III obtain an interest buy.
down from the City of York for the pur.
chase of plate freezers for Larsen's and
Pet's York. Nebraska plant IT.121), The
City of York. howeve., would not advance
the funds until a new corporation was
fanned to apply for the grant. The corpo-
ration fanned was CPF-lIRS Acquisitions,
Inc.' Larsen was an officer and director of
CPF-MRS Acquisitions. Inc. IT,II6-17.
m-21).
Minor's finn assisted in preparing the
articles of incorporation for CPF-lIRS Ac.
quisitions, Inc. IT,572. 417), On ~ov~mber
7, 1988, Minor's associate. B, Wells. for.
warded drafts of the articles, bylaws, origl.
6. MCPF" was derived from Consolidated Pel Services.
Food., ,nd "lIRS" from llill"d R,frig,r'led
...
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IN RE S & D FOODS. INC.
CII. u 144 B.R. 121 fDkncy,D,Colo. 19911
\
nal minutes, sto<:k certificates, and instruc.
tions 00 Mulherin for his review (T,574;
CAI.2'1). After they were finalized. they
were filed, on November 28, 1988. with the
Colorado Secretary of State, and reeorded
copies were faxed 00 Mulherin on Deeem.
ber 2, 1988 (T,573-74),
After he and Marr prepared the grant
application. ~lulherin submitted it 00 the
City of York in December. 1988, 'Larsen
signed the application in his capacity as
Chainnan of the Board of CPF -MRS Ac-
quisitions. Inc, Larsen did not read the
grant application before signing it; but
rather. relied on the representations of
Mulherin regarding its contents IT.120-21,
118; CAI.29). It is significant that Larsen.
like Kunkel. relied heavily on his advisors,
Both Larsen and Kunkel are individuals
who look at the big picture and use their
staffs 00 implement and cover the details.
This type of behavior is not unusual for
these two people.
By letter dated December 12, 198B,
Mulherin infonned the City of York that
Larsen would be incurring $2 million in
costs associated with the start-up of the
new entity IT,490-7; CAI.28).
In describing the parent.subsidiary rein-
tionships of CPF-MRS Acquisitions, lnc"
the grant application stated:
CPF -MRS Acquisitions, Inc, is a Colora.
do corporation fonned in November of
19B8 In acquire the assets of [Pet). The
company has no parent or subsidiary re-
lationship; however, Larry Larsen. who
holds a 50 percent ownership interest in
the company, is also the majority soock.
holder of Millard Refrigerated Servicea.
Inc" of Omaha.
Hearings on the grant application were
held in York in Deeember, 19BB IT.4B5),
Although infonnation from a sp~ad.
sheet that K, Teichmeier. Millard's Vice
President of Accounting and Treasury, had
prepared while at Pet on November 1. 19BB
was used in preparing the grant application
(CAJ.31; 1393-94. 397-99), Kunkel was
not aware of the grant application until
mid.December, 19BB iT,6421, Arter dis-
covering the grant application had been
submitted. Kunkel talked with Larsen, who
145
wid him not 00 worry about i~ that he was
just raising funds for the merged entity
(T,642-43). Kunkel apparentiy acquiesced
00 this, and we find his acquiescence not
unusual. It is evident from the testimony
as a whole that Lamen had the financial
finesse. and Kunkel the management fi.
nesse. Kunkel was willing In rely on that
financial finesse for the mutual benefit of
all varties,
(i) Financing the Deal,
As part of his obligations under the Sep-
tember 11 merger agreement, Larsen was
In contribute $2 million in capital 00 Pet
Larsen met this obligation through four
cash transfers, '
During September, Ocoober. and Novem-
ber, Kunkel and Larsen talked on the
phone almost daily (T.6321, During Sep-
tember, they had discussed, a minimum of
a dozen times, Pet's cash fiow problems
(T,643-44), The overall evidence leads us
00 conclude that Lamen knew the causes of
Pet's cash needs, and that he could not or
should not, hnve been surprised by them.
On Ocoober 6, 19BB. after Columbia notified
Pet thnt it was going 00 return Pet's checks
unpaid because of a $500.000 overdraft,
Kunkel called Larsen and requested funds,
Larsen agreed that he would infuse $500,'
000 of the capital contribution required by
the merger deal with Pet (T, 644-45), Lar.
sen knew that if Pet's cheeks were re-
turned unpaid, Pet would no longer be a
viable business (T,36, 7131,
On Ocoober 6, 19BB, Larsen caused Mil.
lard 00 wire transfer $500,000 00 Pet's C0-
lumbia Savings ,account IT,37; CA1.19),
Although taken from Millard's account, the
$500,000 advnnce 00 Pet on Ocoober 6 was
made with Larsen's individual funds IT,59),
According 00 Larsen, after wiring the
$500,000 on October 6, 19BB, he and Kunkel
discussed Pet's future linancial needs
(T,3&-36, 404-405, 494-95), Kunkel indi,
cated that Pet needed $1 million to get its
accounts payable current IT,361,
On October 26, ~J. Ellis. Pet's controller,
called Kunkel in Omaha and told him thnt
Columbia was again going In return checks
.
I./fS
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~
,
and that Pet needed 3250.000, On October
26, 1988, Larsen advanced on additional
3250,000 to Pet from llillard's FirsTier ac.
count IT.3S, 125, 645-16: L.ll).
When Larsen infused the $250.000 on
October 26, the word "lien" was never used
and Kunkel did not underslBnd that Larsen
was "loaning" {sicl money to Pet (T.647-
48). In fac~ Kunkel hod never discussed
with Larsen or llulherin the need for 0
promissory note for the money that Larsen
was putting into Pet (T,648).
By October 26, 1988, Pet's cash flow
problems were intensifying because it was
inculling $50.000 to $200,000 in inventory
buildup per week IT,6461 due to the merg-
er, Larsen was aware of the continued
inventory buildup and the negative cash
flow because he hod lBlked with Kunkel
about this problem on many occasions
(T.647),
The third transfer was advanced on No-
vember 2, 1988, Larsen advanced an addi-
tional $250.000 to Pet by,a check drawn on
Millard's FirsTier aecount IT.39; L.12),
Larsen and Kunkel hod prearranged the
November 2 contribution when Kunkel was
in Omaha on October 26, Larsen had
agreed to infuse the additional funds based
on discussions he had with Kunkel about
Pet's continued inventory buildup, negative
cash flow, past due ac<:ounts payable. and
substantial overdrafts (T.649, 652),
Minor met with Mulherin on November 1,
1988, representing both Pet and Kunkel as
counsel (T,572). Upon Mulherin's request
and based on information provided by
Mulherin. Minor prepared the original $1
million dollar promissory note and guaran-
ty. Kunkel was not present at the meeting
when Mulherin asked llinor ro prepare the
note. llulherin delivered the $250,000
check, In return, llulherin received the
promissory note from Pet and a personal
guaranty from Kunkel for all funds previ.
ouslyadvanced. IT.sa9. 591. 321-22; L.131,
Kunkel was not aware that Larsen want.
ed documenlBtion on the $I million dollar
capilBl contribution untilllulherin present.
ed him with the promissory note on Novem.
ber 2 IT,650, S23), Mulherin, however, de-
scribed the promissory note as merely a
146
IH BANKRUPTCY REPORTER
, "
"track" for the $I million tT,65o-m
Therefore, Kunkel did not understand that
it would have to be repaid: but rather.
thought it was necessary for Larsen's ac.
counting purposes IT,65!), Kunkel under-
stood llulherin's use of the word "track"
ro mean only that Larsen needed some
documentAtion to account for the 31 million
(T,824-25),
flthough the November 2 promissory
note (Exhibit L. 13) does not name a payee,
, the evidence and testimony clearly indicate
that Larsen was the intended payee, Lar.
sen advanced the funds IT,409-4101, and
Teichmeier testified that the intended
payee on the $1 million dollar promissory
note was Larsen (Depo. of Teichmeier, p.
69),
It is aiso clear to this Court that all
funds advanced by Larsen to Pet through
November 2, 1988 were intended to be capi-
tal contnbutions and not loans. The evi.
dence In support of this finding is compel-
ling. The best indicator, Larsen's own
notes, reflect that as of November 3, 1988,
he considered the $1 million as 'capital
IT.132, 60-62; CAI.1l51, and that he under.
stood the difference between capital and a
loan, Larsen's understanding of "capital,"
in conjunction with his contemporaneous
notes, clearly indicates that Larsen intend-
ed the $1 million dollar advance to Pet to
be part of his capitAl contribution to the
"merged entity."
Likewise, Kunkel undersrood that the $1
million in funds was part of Larsen's capi.
tal contribution to the merger, To Kunkel,
capitAl meant cash that is infused into a
company and does not need to be repaid
IT,648. 727, 7891,
Additionally, prior to the October 6. 1988
advance, Miller spoke with llulherin and
was assured that the overdrafts were go-
ing to be covered and that the $500,000 was
a capital injection IT,87o-71I. Larsen ad.
mits that the call to lIiller was made prior
to funding the $500,000 IT.124-25), lliller
askedllulherin for a copy of the Letter of
Intent or asset purchase agreement be-
cause he was skeptical that the money was
capital. llulherin responded that the deal
so far had been a handshake agreement
4&,
.....,
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IN RE S & D FOODS, INC.
CUe u 144 B.a. m (Dkrtcy.D.Colo. 1m)
:In,i that the $500,000 in capital was an nor's client (T,578. 465), After the doc-
ildkator of Larsen's good faith (T,865-ll6), uments were signed, Mulherin did not in.
,liter November 3, Kunkel and Larsen form Minor that Kunkel had signed them
,"'n~inued to discuss, approximately ten IT.359), Minor was unaware that Kunkel
tin,.s in November alone, Pet's Inventory had signed the documents on November 28,
;,,:;idup and Pet's need for additional cash 1988. Upon learning in February, 1989
1:,,52-53, 741-42). During the week of that Mulherin had prepared the loan doc-
'>:ember 21, Larsen requested that Kunk. uments and sent them to his client, Minor
,; 'ietermine the amount of money needed testified he was shocked and stunned
"Pet. Based on discussions with Pet (T,580),
,,,,,,onnel. Kunkel determined the need was
"roximately $1.5 million. Larsen said he
'.'ud not contribute $1.5 million, but that
" '.':ould infuse the last $1 million of his $2
",,'ion obligation under the merger deal.
,\Jthough Larsen believed that the merg-
,! lI'ould be concluded in a short period of
:"'" on either November 22 or 23, he told
"'mkel that he wanted some protection for
,co lunds he was placing into Pet because
:':'mkel was traveling so much and there
;,:!S always the possibility that something
"i,"ld happen to Kunkel. They discussed
"i'-otection" on both Pet's Dodge City and
II,,, )loines facilities, According to Lar.
',", this protection was merely a stop-gap
measure pending completion of the merger.
[~rsen informed Kunkel that Mulherin
would be preparing some interim doc:'
uments in case Kunkel should "drop out of
the sky." Larsen and Kunkel again dis.
cussed this matter ~n Friday. November
25, the day after Thanksgiving (T.654-660,
:151), Neither Mulherin nor Minor were
parties to these conversations,
On November 24, Thanksgiving Day,
Larsen asked Mulherin to prepare loon doc.
uments for the $2 million, security doc.
uments for Pet's assets in Dodge City and
Des Moines, and personal guaranties for
Kunkel and his spouse (T,326), Mulherin
and an associate spent the weekend of No-
vember 25, Z6, and 27, 1988 preparing the
loan and security documents (T,43-4,!, 345),
)Iulherin ,lid not mention the loan doc.
ument.!! to )linor although he talked with
)linor un November 25 with regard to reo
vi'ing thu Lotter or Intent (V5l-52, 588,
5ii, :145), )lulherin did not tell Minor he
wa, sonding tho docomont.!! to Kunkel to be
,ignod, nor did he nsk )linor's approval or
con,ent to send documents directly to Mi.
'.
Ie $1 million (T,650-51).
~el did not understand that
, to be repaid; but rather
,
necessary for Larsen's ac.
, 'es (T.651), Kunkel under-
: l use of the word "track"
that Larsen needed some
, 0 account for the $1 million
November 2 promissory
(3) does not name a payee,
I testimony clearly indicate
the intended payee, Lar.
1e funds (TA09-410), and
ified that the intended
million dollar promissory
, I IDepo, of Teichmeier, p,
\
Ir to this Court that all
, by Larsen to Pet through
, l were intended to be capi.
and not loons. The evi.
, of this finding is compel.
: indicator. Larsen's own
t as of November 3, W88,
, 1e $1 million as capital
d.1I5), and that he under-
: 1ce between capital and a
, nderstanding of "capital,"
': 'ith his contemporaneous
icates that Larsen intend.
dollar advance to Pet to
'pital contribution to the
el understood that the $1
, :as part of Larsen's capi.
, the merger, To Kunkel,
h that is infused into a
s not need to be repaid
or to the October 6, 1988
poke with Mulherin and
the overdrafts were go-
tIld that the $500,000 was
IT,870-71), Larsen ad.
io )liller was made prior
'1),000 (T,12~-25), Miller
, a copy of the Letter of
,urchase agreement be.
tical that the money was
responded that the deal
, hnndshake agreement
147
)Iulherin says Kunkel never told him Pet
would be using )linor's legal services
(TA62), This is, at best. self serving, and.
from our vielV, a blatant lie. It is clear to
us that Mulherin at all times knew }linor
represented both Kunkel and Pet Mulhe-
rin testified he met with Minor on Septem-
ber 19, 1988 and November 1 or 2, 1988,
and had conversations with Minor on No-
vember 15 or 16 and November 24 or 25
(TA38),
Minor had clearly disclosed his represen.
tation of Pet to Mulherin on September 19.
It is also clear from the evidence that
Mulherin intentionally withheld the loan
documents from Minor's perusal and con.
sultation. We discount entirely Mulherin's
deposition testimony at p. 220 that he os.
sumed Kunkel's attorney would review
them, He contradicted this statement
when, in his deposition at p, 76, he said it
never occurred to him to contact Kunkel's
attorney, The fact that Kunkel wanted the '
money in a hurry doesn't wash the fact
that Minor never got to look at the doc-
uments, '
On Monday, November 28, Dolfay cat-
ried the loan and security documents (Ex.
hibit L.16) by plane to Denver for Kunkel's
signature (T.45), Mulherin had called
Kunkel earlier that morning and informed
him that he IVns sending documents for his
and his spouse's signatures, Mulherin told
Kunkel not to worry about the documents,
that they were merely stop'gap measures.
During his conversation with llulherin,
Kunkel nssumed the documents lVere mere-
ly some sort of protection to ensure that
there was adequate insurance on him
should he die before completion of the
'115
"
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148
144 BANKRUPTCY REPORTER
merger documentation.' Mulherin also
told Kunkel that he was laxing all doc.
uments to Minor (T.656-08), Kunkel did
not call his lawyer because 01 that repre-
sentation (T.772), Kunkel called his spouse
and said he was bringing Bedlord and Dol.
lay to the house lor her to sign documents
(T.1070-1071),
Dollay arrived in Denver at approximate-
ly 2:00 p,m. MST, The exact time is un.
known, After arriving, Dollay and Bed,
lord entered Kunkel's car to travel to
Kunkel's house, Bedlord was driving,
Bedlord's atrendance had been requested
by ~Iulherin (T,765), Bedlord was neces.
sary because he was Pet's corporare secre-
tary. Dollay sat in the rear right side of
the car behind Kunkel. who was the front
seat passenger, Belore reaching the
house, Dolfay handed Kunkel a packet con.
taining the documents (T.659-660). The
documents were in a sealed manilla en.
velope IT,829), Dolfay testified that he
.m "....1041 ...~,I:.... .I.~ .1~""_A"". :_ ....~
oJ.." a...unl.. .I......ub .11"; UII".."........ .., ......
car. But, from Dollay's, and Kunkel's,
position in the car, Dollay could not possi.
bly see il Kunkel was reading the doe-
uments, We find it is more plausible that
Kunkel "flipped" through them, as he testi.
fied, but highly ualikely he would have had
time to read them because the trip Irom the
airfield to Kunkel's house was of short
duration, IT.660, 830), To our knowledge,
Bedford never testilied about what Kunkel
did during this car ride,
It is important to understand the scene
at which the documents were signed. Af.
rer a short ride from the airport, all parties
arrivcd at Kunkel's pcrsonal residence,
Susan Kunkel wns there with the Kunkel's
ill child, The child was apparently feverish
and irritable, Pleasantries were ex.
changed, Dollay told us that at one point
Kunkel was holding the baby, After
Kunkel saw the first document he excused
himsell and immediately called ~Iulherin,
This was at approximately 2:02 p,m. ~IST
(T,660-661, li47, ,1,18; CAL7, 17), Kunkel
again asked ~Iulherin what the documents
were about, He was informed by Mulherin
that they were merely stop-gap measures
and that Kunkel should not worry about
them. Mulherin laughed at Kunkel's anxi.
ety and reassured him that they merely
inrerim documents pending final documen.
tation 01 the merger (T.661-62, 793),
Kunkel then started signing the doc.
uments (T.662). Kunkel did not read the
documents, but merely flipped through
them to where they had been pre-marked
with signature stickers (T,770, 1077. 1181).
Kunkel signed the documents because
~lulherin said he wanted them that day,
and because ~Iulherin had assured him 01
what their nature was IT.771). Susan
Kunkel was unable to see any 01 the lace
pages 01 the instruments she was signing
~cause they were opened only to the sig.
nature pages (T.1081l-81). The entire
process took about 10 minutes (T.1080), [t
had taken ~Iulherin. an attorney, 1'1. hours
to review the docoments prior to sending
.1....... "....1..1 ,"'.,-,
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What also concerns us is Dollay's behav.
ior during the signing, Susan Kunkel testi-
fied that Dollay seemed nervous, and was
sweating" in a cold environment. Dollay
was also nervous during his testimony, par-
ticularly when he looked at his employer,
Larsen, which he did olten, We think he
hod reason to be nervous because he was
aware of the importance 01 the documents,
At trial, he told us he didn't know the
content 01 the documents, But in his depo-
sition, at p, 26, he said ~Iulherin told him
about the contents, Our review 01 other
documentary evidence prepare,d by Dollay
depicts an individual with enough business
refinement that he had to have known
what was happening at Kunkel's residence
on November 28. Alternatively, his testi.
mony of ignorance is outright reckless dis.
regard 01 the facts:ls presented, We don't
believe he was a knight in some grand
scheme to hurt the Kunkels. but certainlv
he was n p:lwn with knowledge-knowi.
edge that he tried to keep from this Court
during the trial.
7. liucrestlngly, Mulherin h:lu previously per. :md Kunkel in September, 1988 (T.JJO).
formed.. title search and UCC search on Pel
~~~.
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IN RE S & D FOODS, INC.
Cll,...I"" D,R. 111 (Dkr1cy.D.Colo. Iml
'1lerely stop'gap measures
I should not worry about
laughed at Kunkel's anxi.
~d him that they merely
ts pending final documen.
rger (T.661-62, 793),
3tarted signing the doc-
Kunkel did not read the
merely flipped through
hey had been pre-marked
ickers IT.770, 1077, 1181),
the documents because
, wanted them that day,
herin had assured him of
,re was (T.i7l), Susan
,Ie to see any of the face
ruments she was signing
'e opened only to the sig.
f,1081h91), The entire
:t 10 minutes (T.1080). [t
i 'in. an attorney, I'h hours
I' :uments prior to sending
T,445).
,
1
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I
,
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,titer signing the documents. Kunkel
, ;::in felt uneasy about the lack of oppor.
:nity to review the documents (T,77I) and
,,,i!ed Mulherin a second time, a half.hour
::I"r, to ensure that Mulherin in fact sent
, ;",es of the documents to Minor. Mulhe-
-: '~ain laughed at Kunkel's concern and
",;sured him there was absolutely noth.
: to worry about (T,662-663, 837; CAI.
, i'~I, ~lulherin also said he would in.
" n lliller about the documents (T,777).
" ;d did not have Minor review the No-
,,;her 28 documents because Mulherin
,..: assured him that Minor had already
'. contacted and that Mulherin was
"'ping Minor abreast of things (T,839).
""om the time Dolfay, Bedford, and
: ::lk.1 arrived at the house to the time
':,")' left was about 45 minutes (T.1072).
, ".r signing the documents, Kunkel flew
, ,\marillo to meet with Larsen (T.663-64),
'::nk.1 left the documents with Bedford,
,',I hnd been instructed by ~lulherin to
"",1 them by Federal Express for immedi.
,t, recording (T,662, 837; CAI.75). No
,"'pi.s were provided to Pet or to the Kunk.
",;, Susan Kunkel testified she never
:,':<I'n.d the contents of the documents until
:,larch of 1989. when she received Court
papers, She learned in ~Iay or June, 1989
what a guaranty was.
On November 28, 1988. Kunkel thought
th, documents contained the necessary pro.
tection for Larsen in case something hap.
I'ened to him so that Larsen could proceed
with the merger because they had already
rolled the physical operations of their busi.
n.'ses together (T,792), Kunkel was not
aware that there was a promissory note in
the s~"ck of documents (T.792), Kunkel's
,xpectation was that Larsen was going to
contribute his lust million dollars into the
company, He was not anticipatiag a loan
11762), Further, when discussing the aced
fllr protection, Kunkel and Larsen did not
discnss n personal guaranty IT.76,1}. At
Ih. lime Kunkel signed the documents, he
di,1 nnt know that h. was si~ning u person.
al guaranI\' IT,776). The November 28
promi",ory' note ,upports Kunkel's under.
<~anding thnt it was protection in case h.
,hed; it proyide. that it becomes "automati.
'rns us is Dolfay's behav.
ling, Susan Kunkel testi.
'eemed nervous, and was
Id environment. Dolfay
luring his tes!imony, par-
looked at his employer,
did often, IV e think he
nervous because he was
rtanee of the documents,
us he didn't know the
~ments, But in his depo-
l said ~[ulherin told him
;, Our review of other
mce prepared by Dolfay
:al with enough business
Ie had to have known
19 at Kunkel's residence
Alternatively, his testi.
is outright reckless dis.
as presented, IVe don't
knight in some grand
l Kunkels, but certainly
vith knowledge-knowl.
to keep from this Court
,mber, 19S8 IT.J30),
149
cally due and payable, .. should the under.
signed [Kunkel] die" (L.16A).
Prior to funding the 52 million required
by the November 28 documents, Larsen
demanded that Pet payoff the $1 million
promissory note. dated November 2, 1988,
with interest (T,43, 133). As an additional
prerequisite to funding the 52 million,
Mulherin required that all of the security
documents be recorded (T.343-14),
On December 7, 1988, various transac.
tions by which Larsen funded the $2 million
and Pet paid back the original $1 million
plus interest transpired (T.127). Initially,
Larsen transferred 51 million to Pet out of
Millard's account at FirsTier. Next. Miller
transferred $1,012,356.16 to Larsen, in pay.
ment of the November 2 promissory note
with interes~ Larsen then transferred an
additional $1 million to Pet (T.46-17, 878-
79; CA1.74; L.22J, Thus, there was only a
net contribution to Pet of $987,643,84.
[n Larsen's words, the net effect of the
transaction was that Pet "paid of it he note,
and we had the mortgage for $2 million"
(T.47), Kunkel was not aware that the 51
million dollar note was repaid in this fash.
ion because he did not handle or have per.
sonal knowledge of the fund transfers
IT,815),
Prior to the transfers, l[ulherin had reo
quested that ~liIlcr provide him with wire
instructions to help facilitate that transac.
tlon, Miller did so. All instructions as to
how the wire transfers were to be made
were ob~"ined from Mulherin (T.874-79;
CAI.72), To induce ~Iiller to issue the wire
transfer instructions, Mulherin told Miller
that Millard had not documented the initial
$1 million correctly from an accounting
standpoint. and that the $1 million in,
$1,012.356,16 out, and then $1 million back
in again was designed to balance their
books IT,877). The second $1 million in
was always char~ctcrized, by Mulh.rin a.
eapitaIIT,874-75), it is c1enr thnt lIulhcrin
controlled and directed the entire tmnsac.
tion, And there is no doubt that thnt wns
what h. wn. suppo"d to do, He had the
financial wherewithol, and Kunkel relied on
this.
'lIS
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150
'V""'
144 BANKRUPTCY REPORTER
Although all transfers on December 7
were made to or from' .\lillard's account,
the advances were made with Larsen's per.
sonal funds, We had some problems with
this evidence; however. Larsen does not
dispute this finding. In fact, during June
of 1989, after Pet filed for bankruptcy, an
audit adjustment transferred the funds
from Millard's books to Larsen's books
(T,470, 539-545; L,36, 37. 39).
As with the first $1 million contribution,
we also conclude that the second $1 million
advance on December 7 was intended to be
capital and not a loon. Not only does the
total advance fit squarely within the terms
of the December 1 Letter of Intent. which
hod just been executed, but Miller testified
that Mulherin continually characterized the
second SI million as capital and part of the
merger deal (T,874-77). Additionally,
when the loon was first entered on Mil.
lord's books, it was treated as capital.
Ironically, Pet treated it as a loan, The
various uninformed staff employees of Pet
treated the transaction based on what they
understood the transaction to be, or what
the documents purported it to be, In Mil.
lard's case the money was clearly capital.
In P.t', rA,", Ann with nn f"rth.r infnl'm'.'
tion, the accounting people read the doc.
uments to conclude it was a loan. The
irony here is that, in Court, Larsen wants it
treated as a loan and Kunkel wants it treat.
ed as capital.
On December 6, 0, Hoganson, head of
the FBS business credit for First Bank
System, met Larsen in Omaha, who was
represented to be Kunkel's new partner
(Depo, of Hoganson, p, 9), During the
meetings with ~lulherin, Larsen, and Kunk.
el, Hoganson was informed that Larsen
was injecting $3 million in capital into Pet
There was no mention of any loons by
Larsen to Pet (Depo, of Hoganson, pp, 13-
14).
Kunkel also thought the overall purpose
of the $2 million was Larsen's investmen~
os they agreed to, as part of the merger
IDepo, of E, Mu'elhaupt (President, Des
Moines Cold Storage Co,), pp, 1&-16), Lea.
man likewise understood that the money
was infused by Larsen to Pet as part of the
merger (Depo. of Leaman, p, 42),
By December 7, 1988, Larsen had con,
tributed his $2 million (T.665) required by
the agreement to merge, Moreover, Lor.
sen was obligated to lend Kunkel S1.5 mil.
lion for his contribution. Larsen never lent
the $1.5 million (T.lO&-106. 665), Pet was
otherwise ready, willing, and able to per.
form under the parties' agreemen~ includ.
ing the December 1 Letter of Intent
IT.666). Pet was willing and able to con.
tribute the assets but did not do so because
Larsen withdrew from the merger (T,666),
Additionally, Kunkel was willing to infuse
S1.5 million into the new venture but did
not do so because he never received the
money from Larsen (T,667), Kunkel did
not otherwise have the ability to put that
money into a new entity (T.667), nor did he
hove the financial wherewithal to pay bock
the Larsen loan.
The overwhelming evidence shows the S2
million to be a capital investment
,
i
(k) Terminali011 of the
On December 15, 1988, L
ley met with Carnation (T'!,
was aware that Larsen II'
trip, but was not conce
Kunkel believed that Lars€
ner and that he worked in II
interests, Moreover, Lars(
Kunkel that he was going
strUcture or eliminate the r
having with Carnation. K
trUsted Larsen to do that,
through December, 1988.
and respected Larsen, and'
fldent that Larsen would 11"
interests (T,666-669i,
On December 15, prior 1I
ing with Carnation, Sixta r
and Hurley in Denver IT,9~
Sixta that the purpose 0:
visit was for Hurley, who
business with Carnation fo
introduce Carnation to Lat
attempt to get the Corn
trUst Larsen (T.933). Lar!
was going to visit Carnath
ate the problems or rectify
tion of Carnation's contrac
sen had feared that the disl
due to the proposed merg
Carnation might have pere
of the new entity (T.933-9:
extremely concerned aboi
lion's business (T.144).
On December 15. Hurle;
no one in the industry, i
and Larsen, trusted Kunk€
el's tenure in the new c
going to be very short.
surprise to Sixta (T.934-3
Larsen's representatior.
Kunkel regarding the pur
nation meeting were false
December 15 meeting witi
sen told Carnation that ~
was not going to fly (De;
62). It was Hurley's iml
deal started to unrave,l or
a. We do not neccsS<lrlly <lgr
juslmenls, but consider the
Ul/nventory Buildup,
While the flnancin~ transactions were
gomg on, there was an inventory' build.up
at Pet Within ten days of the September
19 meeting, Carnation canceled its negotiat.
ed contract with Pet (T.621). We are not
sure if the contract was firm, but a finding
to that effect is not necessary to our deci.
sion, The Carnation coatrnct was an annu.
01 contract for MOB (mechanically deboned
beeO (T,74&-16), Carnation accounted for
one.third of Pet's MOB sales volume
(T,819), The cancellation was serious,
Kunkel immediately called Larsen about
the cancellation because Pet had already
committed to purchase the raw materials
for the Carnation contract Kunkel disc
cussed with Larsen his concern that the
concellation would create an inventory
build.up of MOB. Lanen told Kunkel not
to worry because some negative reaction to
the merger could be anticipnted, Pet suh.
sequently experienced an inventory build.
up of approximately 17 million pounds
(T,624-25),
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\
IN RE S & D FOODS. INC. 151
Cite Ii 144 n.R. 1%1 lDkncy.O.Colo. 19921
(k) T"'1Ilillalioll of Ihe Velllltre, December, 1988 (Depo, of Hurley, pp, 64-
On December 15. 1988, Larsen and Hur. 5),
ley met with Carnation (T,142-43), Kunkel When the December 1 Letter of Intent
was aware that Larsen was making this was executed, Larsen's accountant, Ferdig,
trip, but was not concerned about it, had not yet determined Pet's September 30,
Kunkel believed that Larsen was his part. 1988 book value (T.49), Ferdig completed
ner and that he worked in their mutual best his review and reconciliation 01 Pet's books
interests. Moreover, Larnen had inlormed on January 14, 1989 (T,535), At that time.
Kunkel that he was going to try and re- Ferdig's conclusions and recommended ad.
structure or eliminate the problem Pet was justments to Pet's books were set lorth in
having with Carnation. Kunkel explicitly a memo · to Larsen (T,53&-36, 49-50; L,24),
trusted Larsen to do that From August Ferdig concluded that approximately $900,
through December, 1988, Kunkel trusted 000 in adjustments needed to be made to
and respected Larsen, and was always con- Pet's balance sheet (T,50) to accurately re-
fident that Larsen would work in their joint flect lair value, Larsen was shocked. On
interests (T,661Hl69), November 1 or 2. 1988, however, Larsen
, , had been aware that $500,000 of those ad.
, On ~ecember,15, p~or to Lars..n s meet. justments needed to be made (T.70-71),
109 with Carnation, Stxta met with Larsen
and Hurley in Denver (T,932), Hurley told , On January 17, 1989, ~rsen and.~!ulhe-
Sixta that the purpose 01 the Carnation ~n flew to ~enver to dlscu,ss ~erdlg sa?
visit was lor Hurley, who had been doing Justments With Kunkel, ~r1ban, a~d Elhs
business with Carnation for some years, to (T,5,0-51, 5~8). The p~les also dIScussed
introduce Carnation to Larsen. It was an Pet s practice ,01 addmg a fiv~ cent ~er
attempt to get the Carnation people to pound p,?cessmg charge on mven,torles
trust Larsen (T.933), Larsen told Sixta he (~.51). Stx~ and ~rsen hod prevIOusly
was going to visit Carnation to help allevi. discussed thiS practice on De~ember 15,
ate the problems or rectily the discontinua. 1988 (T.9~&-37). ~e processmg charge
tion 0'1 Carnation's contract with Pet. Lar. ~dded to !nventory IS an accepted ~ccount-
n had f d th t th d'l c t' t' mg practice known as the absorption cost
se care a e 5 on mun 10n was .
due to the proposed merger and a threat m~t~od" It allocates operatlona~ and ad.
Carnation might have perceived by the size mmlStratlve cO,sts ~ the :ost 01 mventory
01 the new entity (T.933-934). Larsen was (T.846) to aVOid m~sstating revenues and
extremely concerned about losing Carna. expenses ?etween Itscal yea;.; (T.98~), Be-
tion's business (T.144), caus~ dunng t?e relevant time pe~od Pet
had mcreased mventory by approXImately
On December 15, Hurley told Sixta that 17 million pounds, the inventory write-up,
no one in the industry. including Hurley at least in Larsen's mind, overstated Pet's
and Larsen, trusted Kunkel and that Kunk. inventory by $800,000 to $900,000 (T.51)
el's tenure in the new organization was over and above Ferdig's adjustments (T,71.
going to be very short. This came as a 1223-1224).
surprise to Sixta (T,934-35), Larsen also testilied that he was shocked
Larsen's representations to Sixta and by Ferdig's conclusions that some accounts
Kunkel regarding the purpose 01 the Car. receivable were very old, some in excess 01
notion meeting were lalse. In fact, at the a year. Likewise, this also was discussed
December 15 meeting with Carnation, Lar. at the January 17 meeting (T,51). Larsen
sen told Carnation that the deal with Pet knew in carll' December, 1988, however,
was not going to fly (Depo. 01 Hurley, p, that one 01 the largest receivables on Pet's
62), It was Hurley's impression that the books was Amarillo Byproducts, that
deal started to unravel around the lirst 01 Amarillo Byproducts was in bankruptcy,
'.-
-
8. We do not necessarily agree wIth Ferdig's ad. and this Iransacllon.
juslmenls, but consider their cereCl on ursen
....,
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152
IH BANKRUPTCY REPORTER
and that the receivable was quite old (T,72-
73),
Based on Ferdig's analysis, Larsen con.
eluded that "there wasn't any or very little
book value to" Pet IT,5201, Thus, Larsen
informed Kunkel that he was backing out
of the deal (T.52), llulherin then said to
Kunkel, "Mr. Kunkel, my advice to you is
to file bankruptcy, personal bankruptcy,
and assign the assets over to us, and we'll
find a way to slip you $300,000 or $400,000,
and tell the unsecured creditors to go take
a fiying leap" (T.672, 962-63, 1087).
Mulherin told Kunkel that what he pro-
posed was in his best interests (T.673).
IVhen Larsen left on January 17, he told
Kunkel he would get back to him, Approx.
imately ten days later, Larsen did call
Kunkel and expounded on the bankruptcy
idea; reiterating that he could slip some
funds to Kunkel to live on (T,677). Larsen,
with the opportunity to rebut this testimo-
ny, never denied it was said. IVe are not
surprised by this testimony, but find it
quite compelling,
At trial, Larsen was adamant that he
was unaware of Pet's financial condition
for the last quart~i of 1988. He testified
he had repeatedly requested copies of the
}llvr:~ o.Ii,J :v.i.i .i:;.t..il~..ij~ ~~ ~ ~;..;, b:.:~
they had not been provided (T.1221, 1226-
27). Larsen testified that between Novem.
ber 1, 1988 and January 15, 1989, he dis.
cussed Pet's financial condition and books
and records with Ferdig and Mulherin
(T.138). During this time period, Larsen
said he conferred with his accounting and
financial advisors, and he was certain that
they did not receive any P & L's (T.1227).
Dolfay, however, had received a balance
sheet and preliminary report for Pet for
the period ended September 30, 1988
(CAI.32), which included a P & L for the
period ended September 30, 1988, (T.1263),
A copy of the September 30, 1988 P & L
was maintained in Dolfay's files at Millard
(T.1260-64). Additionally, during the fall
of 1988, Dol(ay, Mulherin, Ferdig, and oth.
ers continually met with representatives of
Pet, reviewed Pet's books and records, and
Cribari's mes, and reported bock to Larsen
(T,256), Specifically, when preparing Pet's
business plan, Dolray identified Pet's
strengths and weaknesses, and advised
Larsen of his findings IT,251-521, Ferdig
reported Pet's financial condition to Larsen
at least once in November. 1988 and twice
in January, 1989 (T,257, 270), Ferdig re-
ported to llulherin more frequently be.
cause Pet was Mulherin's project (T,257-
58),
Larsen called Kunkel again in early Feb.
ruary and told him he was withdrawing
(rom the merger because he hod to look
out (or his best interests and the merger
was not in his best interests (T,678). The
alliance between Larsen's and Pet's busi.
nesses was unilaterally discontinued by
Larsen in February, 1989 (T.789), Larsen
started pulling product from Pet (T,8491
and Kunkel stopped managing Larsen's
plants (T.796). Pet also stopped processing
Larsen's product (Depo, of Leaman, p. 621,
Subsequently, Larsen instructed Mulhe-
rin to draft and send notices of default to
both Pet and Kunkel (T.52), Notices of
default were sent on February 15, 1989
(T,53; L.31, 32; T,679-680). Although
Mulherin knew that Minor represented Pet,
the notices of default were not sent to
Minor IT.578-79).
No interest payment had been made on
the $2 million note in December, 1988, and
thus the note was in default in Deeember
(T.64). Likewise, no interest payment was
mode in January, 1989, Although the note
was in default in both December, 1988 and
January, 1989, Larsen did not demand pay.
ment at that time (T.64),
Larsen never expected that Pet would
generate enough cash from its operation~
between November 28, 1988 and February
1989 to pay back the note, He believed,
however, there was sufficient equity in
Pet's Dodge City and Des Moines plants to
adequately secure the $2 million (T.135-381,
Three weeks after declaring 0 default on
the $2 million loon. Larsen commenced u
lawsuit in the District Court for Polk Coun.
ty, Iowa to collect on the note, and for thc
appointment of a receiver for Pet's assets
in Des Moines, The same actions wcre
taken in the District Court ror Ford Coun'
"".-'
ty, Kansas for the Do'
1157-58),
In early March, La"
house lien in the amoUl
all of Pet's product thet
and demanded immedia
amount (CAI.901, Pet
amount to Larsen (CA
The financial conditio
1989 through the middl
was showing signs of i
was starting to move ;
were increasing IT,683),.
lracted for 12 million pt
uct, and Ralston-Purin
new product that requ
million pounds of inven
up during the last qua,
to move (T.683.841, D'
ruary, and early llarcl
successful in moving i
including that which h
rejected (T,955), Custo
ing Spillers in England
Ralston-Purina, were;
cash flow by speeding .
process. Others were,
quantities from Pet 0\.
nonnal procurement n
Pet (T,907-908),
In mid.February, 19E
major customers and i
he was no longer 0 par
was going to resume
operations, Among
called were Monfort. E
America. Both Monfe
also suppliers to Pet.'
them that the new com
forward and that he \'
business as he had in I '
Shortly after Lars
started receiving nun
from suppliers and c
Iowa Beef, Excel, Mor.
Carnation, and StarKis
concern over Pet's fim
ditionally, Kunkel hCl
houpt, the President'
Storage (T.680), and It
Muelhaupt testified
1989, Larsen contacte,
'",
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..--
IN RE S & D FOODS. INC. 153
ClIeu loW n.R. 111 lDlu1cy.D.Colo. 1992)
ty, Kansas for the Dod~e City facility (T. that although he had merged with Pet and
1157-58), had invested $2 million in Pet, Pet was on
In early March. Larsen claimed a ware- the, "brink of bankruptcy and it was his
house lien in the amount of $155,886,78 on intention to try and reclaim the investment
all of Pet's product then in his warehouses. that he made" lDepo, of Muelhaupt, pp, 9-
and demanded immediate payment of that lU. As part of reclaimiag his investmeat.
amount (CAI.901, Pet later paid the Iiea Larsen said that he was going to take over
amount to Larsen (CAI.91, 92). Pet's Des Moines operation and get posses.
The financial condition of Pet in January, sian of Pet's equipment at Des Moines
1989 through the middle of February, 1989 (Depo, of Muelhaup~ pp, 18:"19)., Larsen
was showing signs of improvement as Pet also told Muelhaupt that ,t~e fmancl3l state-
was starting to move inventory and sales ment.!! of Pet were $1 mlliton off (Depo, of
were increasing IT.6831, Quaker Oat.!! con. Muelhaup~ p. 21),
tracted for 12 million pounds of MDB prod. Other, customers and suppliers who
uct, and Ralston-Purina came out with a called Pet typically demanded that Pet
new product that required ~lDB, The 17 bring it.!! trade payables current, increase
million pounds of inventory that had built. the limit.!! of letters of credit, or requested
up during the last quarter of 1988 started that Pet go on a COD basis IT.680-83);
to move (T,683-84), During January, Feb- Excel and Monfort, Pet's two largest sup.
ruary, and early March of 1989, Pet was pliers, and Iowa Beef restricted trade credo
successful in moving it.!! MDB inventory, it in this manner (T,939). Smaller suppliers
including that which had been previously put Pet on wire transfer so that Pet had to
rejected (T,955), Customers of Pe~ includ. prepay for product.!!. All of this occurred
ing Spillers in England, Quaker Oat.!!, and in February or March of 1989 (T,940).
Ralstoa-Purina, we,re also as,sistin~ Pet's On Saturday, March II, 1989, Kunkel
ClllIh flow by speedmg up their remittance met with Larsen in Omaha IT, 68&-86, 73-
process. Others were ordering substantial 74), Larsen had heard Pet was having a
quantities from Pet over and above their lot of problems and thus proposed buying
nonnal procurement requirement.!! to help the assets and facilities of Pet on which he
Pet (T,907-908), had a mortgage (T,55), Larsen also told
In mid. February, 1989, Larsen called his Kunkel that he had made phone calls to
major customers and infonned them that Pet's suppliers and customers, including
he was no longer a part of Pet and that he Muelhaupt (Des ~[oines Cold Storage Co,),
was going to resume his own pet food Carnation, and StarKist Kunkel request.
operations, Among the customers he ed that Larsen stop spreading word of
called were ~lonfort. Excel Beef, and Beef Pet's demise, Larsen, however, said he
America, Both ~lonfort and Excel were had to protect his own interests (T,686-
also suppliers to Pet. He explained to 688),
them that the new company was not going At the ~larch 11. 1989 meeting in Oma.
forward and that he would resume doing ha. Kunkel disclosed and discussed with
business as he had in the past (T,14D-141), Larsen that Pet was completing negotia.
Shortly after Larsen's calls, Kunkel tions with Iowa Beef to process all of their
started receiving numerous phone calls pet food. Within a week after conveying
from suppliers and customers including this infonnation to Larsen. lawn Beef can.
Iowa Beef, Excel, Monfort, Iowa Packers, celed their contract (T,799-800). Likewise,
Carnation, and StarKist IT.680) expressing during the same conversation, Kunkel dis.
concern over Pet's financial viability, Ad. closed Pet's business dealings with Excel
ditionally, Kunkel heard from C. Muel. to Larsea, Again, shortly thereafter, Pet
haupt, the President of Des Moines Cold lost it.!! contract with Excel (T.799-800),
-Storage (T,680), and iessor to Pet As a result of the trade credit restriction,
Muelhaupt testified that, in February, Pet required additional funds to keep cur.
1989, Larsea contacted him and told him rent, and was able to operate only through
'.
.'
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:..,1. I .,;:~\', :;> "'1~. \',;', ..~:..~ :}:,.~~'~', '.:.' . " , ,',I. , ' . '~,.',.'
154
14l BANKRUPTCY REPORTER
-
llarch and April of 1989 (1684). On May
5, 1989, Pet filed bankruptcy IT.685). Lar.
sen filed proofs of claims in ?et's bankrupt,
cy proceeding in the amounts of $2,115"
616,44; $18,735,20; and $7.423,86,
Although there was no direct evidence
that Larsen's telephone calls to the indus,
try and his disclosure of Pet's purported
financial condition caused Pet's customers
to restrict trade credi~ enncel contracts, or
othenvise not do business with Pet, it is an
extraordinary coincidence that every time
Larsen called a customer or supplier, they
terminated their relationship with Pet
Moreover, Larsen knew that rumor of in'
solvency would be disllStrous to Pet's busi.
ness, IVe must therefore infer a direct
cllSual relationship between Larsen's admit.
ted phone calls and the customer/supplier's
termination of business with Pet
\
CLAIMS OF THE PARTIES
Larsen sues to obtain a declaratory judg.
ment that a promissory note, related secu.
rity agreemen~ guaranty, and other loan
documents from various defendants are
valid and enforceable. Larsen also seeks a
determination about the priority of liens on
certain assets of Pet.
All of the party defendants have answer.
ed with denials. and raised numerous coun.
terclaims and atfirmative defenses, Each
hIlS joined in the others' counterclaims and
defenses. and each hIlS IlSserted some coun-
terclaim unique to themselves,
Pet and Protein generally denied Lar.
sen's allegations and affirmatively raised
the following;
(al failure to join indispensable parties; ,
Ib) defendants' signatures on various
loan documents WIlS fraudulently in.
duced by Larsen's misrepresentations
and omissions;
(c) funds advanced by Larsen represent.
ed a capital contribution; not a loan;
(d) fraud;
(e) bad faith;
(f) material misrepresentations;
(g) duress;
9. This defense was resolved pre.trlal.
Ih) acts of omission that induced defen.
dants to sign loan guaranty;
(i) Larsen knew the defendants could not
repay the loan;
UJ offset; and
Ik) the claims are frivolous and ground,
less,
In addition to the above joint affirmative
defenses, Protein also raised the following
affirmative defenses;
(a) latches, estoppel, and waiver;
Ib) unclean hands;
(c) failure to mitigate;
(d) unconscionable behavior; :ind
(e) plaintiff's negligence,
Pet and Protein have asserted the follow.
ing counterclaims:
(a) breach of fiduciary duty;
(b) intentional interference with contrac~
(c) interference with prospective econom.
ic advantage;
(d) breach of duty of good faith and fair
dealing;
(e) fraud;
(f) civil conspiracy;
igj :'ut:dcil vi CUIIUd\,;~1
Ih) breach of Uniform Trade Secrets Act:
(i) breach of confidentiality agreement:
()) declaratory judgmen~
(k) contribution;
(I) 11 USC I 547(b) preference;
(m) 11 USC I 544(a) lien avoidance;
(n) 11 USC I 548 fraudulent conveyance
and
(0) 11 USC I 510(c) equitable subordinb'
tion,
The Kunkels have IlSserted all of thO'
staleobllSed and bankruptcy claims that Pet
and Protein have raised, and in addition,
Susan Kunkel raised the affirmative de,
fense that her guaranty on the promissor:
note, dated November 28, 1988, and ali
other security agrcements signed by he!'
relative to her guaranty of that date, arc
null and void under 15 U,S,C, I 1691.
t
I
I
I
I
f
.
'",.-
Larsen has generall:
terclaims and IlSsertec
lent misrepresentatiOl
taining to the Letter e
ty of performance;
hands; estoppel; ane
tion,
There is no easy wa
failures in this advers
sen feels he should t
Kunkel and Kunkel',
turn out to be what I
and Pet, in the throe
sion, undercapitalized
sued by Larsen, felt
ruptcy. Susan Kunk
riage and her home t1'
financial failure, an,
spair.
The issues are COI
way through what w
sor's dream hypothet
but what is very re
divide our discussion
address the standing
to raise certain counl
discuss the issues. :
facts, and come to c'
IlSse's the damages,
DISCl
I. Standing to Brh
Action.
(a) Pet and Prole
[1,2] Both Pet a:
ed bankruptcy claim:
11 U,S,C, II 547(bl,
Pet claims its star
claims arises from it
possession. Proteir
derives from an Aug
approved an IlSsignr
and intangibles incl
all rights of debte
to any statute, ru
in action, things
mands, defenses
and in equity), .
clude but shall n
for payment or '
Debtor which, as
\
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IN RE S & D FOODS. INC.
Cite u loW B.R. III lDlutcy.D.Colo. 19911
Larsen has generally denied all the coun.
terclaims and asserted defenses of fraudu.
lent misrepresentation and omission per,
taining to the Letter of Intent; impossibili.
ty of performance; fraud and unclean
hands; estoppel; and, lack of considera.
tion,
There is no easy way to dissect the many
failures in tbis adversary proceeding. Lar.
sen feels he should be vindicated because
Kunkel and Kunkel's corporation did not
turn out to be what he expected, Kunkel
and Pe~ in tlie throes of business expan.
sion. undercapitalized but surviving. pur-
sued by Larsen. felt the failure of bank.
ruptcy, Susan Kunkel saw both her mar.
riage and her home trashed on the rocks of
financial failure, and her husband's de.
spair,
The issues ore complex. To wind our
way through what would be 0 law profes-
sor's dream hypothetical final examination;
but what is very real to the parties, we
divide our discussion into parts, First, we
address the standing of some of the parties
to raise certain counrerclaims, Second, we
discuss the issues, apply the law to the
facts. and come to conclusions, Third, we
_llS!lPC:ll thp n:1mn~P!l
DISCUSSION
I. Standing to Bring Certain Causes of
Action,
(0) 'Pet and Protein.,
[1,21 Both Pet and Protein hove assert.
ed bankruptcy claims against Larsen under
11 U.S,C, !! 547(b), 544(0), 548, and 510Ic),
Pet claims its standing to assert these
claims arises from its position as debtor-in.
possession, Protein asserts its standing
derives from on August 14, 1989 order that
approved on assignment of contract rights
and intangibles including:
all rights of debtor exercisable pursuant
': " to any stature, rule or regulation, chases
:", in action, things in action, claims, de-
." mands, defenses to claims (both in low
and in equity), The foregoing sholl in.
clude but sholl not be limited to claims
for payment or voiding of liens of the
Debtor which, os of the dote hereof, aris.
"
ing under any section of the Bankruptcy
Code, 11 USC !! 544, 545, 547, 548, 549,
Assignment of Contracts and Intangibles,
doted August 14, 1989, ,
Bankruptcy Judge Brumbaugh, in 0 re-
lated adversary proceeding, Consolidated
Pet Foods, Inc. v. Millard Refrigerated
Services, Inc, (In re S & D Fooc/$, Inc,),
110 B.R, 34 IBkrtcy,D,Colo.1990), ad.
dressed the standing issue of Pet and Pro-
tein to bring Title 11 counrerclaims. We
adapt Judge Brumbaugh's excellent discus.
sian, and hold that Pet and Protein do not
hove standing to bring Title 11 counter-
claims, Accordingly, the counterclaims of
Pet and Protein alleging causes of action
under 11 U,S,C. !! 547(b), 544(a), 548, and
510(c) will be dismissed,
(bl Donald Kllllkel.
[3J Kunkel has asserted several coun.
terclaims against LarSen, Larsen claims
Kunkel is without standing to pursue the
majority of his counterclaims because
Kunkel is seeking to recover on claims,
which, if they exist, belong to Pet or Pro-
tein, not to Kunkel. The Colorado Suo
preme Court has adopted the standing re-
quirements outlined by the United States,
~upreme Court in Association of Data
Processing Service Organizations, Inc, v,
Camp, 397 U,S, ,150, 90 S.CL 827, 25
L.Ed,2d 184 (1970); Wimberly v, Ellen.
berg, 194 Cola, 163, 570 P,2d 535 (1977). In
Data Processing, the Supreme Court held
that two requirements must be satisfied
before a party has standing. First, the
plaintiff must allege that the challenged
action has caused injury in fact and, sec.
and, the interest sought to be protected
must arguably be within the zone of inter.
est to be protected or regulated by the
statute in question. Id., 397 U,S. at 152-
53, 90 S,CL at 829. Consequently, to pur-
sue a cause of action in Colorado, a plain.
tiff must suffer on actual injury to a legal.
Iy protected interesL See, Wimberly, SU,
pro, 570 P,2d at 539.
[4] It is well settled that an individual
cannot maintain an action on its own behalf
based on shareholder status in a corpora.
tion for alleged wrongs against the corpo.
155
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156
y
144 BANKIlUPTCY IlEPOIlTEIl
ration without a showing of injury in some
capacity apart from the shareholder status,
See, Grew v. Victor Talkillg Machille Co"
24 F,2d 378, 381, 59 ALR 1091 (2d Cir,
19281: /17' Dil'ersijied Credit Carp, v,
Kimmel, 508 F,Supp, 140. 144 (N,D.IIJ.
1981): Box v, Roberts, 112 Cola, 234, 148
P,2d 810, 811 (1944);. See also, Arllc Call-
tractors, /IIC, v, Slate of Alaska, 573 P,2d
1385, 1386 (Alaska 1978) (a shareholder has
no personal right of action against third
parties for acts producing injury to a corpo-
ration.), Nor does Donald Kunkel have
any greater right to raise Title 11 claims
than does Pet or Protein,
'I
[5) As to Kunkel's counterclaims that
purport to arise from wrongdoings against
Pet, whether based on state law or Title 11.
Donald Kunkel has no legally protected
interest to support his counterclaims, Ac.
cordingly, those counterclaims that allege
breach of fiduciary duty, intentional inter-
ference with contract and prospective eco-
nomic advantage, breach of duty of good
faith (as this relates to Kunkel's interest in
Pet). breach of contract (as this relates ~
Kunkel's interest in Pet), breach of Unto
form Trade Secrets Ac~ breach of confi.
dentiality agreemen~ declaratory judg.
men~ and contribution will be dismissed.
Our bolding does not apply to any claims or
defenses arising out of the York, Nebras.
ka' Des Moines, Iowa; or Dodge City,
K~nsas plants. nor to tbe claim of civil
conspiracy, declaratory judgmen~ out.
rageous conduct, or violation of tbe Equal
Credit Opportunity Act.
n. The Major Issues of Contract,
(al Was there a COlltraat?
This is the classic case of the reluctant
lover pursued by a relentless suitor, who
with the passage of time rethinks the pur.
sui~ such rethinking causing the business
deal to fail, placing the marriage of two of
the principals on the shoals of divorce. and
pushing a closely held corporation into
bankruptcy,
10, If It I. found IhOl lh; portles Intended 10, be
bound, and some provIsions were in writing
The proper place to start is to first deter.
mine whether there was an agreement be.
tween Larsen and Pe~ and if there wa"
what kind of agreement did ,they have?
[6,7) As stated in Deliver Tnlck Ex.
challge v, Perrymall, 134 Colo, 586, 307
P,2d 805, 810 (1957), "(a) contract is an
agreement which creates an obligation, Its
essentials are competent parties, [legal]
subject matter, . ,. legal consideration, mu.
tuality of agreemen~ and mutuality of obli.
gation." Contracts should be construed to
give effect to the intent of the parties, Fort
Lyon Callal Co, v. Catlin Canal Co" 642
P,2d 501, 506 (Colo.l982), and must be con.
strued as a whole, Effect must be given to
every provision if possible. See, Water
Rights v, No, Cola, Water Conservancy
Distric~ 677 P,2d 320, 326 (Colo,1984), cit.
ing, Gandy v, Park Nallo'lal Bank, 200
Colo, 298, 615 P,2d 20, 22 (1980), Courts,
however, possess no authority to rewrite
contracts, whether oral or written; but
rather, must enforce unambiguous con.
tracts in accordance with their terms, See"
Radiology Professional Corp, v, Trinidad
Area Health Association, ln~, 195 Colo,
253, 577 P,2d 748. 751 (1978) (en banc);
Yamin v, Levine, 120 Colo, 35, 206 P,2J
596, 597 (1949),
[11-121 These same rules apply to an
oral contract as to one that is partially orn!
and partially written. The threshold ques.
tion about whether parties to an oral agree,
ment become bound prior to the draftin~
and execution of a contemplated formal
writing is largely a question of intent on
the part of the parties, .IIohler I', Par::
County School District RE-2. 32 Cola,
App. 388, 515 P,2d 112, 114 (19731. rell!
dellied. Sep, 5, 1973, cer~ dellied, NOI', 1~,
1973, The intent to be bound can be in.
ferred from the parties' actions. See,
Coulter v, Allderson, 144 Cola. 402, 35i
P.2d 76, 79 (19601, Among the factors ta
be considered are whether there has been
an express reservation not to be, bound in
the absence of a writing, ID partial perform.
ance, agreement to all terms, ond ~hether
the agreement Is one usually committed to
and some oral, the Slalute of rr3uds is nol ilppJj,
coble. Coull". supra, JS7 P,ld 'I 81.
i
,
I
,
I
I
I
,
writing, lI'il/s/oll v, .II,
ment Corporation, i:
Cir.l986),
lJlA., ln~ v. Roc,
ways, /nc" 713 P,2d
banc), rell 'g dellied ,
factually similar case
judice. Ul.A" Inc. I
against Rocky Mou~
(Ilacky) alleging brea
tween the parties. Un
WIlS experiencing gra\
ties to the extent that
tions when Rocky expr
quiring it. The respet
dents signed a letter (
which stated purpose \
parties'] recent under,
acquisition of the "
[Rocky]." ld" 713 P
letter, IMA represent
assets and liabilities,
counting records for
The parties made no pr
bility that the accou
show IMA's assets or I
ent from the approxit
sented, The letter ,
agreement was prelim
letter also listed sever'
which the transfer w:
included; 1) approval (
Public Utility Comm,
Civil Aeronautics Boar
respective boards and
able renegotiation of
eluding a list of speci
ability of Rocky to ,
net operating loss,
Subsequent to the
letter was executed t
nificant events occur
PUC certificate of Pt
Necessity to Rock)'.
provision by IMA to I'
ing PUC approval of '
approval was obtain.
servicing the Denver
IMA also obtained
fication in concept, a
eled to Durango, Co
support for the acq
IA"_
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IN RE S & D FOODS. INC.
Clle ..144 B.R. 121 (Dkncy.D.Colo. 1992)
writing, WillS/Oil v, .Ilediafare Elller/aill'
melll Corporatioll, 777 F,~d i8. 80 (2d
Cir, 19861,
l.JLA" I/lc. v, /locky .IIo/l/llaill Air'
ways, IIIC., 713 P,2d 882 (Colo.19861 (ell
balle), reh 9 dellied Jan. 31, 1986, is a
faetually similar case to the matter sllb
jlldice. I.M,A,. Inc, (IMA) brought suit
against Rocky Mountain Airway, Inc,
(Roeky) alleging breach of contract be-
tween the parties, Unlike Pe~ here, IMA
was experiencing grave financial difficul.
ties to the extent that it had ceased opera.
tions when Rocky expressed interest in ac.
quiring it. The respective company presi'
dents signed a letter of intent (the letter).
which stated purpose was to "confirm [the
parties'] recent understandings as to the
acquisition of the assets of [IMA] by
[Rocky]." Id., 713 P.2d at 885, In the
letter, l~lA represented the value of its
assets and liabilities, and updated its ac.
counting records far Rocky's inspection,
The parties made no provision for the possi.
bility that the accounting update might
show I~lA's assets or Iinbilities to be differ'
ent from the npproximate amounts repra-
s.ented. The letter also stated that the
agreement was preliminnry in nature, The
_letter nlso Ii~ted severnl reauirements uoon
which the transfer was contingent They
included: 1) approval of the transfer by the
Public Utility Commission (PUC) and the
Civil Aeronautics Board; 2) approval by the
!" respective boards and shareholders; 3) suit.
, ; able renegotiation of an airport lease, in.
"
cluding a list of specified changes; and, 4)
ability of Rocky to carry forward IMA's
net operating loss.
Subsequent to the signing, an amended
letter was executed and several other sig.
nificant events occurred. IMA leased its
PUC certificate of Public Convenience and
Necessity to Rocky. The lease included a
",' provision by IMA to assist Rocky in obtain.
,:: ing PUC approval of the lease, Temporary
.: approval was obtained and Rocky began
"',:' servicing the Denver to Durango air route,
.
'.' IMA also obtained its shareholders' certi.
, fiestion in concep~ and its president trav.
.' eled to Durango, Colorado to build public
.. support for the acquisition, The parties
"
157
also moved IMA's furniture and o(fice
equipment to Rocky's hanger at Denver's
Stapleton Airport
After IMA's books lVere updated; it lVas
discovered that IMA's liabilities were
greater than originally estimated, IMA's
president offered to adjust the allocation of
the purchase price, But, Rocky decided
not to go ahead with the acquisition primar.
i1y based on the accounting discovery.
Rocky also expressed that market condi-
tions, the existence of two other carriers,
and the prospect of deregulation were addi-
tional reasons that Rocky had no further
interest in the acquisition.
IMA promptly sued, illler alia. for
breach of contract A jury verdict lVas
returned in favor of IMA, reversed by the
Court of Appeals, IVhich decision was in
turn reversed by the Colorado Supreme
Court. The Supreme Court held that
"when the existence of a contract is in
issue, and the evidence is conflicting or
admits of more than one inference, it is for
the jury to decide whether a contract in
fact exists." I..If.A" Inc., SIlpra, 713 P,2d
at 887. After deciding who should deter.
mine whether a contract is fanned. i.e., the
Court or a jury, the Supreme Court went
nn tn hnlrl 1'1'1;11[1. rmdlpr. .~I1.r1rn, ~fi7 P.2n
at 80, that the mere intention to reduce an
oral or informal agreement to IVriting is
not itself sufficient to show that the parties
intended that once suchfonnal writing was
executed, the parol or infonnal contract
should be without binding force, [,.II,A.
Ine" supra, 713 P,2d at 888. Whether the
parties to an oral agreement become bound
prior to the drafting and execution of a
contemplated formal writing is a question
of intent on their part, The intent can be
inferred from their actions. .IIohfer, Sll-
pro, 515 P,2d at 113, eitillg, Coulter, su-
pra, 357 P,2d at 80. See a/so, !ViliS/OIl,
supra, 777 F,2d at 80 (to decide inten~ a
Court must look to the words and deeds of
the parties),
!ViM/Oil articulates several factors that
help detennine whether parties intended to
be bound in the absence of an executed
document A Court should consider: (1)
whether there has been an express reserva.
- ..
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158
114 BANKRUPTCY REPORTER
"
i,
tion of the right not to be bound in the
absence of a writing; (2) whether there has
been partial performance of the contract;
(3) whether all of the terms of the alleged
contract have been agreed upon; and. (4)
whether the agreement at issue is the type
of contract that is usually committed to
writing. Wins/on, supra, 177 F,2d at 80.
[13] Based on the facts of the motter
before us. we find that the parties intended
to be bound without a formal writing, and
that even if that was not their inten~ their
actions after September 10, 1988 indicate a
contract to merge the respective businesses
was formed, Thus, we find an oral merger
agreement existed as of September 11,
1988, as reflected in the December I, 1988
Letter 01 Intent.
We summarize only the major indicia 01
contract formation, The record is replete
with lindings to show the parties intended
a contract and behaved as if the merger
was a fait aecomplL
Firs~ there was no express reservation.
Second, there was substantial performance
of all the major provisions, Job responsi.
bilities iq the merged entities were rede-
fined, Employees were hired and fired.
Plants were closed and sold, Systems and
operations were merged. The merger was
announced to the world, competitors, and
employees, Third, all the major provisions
were agreed upon. The detail was to be
documented. Even the amount of capital
contribution was left fluid. It was an un.
certainty as to the amount, but not a condi.
tion that would bar the deal. The facts
here certainly satisfy most of the Wius/ou
factors.
One Wins/on factor not completely satis.
fied is whether this is the type of contract
or agreement that is usually committed to
a writing, Although our experience as a
trier 01 fact tells us this is the type of
contract that is usually committed to a
writing, neither party introduced any evi.
dence to either prove or disprove this Win.
stan factor. Xccordingly, we make no
finding in reference to it, Our lack of a
\
I
I
I'
II
!
II. In the cvcnllhls holdIng is incorrecl, lhere Is
:ample slmll\lr C:lse law In Ncbmka ilnd TeX3~
finding on this single factor does not bar a
finding that a contract was formed, It is
clear that enough 01 the Wins/au factor~
are present to warrant our holding that a
contract \Vas formed either in fact or by
estoppel.
Having found that an agreement was
formed either in fact or by estoppel, we
now discuss its style,
nfed. July 14, 1988. ce;
1988; Yoder v, Hoop'
1187 (Colo,Ct,App.l9841
fora partnership to ex
ner partieipate in the t
ment of the partners;
management and conm
business may be deleg
express or implied. Se
eot~ 599 F,Supp, 224, 2
See also. Peterson v, .If.
53 N.W.2d 912. 916 (II
tare, one party may ent
another.). Finally, if
placed themselves in
constitutes a partnersh
native that they call. 0
selves a partnership. "
F,SuPP. at 227. Rathe
particular contract or t
01 transactions constil
must be ascertained by
parties with reference I
tion, Dowdy v. Henry
Communications Grt
437,442 (Bkrtcy.D,C.l:
lated events. Subs tan.
termine the legal rela
Sllrety Co, v, H & R I
153 F,SupP, 641, 646
on other grollnds, Ii
board Sllrely Co,. 26!
1959), Additionally, a
deny the existence of '
that party has execut.
half of the partnershi
erls, 113 Colo. 128,
(1945). But, a finaneir
not make a partnershi
bIlM), 236 F,Supp. 6S:
See also, U.P,A.! 7, ".
ria for the consideratil
, a partnership has in f
inference 01 a partner!
interest on a loan val
[26] We conclude
between Larsen and P
ship or joint venture
mandated by the ove,
the evidence.
Specifically, we 100
ment to merge, Alti
(h) Did the agreement to merge resllll
in a Partnership/Joint Venture
Agreement or merely a loan?
Larsen has characterized the events that
took place here as a failed merger, and the
money lent to Pet and related documents
as a loan, Pet says there was a partner.
ship or joint venture. and that the money
given to Pet was in the nature of capital.
[10I-16J The determination of whether
the underlying events sub judice result in
a partnership is determined by State law.
See, Butner v. United Stales, 440 U.S, 48,
54-55,99 S,Ct 914, 917-19, 59 L.Ed,2d 136.
141-12 (1979); In re Black, 787 F,2d 503,
506 (10th Cir.l986), In Colo,rado, a joint
venture differs from a partnership, but the
substantive lalv of partnership applies,
Beebe v, Schwenn (In re Schwellll), 126
B,R, 351, 353 (D,Colo,1991); Hooper I'. 1'0'
der, 737 P,2d 852, 857-858, fn. 4 (Colo.l987)
len bane). The major events in, the matter
at bar took place in Colorado. Accordingly,
we apply Colorado partnership law to re-
solve the question. II
[17-251 In Colorado, a partnership is
"an association for two or more persons to
carry on, as co-owners, a business for prof.
it." C,R,S,! 7-00-106, It is also defined
as an express or implied contract between
two or more persons to place their monel',
skill, effects or labor into a business, and to
share the profit and losses, No express
agreement is necessary. Grau v. Mitchell.
156 Colo. lll, 397 P,2d 488, 489 (1964), A
partnership may be lormed by the conduct
of the parties, Stratmau v. Dietrich, 765
P,2d 603. 605 (Colo,Ct.App,1988), rehg de.
i
!
t
r
!
I
thlU suppa"s the conclusIons we reach.
"
'-"
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) , " ".:' ~: ) ':p-;;;o , . i ' \ ., /. . ,'..,'.;.,. - :. ,l~. '"
'ingle factor does not bar a
ontract was formed. It is
~h of the lVinston factors
varrant our holding that a
rmed either in fact or by
that an agreement was
I fact or by estoppel, we
style.
/reement to merge result
"tnership/Joint Venture
, or merely a loanl
Iracterized the events that
s a failed merger, and the
~t and related documents
,ays there was a partner-
ture, and that the money
, in the nature of capital,
ietermination of whether
'ents sub judice result in
letermined by State law, '
'Iited Stales, m ij,S, 48,
1.017-10,50 L,Ed,2d 136.
re Black, 787 F,2d 503,
6), In Colorado, a joint
>10 a partnership, but the
of partnership applies.
'I (In re Schwenn), 126
'010,1901); Hooper v, Yo.
,57-858, fn, 4 (Colo.1087)
ajar events in the matter
I Colorado, Accordingly,
) partnership law to re-
II
lrado, a partnership is
, two or more persons to
,ers, a business for prof.
-106, It is also defined
nplied contract between
IS to place their money,
'r into a business, and to
~d losses, No express
'ary, Grau v, .IIilchell,
?,2d 488, 480 (106,1), A
formed hy the conduct
,Iman v, Dietrich, 765
Ct,App,1088), rei. 'g de.
nelusions we reach.
.:;~
"1.
IN HE S & D FOODS, INC. 159
Clle u 144 D.R. 111 (Bkrtcy.D.Colo. 1m)
"" d. July 14, 1088, cert, denied. Dee, 10, what the ultimate entity would be (0
:,:;5; Yoder v. Hooper, 605 P,2d 1182, merged entity, a partnership, a subsidiary
!' '37 (Colo,CtApp.l084), It is not required of Millard), there was an agreement But
;'C' a partnership to exist that every part. more importantly, we hove the express rep-
i:' r participate in the day to day manage- resentaUons of Larsen about a partnership,
I' 'lIt of the partaership business, The the later sharing of equipment, employees,
",:,oagement and control of the partnership and product joint discussions usually ar.
, ,,,,iness may be delegated by agreement rived at in consultation but always based,
~ess or implied, See, Johnson v, Chil. upon the utmost trust and confidence, joint
", 509 F,SuPP, 224, 226-27 (D.Colo,1984), sales calls, public announcements about the
,Iso, Peterson v, Massey, 155 Neb, 820, merger (and later, Larsen's unilateral an.
, ,{, IV,2d 012, 916 (1952) (In a joint ven- nouncement that the deal was over),
,', one party may entrust performance to These facts show a de facto partnership or
"her,}, Finally, if the parties have certainly one by estoppel. Fiaally, we have
:::ed themselves in a relationship that Larsen's own testimony that the pet food
" ,;titutes a partnership, it is aot determi. operations hod merged:
:" ;ve that they call. or do not call, them. [27,281 In spite of this evidence, Larsen
"'OS a partnership, Johnson, supra, 500 tried to sway our view about the $2 million
.... ; ,'pp, at 227. Rather. whether or not a given to Pet There is no doubt an isolated
,:icular contract or transaction or series ,view of the aotes, guarantees, and loan
transactions constitutes a partnership doeumeats would lead a fact fiader to con.
':,'t be ascertained by the intention of the elude a loan and not a capital investment
,,:ies with refereace to the entire transac. was had between the parties. The Parol
,:l, Dowdy v, Henry (In re Washington Evidence Rule normally prevents the intro.
"wmullicotions Group, file,), 18 B.R. duction of evidence about what appears to
,7, m (Bkrtcy.D,C.1982), and not by iso- be iategrated and complete agreemeuts.
hIed events. Substance and not name de- See, Sherman v, Sprentall, 700 P,2d 602.
'!tmine the legal relatioaship, Seaboard 603 (Colo,CtApp.l985), See also, Restate.
0'" I'ety Co, v. H & R Construction Corp" ment of COlltracts, Second, ! 213. But
;;;1 F,Supp, 641, 646 (D,Minn.l957), mod. the exceptions to the Parol Evideace Rule
'1II other grounds, H.C, Nelson v, Sea. are many and as varied as the rule itself,
bnnrd SlIrety Co" 269 F,2d 882 (8th Cir, See, e,g,. BllrenllCide I', Wall, 131 Colo,
W501, Additionally, a party is estopped to 371. 281 P,Zd 1000, 1002 (l055) (ell ballc);
dony the existence of a partnership where Metro National Balik I', Roe, 675 P,Zd 331,
that party has executed documents on be- 332 (Colo.Ct.App.l083); Simpson v, .\lilne,
half 01' the partnership. Roberts v, Rob- 677 P,2d 365, 368 (Colo,Ct.App,1083). reh 'g
"1'1.<, 113 Colo, 128, 155 P,2d 155, 157 denied August 25, 1983, cert, denird, Feb,
11045), But, a financing arraagement does 6, 1084; Restatement of Call tracts, Sec.
not make a partaership, Dennis v, Brad. ond, ! 214. Speeifically, and as here,
bl/ MJ, 236 F,Supp, 683, 688 (D,Colo.l064). where the questioa raised as to the purpose
See also, ij,P,A, ! 7, which sets forth crite- of the promissory note is between the mak.
ria for the consideration of whether or not er aad the, payee and its substantive effect,
a partaership has ia fact beea formed (no the rule must give way.
inference of a partners?ip sh,all be d:awn if [20J The evidence preseated on the
IlIterest on a loan varies wtth profits), views of the parties about what the $2
(261 IVe conclude that the relationship miJIion represents, when first examined,
hellVeea I.arsen and Pet is either a partner. appears hopelessly contradictory, But de.
ship or joint venluro, Our conclusion is boning the facts ,holVs the $2 million was
mandat,d by the overwhelming weight of meant to be a capital infusion.
the evidence, Larsen's employees thought it was a cop.
Specifically, we look at the oral' agree- ital transaction, In spite of the clear im.
ment to merge, Although it is not clear' port of the documents, the transnction was
lies
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".-
160
W BANKRUPTCY REPORTER
\
booked in ~liIlard's accountinK rccords as
an investment and not a loan, Larsen's
later accounting treatment of the $2 million
as a loan does not metamorphically trans.
fonn the transaction. In fact, the account.
inK "reclassification" struck us as a rather
self-serving admission. Neither Larsen
nor his agents did a credit check to see if
Kunkel or Pet could repay the loan. This
was a strange omission on the part of a
person who in our view is a savvy business
person. Mulherin assured Kunkel the loan
was only to prorect Larsen in case some-
thing happened to Kunkel-an audit trail,
so to speak. Larsen knew Pet couldn't
repay the money lent in 90 days, 'Larsen
knew Kunkel had expressed concern about
repaying the money, but possibly didn't
know for cermin that Kunkel couldn't re-
pay, Most compelling is that Miller of
Coiumbia Savings and Loaa understood
from Mulherin that the money was capital.
Equally compelling is that Mulherin knew
various loan documents that Pet had with
Columbia restricred new borrowing, and
that a loan would put Pet in default with
Columbia. Kunkel's larer efforts to repay
the $2 million does not prove the money
was a losn, Rather. it showed the inregrl.
ty 01 the man,' Nor does the lact that Pet's
accounting personnel treated the $2 million
as a loan sway us Irom the overall conclu-
sion that the money was capital. They
apparently did not receive any instruction
from Kunkel on how to book the transac-
tion. They took it at lace value, Unlike
Larsen's personnel, who appeared to be
lully inlonned. Pet's personnel, without
more inlormation, could not have handled it
dillerently.
Lastly, It is no coincidence that the $2
million is equal to the amount 01 lunds
Larsen had agreed to invest in the merger.
It logically lollows Irom our finding that
the $2 million represents a capital invest.
ment and not a loan; that the promissory
notes, security documents and interest, re-
lared agreements, assignments, and mort.
gage are null and void ab initio, Accord.
ingly, we resolve Larsen's request lor de-
claratory judgment by ruling against him,
and declaring the $2 million to be a capital
inlusion and not a loan,
(c) Ww there a fiduciary or cal/Jidel/'
tial relatiol/ship uuder Colorado
law?
Having found that a partnership or joint
venture existed, we also find that a fiduci,
ary or conlidential relationship existed by
virtue 01 the partnership or joint venture,
[30-38] The fiduciary duties owed by
partners and joint ventures include the
duties 01 loyalty, honesty and candor, good
laith and lair dealing, and lack of self.
dealing, See, Brunner v. Horton, 702
P.2d 283, 284 (Colo,CtApp.1985); CJ.I,2d,
n 31:16, Compare. Kincaid v. Miller, 129
Colo. 552, 272 P,2d 276, 281 (1954) (eu
banc), reh'g denied, July 19, 1954. The
same can be said lor parties to any of the
above mentioned relationships of trust and
conlidence to each other. All parties to
such relationships are bound by the highest
standards 01 good conduct and lair dealing,
Thus, without the consent 01 the other par.
ties, no party to a fiduciary or confidential
relationship may pursue his own personal
inrerest in a way that is hostile to the
inrerest 01 another party so long as' the
relationship continues, See, Kincaid, su.
pra, 272 P.2d at 281. Moreover, a fiduci.
ary duty can form during the negotiations
that precede the fonnal execution of a writ.
ten agreement Lucw v. Abbo!~ 198 Cola,
477, 601 P,2d 1376, 1379 (1979) (en banc),
See also, Fitz-Gerald v. Hull, 150 Tex, 39,
237 S,W,2d 256, 264-65 (1951). Thus, duro
ing negotiations, each party to a future or
porential fiduciary relationship has a duty
to make full disclosure to the other parties
concerning matrers that have induced them
to enter into the relationship, See, Lucas,
supra, 601 P,2d at 1379, citing. Taylor I',
Jackson, 267 Or. 33, 514 P,2d 548 119731,
Finally, liduciary obligntions continue nfter
dissolution 01 a partnership or joint venture
and until all partnership or joint venture
arrairs are complerely wound.up, Sec.
Hooper v. Yoder, supra, 737 P,2d at 859,
See also, Steeby v. Fia/, 765 P,2d 1081,
1084 (Calo.ClApp.1988), We hold that this
same rule 01 law applies to confidential
relationships, Thus, a partner, joint ven.
turer, or one in n dissolving confidential
relationship, which still has loose ends dan.
gling, cannot cut.oll the ri
partner in the dissolved 1'<
tactic of entering into 3 "
complete such business,
Meyer & Susmall v. Coh,
180, 190, 146 Cal.App,3d
hrg denied Nov. 9, 1983,
in a fiduciary or confide
inrerlere with current or
tracts or business relatil
parties to the relationshi,
(d) Was there a Confie
men/?
No party disputes that t
dentiality agreement bet'
That agreement created a
tionship between the part
distinct basis upon whiei
relationship, even apart I
ship/joint venture.
Having found there "
confidentiality agreement
joint venture, and a con
ship, we now discuss il tJ
of any or aU 01 them,
(e) IYwlhere a breach
tllre COlltract alld
lialily Agreemellt:
[391 The elements of
tract cause 01 action arE
al the exisrence of a e
b) the failure of perfe
promised; and,
(c) damages,
[40-13] We conclude
tion that Larsen breache
agreement 01 Septembe:
flecred in the December,
Intent
As we have previousl
merger agreement, as (
l<ltrer of lnrent is an en
The oral merger agreemt
bel' 1, 1988 Letter of In
uaus. They must be enl
their rerms, Radiolog
Trinidad Area Health
Colo, 253, 577 P,2d 74
ballc), Thus, Larsen II'
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} , -~', . ;~~\' \ .! I: :' "\ ~.; , .~ ~; :. ~,,~! ~ , ~.' ~~ ,I. I' '; ", ," . ~ .," " ;. :1.' ::.': '. ' ; . ~, '::~ '-:,\:~:,
IN HE S & D FOODS. INC.
ClltU t44 8.R. 121 (OkJ1cy.D.Colo. I99Z1
161
gling, cannot cut.off the rights of the other
partner in the dissolved relationship by the
lactic of entering into a "new" contract to
complete such business, Id,; Rosenfcld,
.lleyer & Snsman t', Cohen. 194 Cal.Rptr,
180, 190, 146 Cal.App,3d 200, 218 (1983),
hrg denied Nov. 9, 1983, Nor may a party
in a fiduciary or confidential relationship
interfere with current or prospective con.
tracts or business relations of the other
parties to the relationship.
(d) Wa.! there a Confidentiality Agree.
menU
No party disputes that there was a confi.
deatiality agreement between the parties.
That agre.ment created a confidential rela.
tionship between the parties, and is thus a
distinct basis upon which to. find such a
relationship, even apart from the partner.
ship/joint venture.
Having found there was a contract, a
confidentiality agreement, a partnership or
joint veature, and a confidential relation.
ship, we now discuss if there was a breach
of any or all of them.
'(e) Wa.!there a breoeh of the Joint Ven.
tnre Contract and of the Confiden.
,iuiitg .iyl't:t:l1lt:u~:'.
[39] The elements of a breach of con.
tract cause of action are:
a) the existence of a contract;
b),the failure of performance that was
promised: and,
(c) damages,
[40-13] We conclude without reserva.
tion that Larsen breached the oral merger
agreement of September 11, 1988, as reo
netted in the December t, 1988 Letter of
Intent.
As we have previously found, the oral
merger agreement, as documented in the
Letter of Intent is on enforceable contract.
The oral merger agreement and the Decem.
, ber 1, 1988 Letter of Intent are unambig.
aQua. They must be enforced according to
their terms, Rodiology Prof. Corp, v,
, Trinidod Area Health Assn, Inc., 195
Clio, 253, 577 P,2d 748, 751 (1978) (en
, lane). Thus, Larsen wos obligatcd to in.
fuse $2 million of capital into Pet, rather
than lend, as Larsen claims, Additionally,
Larsen was required to lend Kunkel 81.5
million to contribute to the new entity,
Kunkel and Pet were at all times ready,
willing, and able to perform their obli,
gations to the new entity, Larsen. by his
failure to lend the $1.5 million to Kunkel,
os well os his numerous other breaches,
prevented the performance of Kunkel and
Pet. Under Colorado law, if one party's
performance under a contract is prevented
by another party to the contract, the party
prevented from discharging the required
obligation is to be treated as though the
party performed, See, American Indns.
trial Leasing Co, v, Costelto, 160 Colo,
588, 418 P,2d 881, 886 (1966) (en bane);
Smith v, Roe, 7 Colo, 95, 1 p, 909, 911
(1883), Stated another way, when one par.
ty is prevented from fully performing a
contract by the fault of the other party, the
latter cannot be allowed to take advantage
of the wrong and escape liability under the
contract.
Thus, Pet must be treated os having
performed. Larsen's request for declarato-
ry judgment must be denied. Damages
from Larsen's breach of the two contracts
,,'::~! ~: :!:::::.:~:::d !~~:::-.
[44] We also find that Larsen breached
the Confidentiality Agreement. Under it,
Larsen promised not to disclose certain con.
fidential or proprietary information of Pet,
including customer lists, pricing in forma'
tion. and other business information. Lar.
sen and his agents and employees obtained
this information through their review of
Pet's books and records, conducted os a
result of the Confidentiality Agreement
and the confidential relationship we have
found between all the parties,
The evidence is clear that in February
and 'March of 1989, Larsen made numerous
contacts via telephone and in person to
Pet's customers and suppliers, and dis.
closed confidential information obtained os
a result of the Confidentiality Agreement
and the confidential relationship, Specifi.
cally, Larsen informed all customers and
suppliers of Pet that Pet was in financial
trouble, its accounting records were not
.....
~...........
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162
144 BANKRUPTCY REPORTER
accurate, its inventory was overstated,
Kunkel could not be trusted, and that Pet
was on the brink of bankruptcy. The evi-
dence shows this was done willfully and
, wantonly, with the intent to ensure Larsen
ended up with Pe~s assets,
(0 Was there a breach of fiduciary
duty!
(~5] To recover for breach of fiduciary
duty in Colorado, a party plaintiff must
show:
(I) The defendant and plaintiff were in a
fiduciary relationship;
(2) The defendant breached a fiduciary
duty owed to the plaintiff;
(3) The plaintiff incurred damages or
losses; and, ,
(4) The defendant's breach of fiduciary
duty was a cause of the plaintiffs
damage,
Sic, C,J.I,2d, U 26.1,
(~6-l81 We find that Pet has proven all
the elements for breach of fidueiary duty
under Colorado law, We also hold that
sueh breach gives rise to constructive
fraud under Colorado law, See, Security
National Bank v, Pcters, Writer and
Christensen. [nc" 39 Colo,App. 344. 569
P,2d 875, 88G-881 (1977), reh 'g denied,
June 30, 1977, cert. denied, Sept 12. 1977
(Constructive fraud is "a breach of duty,
which. irrespective of mml guilt, the law
declares fraudulent because of its tendency
to deceive [and] violate confidence,,,,
Neither actual dishonesty nor intent to de-
ceive is an essential element of constructive
fraud."), A fiduciary duty creates fiduci.
ary obligations as a matter of law. See,
Alexander Co, v. Packard. 75~ P,2d 780,
782 (Colo,Ct.APP,1988), The Confidentiali.
ty Agreement, as a matler of law, also
created a fiduciary or confidential relation.
ship between Larsen and Pet The evi.
dence is ample to show that as a result of
the fiduciary and confidential relationship,
Pet reposed trust and confidence in Larsen,
Aiter ,i~nin~ the confidentiality a~ree-
ment, Pet disclosed confidential informa,
tion and production mechanisms, and pro-
vided full, and complete access to Pet's
books and records, access to Cribari's
working papers, and access to bank con-
tracts and records. Kunkel clearly reposed
trust in Larsen and his agents showing a
fiduciary and/or confidential relationship,
(g) Was there a breach of the Partner-
ship or Joint Venture relationship!
[491 There is ample evidence to support
a conclusion that Larsen breached the fidu.
ciary duties owed Pet and Kunkel under
their agreement Specifically, we find:
(1) Larsen disclosed confidential infor'
mation,
(2) Larsen engaged in self.dealing by
associating with Kunkel and Pet to
increase his own warehouse busi.
ness by taking over the York and
Des Moines storage facilities,
(3) Larsen's actual (discussed in Section
IV, below) and constructive fraud
constituted a breach of fiduciary
duly,
(4) ~Iulherin's actions and representa.
tions concerning the November 28,
1988 documents, all of which may be
imputed to Larsen because Mulherin
was Larsen's agent, breach duties of
honesty, good faith, loyalty, and fair
dealing.
(5) By sending default letters, and insti.
tuting lawsuits for appointments of
a receiver at Pet's Des Moines and
Dodge City facilities, Larsen breach.
ed a fiduciary obligation,
(6) The disclosure to Carnation on De-
cember 15, 1988 about the deal be-
tween Larsen and Pet being off,
without disclosure to Pet. was a
breach of candor,
(7) Suddenly withdrawing from the
joint venture or partnership on pre-
textual grounds was a breach,
(8) The imposition of the warehouse lien
on Pet's products. and the accept.
ance of payment for same was a
flagrant action in Larsen:s self,deal.
in~, in violation of his fiduciary
duties,
(9) sug~estiag that Pet file bankruptcy
and that Larsen would "slip" money
~g~
-."....
-
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, , .." _ i I . '. . I ,', ~.'
0('
IN RE S & D FOODS. INC,
ClltU 144 n.R. 111 (Bkrtcy.D.Colo. 1m)
163
\
to Kunkel violated a duty of fair
dealing,
(10) Larsen's February and March, 1989
teiephone calls to Pet's customers
and suppliers about Pet's financial
condition was a breach of fiduciary
duty and one of the principal rea-
sons for Pet's bankruptcy,
[50] Proof of harm from a breach of
fiduciary duty entitles an injured party to
whom the duty was owed to damages thaC
(a) place the injured party in the same
. position it would have been ia but for
the fiduciary breach;
(b) place the non-breaching party in the
position the party was in before the
I~reach: and,
(c) equal any profit the breaching fiduci-
ary made as a result of committing
the breach.
See, Restatement of Trusts, Second,
I 2205, Comment A, at p, 458 (1957); Hud.
son v. American Founders Life Ins. Co"
t51 Colo, 54, 377 P.2d 391, 395 (1962) and
It5-1-103(2), (3), C.R.S. (1987); Kane v,
JlcNolly, 470 P,2d 73, 76 (Colo. CLApp.
1970), reh'g denied, Feb. 19, 1970, cerL
denied, May 12, 1970; Ramsay v, Meade,
37 Cola, 465, 86 P. 1018. 1020 (1906).
[511 As a result of Larsen's aumerous
aad varied breaches of his fiduciary duty,
and his complete lack of candor and decep-
tive conduct both individually and through
his corporate agents and employees, Pet
sullered damages consisting 01 (1) the
1155,886.78 paid on the warehouse lien, (2)
the exe<:ution 01 the November 28 loan and
security agreement to its detriment, and (3)
the ultimate demise of Pet's business, Il
The $t55,886,78 must be repaid. The loan
and security agreements are of no elfeet,
They are not what they purport to be, See.
Damrell v, Creagar, 42 Cola,App, 281, 599
P.2d 262, 264 (1979), reh'g denied, May 10,
1979, cerL denied, Aug, 20, 1979 (validity
01 a lien must be ascertained In light of a
plaintiffs Slatus as a partner,),
We also conclude that Larsen's conduct
was willlul, wanton, and intentional vis a
IIU his fiduciary duties,
It We will disc"" d.m,ges in Seellon V, below.
(h) Is Pct entillcd to contribuliou from
Larsen far debts paid both before
and during thc pendellcy of Pet's
ballkruptcy!
[52J All parties are liable. jointly and
severnlly, for everything chargeable to the
partnership under II 7-li0-ll3 and 7-60:-
114 (C,R.S,), and are jointly and severally
liable for all other debts of the partnership.
C,R.S, I 7-60-115 (1990); Article 60, Ulli-
form Partnership Law,
A claim for contribution is predicated on
the existence of a partnership or joint ven-
ture, We have lound such a relationship
exists, by whatever name, between Larsen
and Pet.
[53,54] Ordinarily, a partner is not enti-
tled to contribution until after a settlement
showing the respective equities of the par-
ties, Goff v, Bergerman, 97 Colo. 363, 50
P.2d 59, 61 (1935), reh'g denied, Oct. 21,
1935, Contributions may be allowed with-
out a previous settlement of finn accounts
when the item has been separated from
partnership affairs. Keefer v. Valentine,
199 lawa 1337, 203 N,W. 787 (1925): Colo-
rado has allowed a contribution action with.
out a IOrffiui accounting. J10ller v. ~L.
Fulenwider, ln~, 32 Colo,App. 440. 513
P,2d 730, 732 (1973). See also, 68 CJ,S,
Partnership, 1116 (1950); C.R.S. 7-60-
134; 1 Colorado Methods of Practice,
I 149 (Rev,3d Ed.l989),
[55J Here, United Protein, as part of
the agreement to purchase Pet's assets.
has agreed to pay 507, of the unsecured
unpaid trade debt of Pet, not to exceed $2,5
million, Larsen, as Pet's partner or joint
venturer, is obligated to pay 50% of $1.25
millian as his contribution share.
Ill, Issues Pertaining to Interference
with Contract and Prospective Eco-
nomic Advanlllge.
All the defendants have raised counter-
claims of interference with contract and
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164
lH BANKRUPTCY REPORTER ,
lege or present any evidence of an exi~ting
contract. Id" at 1251.
The second element of the tort is that the
defendant had knowledge of a contract or
knowledge of facts that lead the defendant
to inquire as to the existence of a contract
with prospective advantage,1l These torts
have been recognized only recently, with
the tort of interference with contract rec.
ognized in the leading modern case of
Lumley v. Gye, 2 EI. & BI. 216, 118 Eng,
Rep, 743 (Q,B.l853). A further extension
of the tort of interference with a present
economic right to that of interference with [51] The third element of the tort is
prospective economic gain was first report. intent It is a difficult issue to prove,
ed in Temperton v. Russell, 1 Q,B, 715 Rare is the defendant who will directly
(1893), Both torts protect relational inter- admit intent. Thus, this element, essential.
eslS, IVe discuss them together because Iy a factual one. may be proven by circum.
they are close cousins in the law, stnntial evidence.
[561 Colorado requires rive specific ele- The fourth and final element besides
ments before it will recognize the tort of damages is that the defendant must act in
intentional interference with the perform. such a way that induces or causes nonper-
ance of an existing contract with a third formance oi the contract Restatement of
,person. They are: TortJ, Second. states the tort requires that
(I) existence of a valid contract between the defendant's action be intentional and
plaintiff and a third party; that it impl'Qperly interferes with the per.
(2) knowledge by the defendant of this , formance of a contract.
contract, or knowledge of facts that Specifically.
should lead (a party) to inquire as to [iJn determining whether an actor'S con.
the existence of the contract; duct is intentionally interfering with a
(3) intent by the defendant to induce a contract or a prospective contractual re-
breach of contract by the third party; lation of another is improper or not, con.
(4) action by the defendant that induces sideration is given to the following
a breach of contract; and, factors:
(5) damages to the plaintiff, (a) the nature of the actor's conduct;
Control, Inc, v, .lIonnlain Slates Tele. (b) the actor's motive;
phone and Telegraph Company, 32 Colo, (c) the interest of the other with which
App, 384, 513 P,2d 1082, 1084 (19731, See the actor's conduct interferes;
also, Reslalement of Torts, Second. ! 766; (d) the interest sought to be advanced
Memorial Gnrdens. Ine, v, Olympinn by the actor;
Sales and .lIanagement Consnllants, Ine" (c) social interest in protecting the'
690 P,2d 207, 210 (Colo.l984) (en bane), freedom of actions of the actor and the
reh'g denied, Nov. 26, 1984 (citing, the contractual interest of the other'
Reslalement with approval), (0 proximity or remoteness of the ac.
The rirst clement of the tort of intention. tor's conduct to the interference; and,
al interference with a contract with a third Ig) the relations between the parties,
person is the existence of a valid contract
between a plaintiff and a third party, The Restalement of Torls, Second, ! 767
basic importance of this elemcnt was recog. (1979),
oized in William v, Bnrns, 540 F.supp, [58\ The tart of interference with pro'
1213, 1251 (D,Colo,1982), There, a defen' spective II advantage is different from in.
dant's motion for summary judgment was terference with COnlraet because the for'
~ranted because the plaintiff failed to al. mer looks to protect future valuable ex.
i
I
!
13. We indic:llcd, SlIpra, al pp. 155.56 th:lIthe
Kunkcls ha\'t: no standing 10 bring this counler.
claim.
14. For those \'crsed in New York Inw, the UHI is
ohen referred to ilS 3 "prima f3Cic" lorl. Stt,
R'~er I', ,\(cCl""-,, 305 ~.Y, 75, III ~,E,ld
214,217 (CI,App,19S)). Sl!C dUO, Rtstatemellt 01
Tor,. 5<cond, ~ 766(01,
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IN RE S & 0 moos. INC.
elle u 144 n.R. IZ1 (DIu1c:y.D.Colo. 19'.121
p~ctanci~s, whil~ the latter is to prot~ct major customers nnd informed them that
what has already been acquired, The diffi. the deal with Pet was not going through,
culty with the tort is the ~urden uf proving Shortly after Larsen's call,S, Kunkel began
damages, While prospective damages is a receiving calls about Pet's financial viabili.
iamilior element in a breach oi controct ty, Other customers started demanding
case, nevertheless, it is a burden that is COO payments. Others restricted credit.
difficult to prove, The record is replcte with constructive, if
A breach of confidence committed or in. not actual, interferences with current and
duced in obtaining or using a trode secret prospective customers, The coincidence of
has been a frequent ground for relief, Larsen's contacts with the direct results
i 130, "[nterference with Prospective Ad. obtained is too :xtroordinary for us not to
vantage," Prosser and Keeton on the Law reach a conclUSIOn the torts have been com.
o! 2orl.! (5th ed. 1984), mitted, Moreover, there was clearly a rev-
Th t 'rt h b ' d' C I d elation by Larsen to others about Pet's
e 0 as een recogOlze 10 0 ora 0 f' 'I d'ti' Th" hi'
'h f II I I" d & C manCla con lon, IS IS t e reve atlon
10 t e case 0 ,011 gomery ,or . 0" f d d ' , bl d
I A d 736 P 2d '0 47 (C I Cl 0 a tro e secret, an IS actlona e un er
n~v, Ilrews, ", 00, th f" f 'h '
A '1987) h' d 'd 'I 19 1987 e tort 0 lO.er crence Wit prospective
pp, ,re 9 eme. "ar.. d . F' II . h La
/' R t / I" 11 I S d a vantage, lOa y, It appears t at men
(quo mg, es a emen OJ or s, eeon I d h' I f d d
i i66(B)), Alldrews states the elements of use IS new y oun ,tra e se~r~ts to ~et
th tort to be' Iowa Beef to caacel Its negotiatIOns With
e . d " h' , h'rd Pet in March of 1988,
(a) 10 uClOg or ot enVlse causmg a t I
person not to enter into or continue a What are the damagea Pet suffered?
prospective relation; or, Clearly, the cancellations of busiaess and
(b) preventing the other from acquiring ~ghtened credit contributed to Pet's slide
or continuing the relation mto bankruptcy. No exact amount can be
S " determined to this specific tort; however,
Id. at 47. ,ee also, Dollon v, ~ap!tol the commission of these torts caused over.
Federal SaVl~fs and Loall AssoClallO~, all harm to Pel Thus. we will hnve more
612 P,2d 21. .3 (Colo,Ct.App.1981) reh 9 to' say about damo~es when we reach th,t
,I(I"i.,r/ (),.t R l11Rl r".,.1 rlMu'"rl Un..". . d" '
" , ".., ".-.. -, part of our ISCUSSlon,
1982-
(59,601 To prove the tort, it is not nec. IV. Fraud, Misrepresentation, Nondisclo-
essary to prove an underlying controct It sure, and other Torts.
~ sufficient to show intentional and im-
proper interference preventing formation
of a contracl Dolton, supra, 642 P,2d at
23, citillg, Resla/emenl of TorI.!, Second,
I i661BI, Finally, and although not clearly
articulated in Doltol/, it would appear that
Colorado accepts that a breach of fiduciary
relationship can give rise to the tort, be-
e:luse the nature of the relationship. busi.
ne,s or confidential, may impel or induce a
,party to relax the care and vigilance a
pef30n would and should have ordinarily
fXel'tised in dealing with a stronger. Id.,
at 23. [t is patently clear that Colorado
requires Improper conduct before it will
rmgnize the tort.
(61,62) We find that Larsen hns com.
mitted both torts claimed by Pet, In mid.
February, 1989, Larsen called his and Pet's
-r'
165
',.
(a) Fraud, Misrepresentation, and Non-
disclosure,
Pet claims that Larsen committed actual
froud upon Pet and is liable for damages,
Pct has also raised affirmative defenses of
material misrepresentation and acts of
omission.
(63) The elements of common law de-
ceit have been well established for over 60
years in Colorado since the case of Morri.
son v, Goodspeed, 100 Colo. 470, 68 P,2d
468 (1937), The elements are:
(I) false representation of a material
fac~
(2) knowledge on the part of the one
making thc representation that it is
false;
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166
144 BANKRUPTCY REPORTER
(3) ignorance on the part of the one to
whom the representation is made of
the facts of the representation;
(4) representation made with the inten.
tion that it be acted upon; and,
(5) action on the representation resulting
in damage,
Id. 68 P,2d at 462, One remedy for fraud
or deceit is rescission and restitution, The
controut or matter involved is voidable,
The law of misrepresentation is consider.
ably broader than the separate tort action
for fraud, The law of misiepresentation
seems to first appear in the early English
case of PlUJley v. Freeman, 3 Term Rep,
51, 100 Eng,Rep. 450 (1789),"
Misrepresentation arises when it is fixed
as a defense to an action; as here, when
Pet claims it was induced by false state-
ments to sign a promissory note, security
agreements, and guarantees. In earlier
law, it was known as fmud in the factllm,
In modem law. we have broken it down
into fraud in the inducement. and fraud in
the execution. U,S, District Judge Kane,
now Senior Judge, has succinctly described
the difference between the two subsets of
misrepresentation in Colorodo PllUJterers'
Pension F1Wd v. P/lUJterers' Unlimited,
Ille, 655 F,Supp, 1184 (D.Colo.l987),
Fraud in the inducement consists of in.
ducing one by some fraudulent represen.
tation or pretense to execute the very
contract to be executed, An agreement
based on sueh an indueement is voidable,
Fraud in the inducement has three re-
quirements: first. the misrepresentation
must have been either fraudulent or ma-
terial; seeond, the misrepresentation
must have indueed the reeipient to make
the contraet; third. the reeipient must
have been justified in relying on the mis.
representation, If eaeh of these ele.
ments is met, the contract is voidable.
Fraud in the execution, on the other
hand, occurs if a "misrepresentation as
to the character or essential terms of a
proposed contract induees eonduet that
appears to be a manifestation of assent
by one who neither knows nor bas a
IS. This is nollO SlIV II didn't exist c:Jrllc:r In our
common lilW herliilge. S(t, I Street. Founda.
reasonable opportunity to know of the
eharaeter or essential terms of the pro-
posed eontraet." If the elements of the
defense of fraud in the exeeution are
met. the contr:lct is not merely voidable.
it is void ob initio.
Id. at 1186, (Citations omitted).
That there is deceit and misrepresenta-
tion involved in this case is beyond perad.
venture of a doubt. When it began, how-
ever, and what type of misrepresentation
occurred, is not easily ascertained.
[641 Pet and the other defendants
would like us to find that Larsen had the
scienter from day one to take over Pet, and
that Larsen never disclosed this intent,
The evidence belies this. Larsen is a savvy
and smart businessman. The reeord clear.
Iy reflects the synergistic results a combi:
nation of Larsen and Pet's businesses
would bring. Although the form of the
deal would probably leave the CPF-MRF
corporation a related entity within Larsen's
fomily of corporations, and Kunkel, a sol.
dier within the family, this result is not
necessarily a fraudulent one, Here, we
give Larsen the benefit of the doubt. But,
sometime between August and November,
198B, this benefit of the doubt changes,
Somewhere within this period of time, the
precise moment being unknowable. Larsen
assumed an intent to bolster his own ware.
house business to the detriment of Pet. and
to force Pet to sell its competing cold stor.
age fncilities in York and Des ~loines to
Larsen at a distressed sales price. This
intent was clearly visible when, on Novem.
ber 28, 1988, Larsen foiled to disclose his
intent to consider the $2 million given to
Pet as a loan. and that he (Larsen) would
enforce the security documents nnd call a
default on the loan when it beeome due,
~loreover. it is patently elenr that ~lulhe-
rin, Larsen's agent. affirmatively misled
Donald Kunkel. Pet's agent. about the im.
port of the documents, Additionally,
~Iulherin aifirmatively misled Kunkel
about Attorney ~Iinor's invnll'ement lor
lack of involvement}, and did the same to
lions of Ltgol Uobi/i,y, ,t 376 (I906) (Writ of
deceit known to exist :IS early 35 1201 A.D.).
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IN HE S & 0 FOODS, INC.
Cltc u I'" B.R. 121IDkrtq'.O.Colo. 19921
Minor. We also find that DolCay quietly acquire the control of Kunkel's interest in
understood what was happening on Novem. Pet..
ber 28, 1988, in that he knew the import of
the documents, Thus. all of the elements
of Goodspeed, supra. 68 P,2d at m. are
satisfied,
[651 In addition, we find that there was
fraud in the inducement when Kunkel
signed the documents because Larsen, via
his agent Mulherin, knew Kunkel trusted
him and that Kunkel placed the utmost
confidence in him when he signed the doc.
uments, Even after Kunkel questioned the
documents, he was twice m~lead by Mulh..
rin. This behavior was especially out.
rageous and egregious 'because Mulherin
knew Kunkel would rely on him (to Pet's
detriment),
[66] Finally, we find there was also
fraud in the execution, Mulherin, an attor-
aey, prevented Kunkel from consulting
with Pet's attorney, whose ex~teace
Mulherin was aware of; and at the signing,
llulherin prevented an effective review by
Kunkel of the documents. Although we
fiad Kunkel should have reviewed the doc.
umeats more carefully, the fiduciary and
confidential relationship between the par.
ties justifies his behavior and vilifies Lar.
sen's.
,..
.,
[67-o9J Because common law fraud and
m~representation has been shown, II Pet is
entitled to recover all actual, incidental, or
consequential damages that are the natural
and proximate result of Larsen's fraudu.
leat conduct. Pet is also entitled to rescind
the $2 million promissory note, security
agreements, and loan guarantees, Finally,
beeause Larsen's conduct was willful and
wanron, and exercised business decorum
we cannot condone, Pet is entitled to exem.
plary or punitive damages, C,R.S. I 13-
21-102. Damages are discussed below,
(b) Civil Conspiracy.
Pet has alleged the existence of a civil
conspiracy against it by Millard and Lar-
lea, specifically that Larsen conspired ro
167
The tort of civil conspiracy can be d..
fined as "an intentional tort that requires
proof of a combination between two' or
more persons to accomplish an unlawful
goal or a permitted goal unlawfully,"
Hawkinson v. A,H. Robbins Co" bIC" 595
F,Supp. 1290, 1314 (D,Calo.l984), See also,
Mulei v, Jet Courier Service, Inc" 739
P,2d 889. 894 (Colo,Ct.App.l987), rev'd on
other groU1lliJ, 771 P,2d 486 (Colo.l989)
("{A) party cannot be held liable merely
for doing in a proper manner that which it
had a lawful right to do,"),
[701 Civil conspiracy requires a show-
ing, by a preponderance, of five elements:
. I) two or more persons;
2) with an object to be accomplished;
3) with a meeting of the minds on the
object or course of action to he occam.
plished;
4) with one or more unlawful overt acts
(ie" an unlawful purpose or a lawful
purpose accomplished by unlawful
means); and,
5) damages as a proximate result ther..
of.
-
.-
Contract Maintenance Co, v, Local No.
105, Building SeTl~ce Employees Int'l Un.
ion, 160 Cola, 190, 415 P.2d 855, 856 (1966)
(en bane); Spears Free Clinic and Hospi.
tal v, Denver Area Better Business Bu-
reau, 135 Cola, 464. 312 P.2d llO, ll2
(1957) (en bane), See also, Lockwood
Grader Corp. v, Bockhaus, 129 Colo. 339,
270 P,2d 193, 196 (1954) len bane) (Proof
needed for a conspiracy,),
[71] A conspiracy is dilficult to prove
with direct evidence ,because it ~ rare that
parties to a conspiracy will testify ro it
We hold that the actions must fail because
missing here is the requisite second party,
Not one defendant here has named any
other party to this suit as a co-conspiraror,
I~ Thl. burden of proof hilS been "'rled by 'nce of the evidence. C,R's. ! 13-25-127
c1e:ar and convincing evidence. We are ilW<lre (1987).
Ih,t Ihe burden in Colorodo is by , preponder.
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168
tH BANKRUPTCY REPORTER
(c) Breach of Uniform Trade Secrets
,teL
[72] Pet claims that Larsen breached
the Unifonn Trade Secrets Ac~ C,R.S,
!! 7-74-101, et seq, Misappropriation of a
trade secret occurs if:
1) a trade secret is disclosed;
2) without the express or implied consent
of the owner;
3) by a person who knew or had reason
to know that the knowledge obtained
was a trade secret;
4) the knowledge obtained was acquired
under circumstances that give rise to
a duty to maintain secrecy or limit its
use; and,
5) the use or disclosure of the trade se-
cret must be detrimental to the party
whose secret is revealed,
See, C,R.S, i 7-74-10B,
[73. H] There is no Colorado law inter.
pll:~;ug ~;It:: :)k.I~Lnt:. lmul: :itcn~t..S ;lIciuu~
"confidential business or financial infonna.
tion," that the owner has "taken measures
to prevent the secret from becoming avail.
able to persons other than those selected
by the owner to have access." C,R.S, i 7-
74-102(4). What constitutes a trade secret
is generally a question of fact. An agree-
ment not to disclose confidential infonna'
tion is an acknowledgement that the infor.
mation is a trade secret, Kodekcy Elcc.
tronics, fnc. v, ,lfechanex Corporation,
4B6 F,2d 449, 455 (10th Cir,1973),
[75] Another element of a trade secret
is its secrecy and value. To succeed on a
violation of the Trade Secrets Act, a party
must show that a prospective competitor
would have been required to expend money
and time to produce a comparable process
or develop comparable inCormntion,
[761 Another element oC a trade secret
is that it is not generally known, llatters
that arc generally known, or which arc
r.ommonly known, in a trade or business
cannot be considered trade secret.lJ, See,
SIl/'gidcv Corp, t', Eye Tecllll%gy, fllC"
648 F,Supp, 661, 6B1 (D,llinn,1986), nffd,
828 F,2d 452 (19871,
[77-791 It is clear that Larsen disclosed
trade secrets of Pet to suppliers. custom.
ers, and canneries in the pet Cood industry,
thus violating the Unifonn Trade Secrets
Act. Specifically, Larsen disclosed Pet's
financial condition, and announced that Pet
was on the brink oC bankruptcy. While it
is true that this inConnation may have been
generally known. the knowledge may have
becn as a result oC Larsen's disclosure,
llost compelling, is th"t Larsen knew he
had acquired' Pet's secret and coniidential
business infonnation under circumstances
that implied a duty on Larsen to maintain
their secrecy, The evidence is inconclusive,
however, as to whether Larsen revealed
trade secrets about Pet Creezer processes,
Finally, Pet is entitled to recover attorney's
Cees, costs, and exemplary damages. be-
cause we find that Larsen's revelations to
others about Pet's trade secrets were so
malicious and wanton. . C,R,S, i 7-74-
104(2); i 7-H-105, Exemplary damages
~.~~ ~~~=:-~:~=:! ::; !:: ::~ :~~,..,~ ~~:.:;::: of--
Pet's entire recovery herein,
V. Damages-Pet.
[BO.St] During the trial. we heard the
testimony oC defendants' experts, Pattern
and Banbury, with reference to the value
oC Pet at the time oC the subject transac.
tion,
Banbury put a mid.range value on the
stock of Pet at $21 million. Banbury also
had a high and low value that was $15
million and $31 million respectively
(1.1142), Deducted Crom these amounts
was the corporate debt oC $~.6 million
(CALll9). as well as the contingent debt
upon which we can make no finding due to
lack of evidence.
In taking into account all the evidence,
we do not have to embrace every bit oC
evidence that nn expert provides, What
rings clear from both the experts and the
parties themselves is that both Larsen and
Kunkel were looking to the long.term bene.
fit oC their business marriage and not a
short-term gain, We find Banbury's mid.
range value for Pet to be the most per.
suasive value, Thus. the damnges Cor
Pet's losses are $11,400,000 1$21.000.000
~85'
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IN RE S & D FOODS. INC.
Clle u loW n,R. 11IlDkr1t)'.D.Colo. 19921
minus $9,600,000). and not the $4 million Rugg v, .IlcCarly, 173 Colo, liO. 4iIi P,2d
the parties agreed was the entry price, 753'(1970),
The latter being a short.term priee, Extreme and outrageous conduct has
been delined as conduct
so outrageous in character, and so ex.
treme in degree, as to go beyond all
possible bounds 01 decency, and to be
regarded as atrocious, and utterly intol,
erable in a civilized community. General.
ly, the case is one in which the recitation
of the facts to an average member 01 the
community would arouse his resentment
against the actor, and lead him to ex'
claim, IlOutrageous!"
Rcstatement of Torts, Second, ! 46 (l965).
[87J Having examined the evidence in
this proceeding, and in particular the ac'
tions 01 Mulherin. Larsen's agent, and Lar.
sen's a~tions in conjunction with Mulherin,
we lind that while it was represented to the
Kunkels that the promissory note and sup-
porting documents were to be "stop.gap'"
measures with no intention to enlorce
them, these representations were contrary
to Larsen's intentions. We lind these rep-
resentations induced Kunkel to induce his
spouse to sign the documents, In review.
ing Mulherin's conduct misleading Kunkel
and ~linor, we lind Mulherin's actions be.
yond any possible pale 01 decency and ethi.
cal responsibility imposed on an attorney in
his position, Moreover, Mulherin's conduct
in not lorwarding any of the documentation
to Kunkel's attorney lor review, both prior
to and alter the closing, was not only un.
warranted, but also outrageous.
~lulherin's representation to Kunkel,
when Kunkel became apprehensive about
signing the documents, were deliberately
calculated to take advantage 01 the position
01 laith and trust that Kunkel had in Lar-
sen and Mulherin, Further, Mulherin's lie
to Kunkel that he had spoken to Minor
went beyond any boundary 01 decency, II
there was to be something other than an
c
VI. Kunkel's Claims,
(a) Froud in the Inducement and Exe.
cution,
[82-85] In addition to our previous lind.
ings, supra, we find that Larsen, by him.
sell, and his agents," lraudulently ob.
tained the signatures 01 Susan L, Kunkel
and Donald A, Kunkel upon a $2 million
promissory note and certain security agree-
ments.
The signatures were obtained by misrep.
resentation about the nature 01 the doc.
uments, and the fact that the lonn was
never one that was meant to be a legally
enforceable debt. McCaffrey v. .IIi/chell,
98 Colo. 467. 56 P,2d 926, 929 (l936).
Moreover, the physical circumstances un.
der which the documents were signed sup-
port rescission on the grounds 01 fraud in
the execution. Additionally. punitive and
exemplary damages are appropriate. Our
holding here also supports a finding in
relerence to Kunkel's request lor declara.
tory judgment
(b) Civil COTl1Jpiracy to Acquire Kunk.
el ~ Intcrest in Pet,
This claim cannot stand lor the same
reason stated In our discussion about Pet's
cause 01 action on this issue,
(c) Outrageous Conduct,
[86J To recover upon a claim 01 out.
rngeous conduct. a party must show by a
prepondernnce 01 the evidence:
1) extreme and outrageous conduct;
21 conduct recklessly. or with the intent
01, causing severe emotional distrm;
and,
3) conduct resulting in severe emotional
distress,
17. The conduct of Mulherin, ursen's ..genl, in
this Ir.ms:lctlon was par1lcularly reprehensible.
Improper. and unelhi"l, Allomey. ,re prohlb.
Ited from having direct conlact with im oppOS'
Ing P,UlY who Is represented by counsel. Su,
Dlsclplln,ry Rule 7-104(,\)(1), ABA Model Cod,
01 ProltSstonol RtJpoftsibility. Minor, Kunkel's
attorney, never gave l..:Irsen or Mulherin pcr.
mission 10 talk wllh Kunkel. In rOCI, Mulherin
look t1rt1rmiltlvc action 10 prevent Kunkel from
.pcoking 10 Minor when Ihe II million proml,.
sory note was signed. On Ihls ground :ilone, the
loan sccurhy documents and guarantees musl
be rescinded ilnd dcchmd null ilnd void.
169
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170
IH BANKRUPTCY REPORTER
enforceable obligation, Mulherin should
have obtained ~linor's clearance. To but.
tress our findings, it is clear the later law.
suits show the promissory note was not
what Larsen represented it to be.
Further enforcing our findings was the
timing of the signing of the documents,
and five days later, the Letter of Intent.
The total disregard by Larsen of his obli,
gations under the Letter of Intent shows
Larsen did not intend to make an equity
investment in Pet, but,' rather, wanted to
gain control of Pet and Kuakel's assets,
[88] The conduct of Larsen. and his
agents, was reckless and with intent to
cause severe harm, The harm is evidenced
by the loss of a Iifetime's work and the
damage to Kunkel's marriage, That Susan
and Donald Kunkel suffered severe em'"
tional distress is evideht during the course
of the trial, We had ample opportunity to
observe their demeanor with regard to this
CIUllO. we UISO IItmrO ~VlUlmc~ (rom a
Kunkel family friend. and their minister,
and learned how they departed from a gre- ,
garious couple, active in many community
affairs, to virtual hermits, literally divorc.
ing .themselves from social intercourse as a
result of their emotional distress IT,1l07-
1130), We found this uncontradicted evi.
dence convincing and truthful.
Finally, we heard the testimony of how
Susan Kunkel, a spouse, homemaker, and
mother, lived in fear of losing her home
because of documents she had never r~ally
understood, until this trial, and of which
she had never received copies.
Based upon the foregoing, this Court
finds Susan Kunkel suffered $500,000 in
damages, and Donald, $250,000, The dam.
ages will also include an 'IIvard of attor.
ney's fees and costs for both the Kunkels,
Id) Interference with Dodge City I.ease,
[891 Kunkel was the owner of improved
renl property in Dodge City, Kansas, which
was leased to Pet IT,OIi5), Based upon
prior stated findings of fact, it is clear that
Larsen interfered with the lease hetween
Kunkel and Pet with an intent to take the
facilities from Kunkel, The only evidence
being in the record as to damages coming
from Banbury, we find Kunkel's damages
to be the equity in the lease, namely $497,.
000.
(e) Tnterference with York Lease.
[90] Kunkel was a partner in a partner.
ship known as DGJ Properties (T,665-66)
that owned property in York, Nebraska
with improvements, The property was
leased to Pet. Based upon the evidence
adduced in the matter, it is clear that Lar.
sen interfered with this lease, and caused,
based on uncontradicted testimony, dam.
ages to Kunkel in the amount of $123,000
(equity of $205,000 X 60r. ownership inter-
est),
(0 Affirmative Defenses,
Based upon our findings and holdings, it
is not necessary to address the affirmative
defenses,
CONCLUSION
Counselors for Pet and Kunkel are to
settle an Order based upon this ~lemoran-
dum of Decision.
w
o ~IIUUHllln\l!H
T
NCL CORP.. a ,:-Ievada Corporatinn,
Plaintiff. Counter-Defendant.
v,
LONE STAR BUILDING CENTERS
(EASTERN) INC.. a Delaware corpora.
tlon. Lone Star Building Centers, Inc, a
~lInnesota corporation. and Lone Star
Industries. Inc.. a Delawnre corpora.
tlon. Defendants. Counter-Plaintiffs,
No. 89-li822-CIV,
United States District Court,
$,0, Florida,
,July 30, 1992,
Lessee of conuminated industrial site
sued owner nnd lessnr for costs incurred in
L4 <l,