Suit halts courthouse financing

Published 12:00 am Wednesday, October 16, 2002

The lawsuit against the county by the Freeborn County Committee for Fairness (FCCF) could wind up adding extra dollars &045; possibly millions &045;

to the courthouse project cost. And the county is filing a counter lawsuit against the FCCF to recoup the damage.

The litigation, alleging the county and three commissioners violated the Open Meeting Law, blocked the sale of bonds to finance the project, scheduled for Tuesday. The delay is likely to incur at least a $815,000 cost increase for the bonding due to a recent interest rate hike in the bond market, according to Myron Knutson, vice president of bonding firm Evensen Dodge.

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&uot;It is unfortunate that the group of citizens who say they want to save tax money ended up costing a tremendous amount of money to the taxpayers,&uot; County Administrator Ron Gabrielsen said. &uot;What they are doing is defrauding taxpayers in Freeborn County. And it won’t be the taxpayers but the FCCF members that will be liable.&uot;

The county is consulting with attorneys to deal with the lawsuit and enable the sale. Gabrielsen said he is determined to proceed with a counter suit against the FCCF to recoup the additional cost and relevant legal expenses. He also recommended the three commissioners on the complaint &045; Dave Mullenbach, Mark Behrends and Dan Springborg &045; should hire an attorney to consider a defamation charge.

The bidding on bonds was scheduled for 10 a.m. Tuesday. But, all of the nine financial institutions that had shown an interest declined to submit their bid. Knutson explained that the banks are now asking for some risk premium, meaning a higher interest rate, to be applied due to the pending litigation.

&uot;Once we notified the bidders this morning about this pending litigation, those bidders either decided to pass or indicated a higher interest rate. So, based on that, we did postpone the sale,&uot; Knutson said.

The bond rate has moved up 0.1 percent in the last six days since in accordance with a hike in U.S. Treasury Bill rates, according to Knutson. And he forecasts the upward trend will continue. A 0.25 percent increase on the $26.3 million, 20-year maturity bonds the county plans to sell equals $815,000 in additional interest cost.

&uot;That’s a minimum amount,&uot; Knutson said. &uot;The interest rate is moving up as it has in the last six days. If you see the history of the rate just in the past four months, from July to September, the market moved almost 50 basis points (0.5 percent). So, it’s not impossible or unlikely that within the next couple of weeks or several weeks, the interest rate will also go the other way.&uot;

Steve Rushford, attorney for Evensen Dodge, explained the county needs to disclose information that may affect the investment decision of potential buyers, and the financial institutions were notified about the litigation Tuesday morning.

&uot;Their reaction was really not unexpected, particularly in light of the short notice …To explain all of this to the potential buyers within a couple of hours is not something easily done. So, the focus now needs to shift to what to do next,&uot; he said.

Rushford advised the county to seek immediate dismissal of the litigation by the court, while explaining the lawsuit’s basis to the prospective bidders and giving them comfort.

Gabrielsen said the county will hire an attorney and aggressively go after the FCCF. He suggested the county would lien all the costs incurred by the FCCF lawsuit onto the properties of the organization’s members, which includes the difference in the interest payment, construction costs and legal fees.

FCCF attorney Thomas Kraus was unfazed. &uot;The best defense is a strong offense,&uot; he said. &uot;That’s not unusual they (the county) make that kind of allegations. I would be expecting that.&uot;

The case, formally filed Tuesday, asks the court to void the county board decision to issue non-referendum bonds; fine three commissioners who supported the decision; and force the county to have a public referendum on the bonding and pay for the litigation cost.

Kraus emphasized that he would pursue the litigation unless the county board rescinds that vote.

For the counter lawsuit Gabrielsen suggested, Kraus said, &uot;The only way they can do it if they would be able to demonstrate to the court that their claim was brought in bad faith. Obviously, that would not the situation here.&uot;

The complaint submitted by Kraus does not specify any individuals of the FCCF as the plaintiffs, and Kraus won’t divulge who is behind the suit. &uot;They can put on a request,&uot; Kraus said. &uot;And when we go through a discovery process, we can maybe talk about those kinds of things. But, right now, there is not a specific name I am allowed to give out.&uot;.

&uot;I wish this band of misfits would identify who they are,&uot; Gabrielsen said. &uot;If they are so proud of what they are doing for Freeborn County, why don’t they stand up and tell the people who they are?&uot;