Steamboat Springs A new lease proposed for the city’s Iron Horse Inn could place a heavier burden on an operator whose financial bookkeeping faced strong criticism Tuesday night.
The city’s latest lease proposal also offers a concession to that operator, Boulder-based New West Inns, by removing the requirement that New West make monthly payments to the city of 10 percent of the Iron Horse’s net profits from the preceding month.
The Steamboat Springs City Council gave final approval to the lease proposal Tuesday night. The proposal would raise New West’s monthly rent to $11,000, from the $10,000 initially on the table. It also assesses 3.5 percent interest on about $53,600 in owed Iron Horse rent payments accrued since March.
The City Council approved the proposal in a 6-1 vote, with Councilman Scott Myller opposing. Myller had supported an earlier, failed motion for a lease that would have charged $10,000 a month, plus the interest on back payments. City attorney Tony Lettunich said the proposed lease terms would be presented to New West to reach a formal agreement.
“What we’re talking about this evening is currently under negotiation,” Lettunich said.
A previous City Council bought the Iron Horse Inn for about $4 million in 2007 in an effort to provide affordable housing for city employees. But the inn has struggled mightily because of factors including the economic recession. Anne Small, the city’s purchasing and risk manager, said in August that the city’s debt service on the Iron Horse this year could cost $343,000.
In discussions of the new lease, city staff has projected future annual debt payments of about $246,000 — should the Iron Horse generate projected revenues.
New West Inns has operated the Iron Horse since November 2009.
The City Council’s discussion Tuesday night focused on how to get the best deal for the city while also helping New West create a sustainable business model at the Iron Horse. The discussion occurred before a thin crowd at Centennial Hall; no one from the public attended to speak about the issue.
City Council President Cari Hermacinski noted the fine line involved in Iron Horse negotiations.
“We don’t have people banging our door down to try and run this place for us and minimize the loss,” Hermacinski said. “I don’t want to squeeze (New West Inns) so much that we put them out of business.”
City Manager Jon Roberts suggested removing the monthly profit-sharing payment because it would require, he said, monthly audits by city staff that may cost more than the payments would be worth.
Councilman Jon Quinn, however, countered that removing the profit-share “for no reason other than convenience” would “leave money on the table.”
Quinn said doing so would set “a terrible precedent” for the city, especially given the questions about New West Inns’ bookkeeping and financial records that arose during the city’s audit of Iron Horse finances.
City Finance Director Deb Hinsvark said the audit, though hampered by a lack of documentation, showed reported revenues and expenses that fell within the city’s “range of reasonableness” given comparative figures from the local lodging industry.
“The revenue that’s been reported to us … reflected a 62 percent occupancy at the Iron Horse, and that’s what we’re seeing across the city,” Hinsvark said. “We don’t have any reason to question that revenue.”
On the expenditure side, though, Hinsvark said, “The bookkeeping isn’t extremely good.” She told the City Council that reported expenses for the Iron Horse were judged “reasonable.”
Later in the evening, outside the meeting room, Hinsvark elaborated and said New West often didn’t have timecards for payroll or receipts for expenses.
She didn’t present the council extensive documentation of audit results, she said, largely because many documents weren’t there to be audited.
“It’s impossible to complete the fieldwork without all the documentation,” she said. “We did not receive all the documentation.”
Quinn was stronger in his criticism of New West’s bookkeeping. He said in a meeting earlier Tuesday, he was told of payroll figures that were “documented on sticky notes.”
“We’re talking about an absolute lack of any bookkeeping standards whatsoever — right down to how payroll was processed,” Quinn said Tuesday night.
Quinn said challenges with bookkeeping or audits shouldn’t change how the city negotiates for monthly Iron Horse rent.
“My suggestion would be to take it to at least $11,000 a month,” he said. “To some extent, I feel like sloppy bookwork is giving them a break.”
Jay Belyea said he began work as Iron Horse operations manager in April. Belyea did not agree with statements made Tuesday night about New West Inn’s bookkeeping — at least since he’s been there.
“Every dime that comes in and out was accurately accounted for and presented to the auditors,” Belyea said. “The only thing I can imagine is issues from the previous management.”
Belyea declined to comment on the new lease terms approved by the city.
“We’re still in negotiations,” Belyea said. “Once we have a firm agreement in place, we’ll take it from there.”
Also Tuesday, the City Council:
■ Unanimously approved the city’s agreement with Classic Bicycle Racing, owners of the Quiznos Pro Challenge, for Steamboat’s hosting of a stage finish and a stage start during the race in August.
■ Approved, on appeal, a change to the community housing plan for First Tracks at Wildhorse Meadows, overturning a denial of the change by the Steamboat Springs Planning Commission. Councilwoman Meg Bentley cast the ‘no’ vote in the 5-1 tally, for which Quinn stepped down.
■ Approved an expenditure of $44,827 to extend late-night city bus service to 2:20 a.m., seven days a week, from Dec. 16 to April 10, 2011. Hinsvark said the funds would come from excess mineral lease and severance tax revenues. Council members Walter Magill and Bart Kounovsky voted against the expenditure.
— To reach Mike Lawrence, call 871-4233 or e-mail firstname.lastname@example.org