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City hires consultant for Crosslake Communications

Web posted June 3, 2014
By Kate Perkins, Northland Press Correspondent

The Crosslake City Council decided Tuesday, May 27, to spend $40,000 to hire a consultant from the east coast to examine Crosslake Communications company.

The council voted 4-1 on the measure, with council member Steve Roe casting the only vote against the measure. The council hired Francis Gallagher of Charlesmead Advisors in Baltimore, Maryland, to come to Crosslake and look at several aspects of the communications company.

Council member John Moengen researched and spoke with Charlesmead, and said that the consultant would look at the communications company over a period of 30-60 days. Moengen said he was asked to seek a consultant, and said he didn’t want to choose someone with ties to local companies.

In a letter to Moengen, Gallagher introduced Charlesmead, whose work specializes in telecommunications companies. The letter stated that Charlesmead is “an investment banking and advisory firm focused exclusively on the needs of independent telecommunications services providers.” Attached to the letter was a document that showed several assignments Charlesmead had completed, including Charlesmead’s work as advisor to communications companies that were bought, sold or acquired.

The council discussed several reasons for hiring Charlesmead, including Crosslake Communications’ financial stability, how the company is staffed, improving operations and having a look at the company’s technology.

When Roe asked if the council was looking at selling the company, Moengen said that personally, he didn’t believe the company needed to look at selling. He said the city needs to look at whether it is doing the right things with the communications company moving forward.

City finance director/treasurer Michael Lyonais presented information from the last audit to the council. He explained that each year, the city transfers an amount not to exceed 8 percent of Crosslake Communications’ profits and uses that money to offset the tax levy; in 2013, that amount was around $277,000. In four of the last five years, the company’s annual net position has decreased after the transfer to the city. The company was in a positive net position in 2013, but a negative position in the four years prior to that.

Lyonais said that in seven of the last 10 years, the company has had no operating income, even before the fund transfer to the city.

“The real question is can we sustain doing that (fund transfer), and if not, what can we do to correct it?” Lyonais said to the council.

Council member Mark Wessels pointed out that if the city stops transferring that money from the communications company, citizens’ taxes will go up.

Roe said the reason the company was established in the first place was because private entities wouldn’t bring communications services to the area, as it was marginally viable to do so. Roe said the real reason for the communications company’s existence was as a service to the residents. He said that it’s wrong to talk about the company as a business rather than a public service.

Wessels expressed concern over the number of employees at the company. He said that the company has 13 employees, representing a $1.1 million annual cost to the city in payroll. He showed concern about the number of department heads at tthe company versus the number of employees.

He also said that in the past he’s asked what the communications company is worth because of its $3.5 million in debt. He wondered, if the company has that amount of debt, what its valuation is.

“Is this ship sinking or is this ship floating?” He said.

The council decided it will fund the study using money it had budgeted for a sewer study. The city had budgeted $50,000 for that study, but $40,000 of that money will be used for the consultant instead. Moengen said the consultant’s study could be completed within 90 days of the council’s decision.

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