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Officials, residents debate Lake Lawn’s future

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ANN MARIE AMES
September 19, 2010
— The city of Delavan has two camps.

One is saying, “Enough is enough.”


The other is saying, “We need a little more time.”


In the middle is a resort that’s been around for so long that nobody can imagine what Delavan would look like without it.


Lake Lawn Resort is scheduled to be sold in a Walworth County Sheriff’s auction Thursday, Oct. 7, as part of a $51.9 million foreclosure action filed by Anchor Bank of Madison.


The sale was delayed from Sept. 7.


Mayor Mel Nieuwenhuis is concerned that Lake Lawn could close if Anchor Bank becomes the new owner after the sheriff’s sale. A bank official has told Nieuwenhuis the bank is not in the business of operating resorts and would shut it down if unable to find a buyer, he said.


“I’m concerned that if Lake Lawn shuts down, it would have a horrendous impact on the community,” Nieuwenhuis said.


Lake Lawn and Anchor Bank officials did not return repeated calls seeking comment.


On Monday night, Delavan resident Shirley Peterson was one of those who said the historic resort can withstand another storm.


“It’s a wonderful property,” Peterson said. “If the lights go out, it’s going to be a short outage.”


The Delavan City Council on Tuesday talked about the resort for more than three hours of a four-hour meeting. It was the latest among dozens of meetings in which council members, residents, attorneys and Lake Lawn officials have argued about the resort’s financial relationship with the city.


The council took several votes in a last-ditch effort to collect money from the resort before it is sold or even closed.


Council member Jeff Johnson was one who advocated proceeding cautiously in negotiations with the city’s third-largest employer.


“We’re not just talking about timber and stone here,” Johnson said. “We’re talking about people’s lives.”


Council member Dave Kilkenny, on the other hand, said the city already has gone out of its way to support Lake Lawn.


“We bent over backwards for them,” Kilkenny said.


The assessment

Delavan resident Lauren Pohn on Monday night was among several residents who urged the council to take action and quickly collect money from Lake Lawn. Delavan residents are not happy to be paying Lake Lawn’s bills, Pohn said, and if council members are worried about Delavan jobs, taxpayers shouldn’t be subsidizing those jobs.


“Once it’s gone, we can’t assess something. We have to assess it now, now, now.”


Pohn was referring to a $1.2 million special assessment unanimously approved Monday by the council. The assessment would require Lake Lawn over a 10-year period to pay for a water main that stretches along Highway 50 across and through the resort property.


The water main was installed to serve Lake Lawn condominiums, where were never built.


The resort has not hooked up to the water main and will not benefit from it, Lake Lawn attorney Steve Wassel said while arguing against the assessment. Wassel said the city is violating due process by assessing the project after construction.


City attorney Steve Koch disagreed.


The audit

Kilkenny isn’t saying, “I told you so.”


He has been long campaigning for the city to audit the cost-recovery agreement with the resort. The council on Monday agreed to pay financial consultant Baker Tilly up to $15,000 to review invoices and payments between the resort and the city.


“Cost recovery” refers to charges the city accrues when working on Lake Lawn matters. The city turns the bills over to Lake Lawn for repayment.


Kilkenny said he has been advocating for years for a better accounting system for the cost-recovery program. But the subject never made an agenda until this month after city staff in August discovered $97,000 that should have been processed as cost recovery and wasn’t.


The council could rely on Baker Tilly to determine which bills were or were not cost recovery. Lake Lawn would be credited for any bills related to the Highway 50 water main that already were paid per the cost-recovery agreement, City Administrator Joe Salitros said.


The hurry

City officials expect Baker Tilly to get to work next week and have a report ready in early October so the council can meet in special session to review the results and decide if the resort owes the city cost-recovery money.


Kilkenny wants the meeting to take place before the sheriff’s sale so a buyer will be aware of all the encumbrances on the property, he said.


And some residents want the issue taken care of before the property is sold.


Delavan resident Joe Bell said he’s tired of hearing, “It’s too big to fail,” when he asks about Lake Lawn’s future.


“We’ve been down this path country-wide,” Bell said. “I don’t think you’re going to be able to revive it (Lake Lawn). The sooner this goes down, the sooner money comes in and builds this into something that does produce taxes.”


However, Salitros said the Oct. 7 sheriff’s sale isn’t necessarily a deadline for billing cost recovery and other charges. The city has a contract with Delavan Resort Holdings, the group that owns the resort, Salitros said. The contract isn’t with the resort itself, he said.


If the buildings and other assets are sold to fulfill Delavan Resort Holdings’ bank note, it doesn’t mean the company can’t be billed, he said.


But the loss of those assets could cut in to the company’s means to pay the city and other debtors, particularly if the resort or Delavan Resort Holdings President Pat Nelson declared bankruptcy, Salitros said.


“If he was to file for bankruptcy, we might be in line behind Anchor Bank,” Salitros said. “Does that guarantee we’re ever going to get any money?”


The answer is no, Salitros said.


In the dark

Johnson fears the unknown effects Lake Lawn’s financial issues will have on the city’s future. Johnson on Monday moved to postpone for one month the public hearing on the $1.2 million special assessment for the water main. Delaying the public hearing would have postponed the council’s vote on the assessment.


The motion caused an outcry of “cover up” from former council member John Finley in the audience and cries of alarm from others. The council hotly debated the postponement before voting it down.


Johnson said he wants more information before he’s willing to burden Lake Lawn or a potential buyer with yet another payment.


“We’re kind of dealing in the dark,” Johnson said. “I wasn’t ready to risk our financial future just to get $1.2 million or $1.4 million.”


Kilkenny regularly said he is tough on Lake Lawn in order to protect Delavan residents.


Johnson said he, too, had the taxpayers in mind when he tried to postpone the assessment. Taxpayers benefit from income earned at Lake Lawn and spent in the city as well as from Lake Lawn’s property and room tax payments, he said.


He thinks anyone looking at the city from the outside—including someone interested in buying the Lake Lawn property—is going to see a city that is anti-development.


“A city that’s going to do everything it can to bash a developer and suck its lifeblood,” Johnson said.


He’s not alone.


Nieuwenhuis said he’s been hearing for three or four years people describing Delavan as unfriendly to business.


“It’s out there,” Nieuwenhuis said. “I hear that from business people in the community. The city is giving the wrong message out to potential prospects that might want to locate in Delavan. With all the bad PR Lake Lawn has gotten, that message is out there.”


Neither Nieuwenhuis nor Johnson would point a finger at the council member or members they consider anti-business.


But it’s not a secret to Kilkenny that people think that about him.


When asked if he was anti-business or anti-Lake Lawn, Kilkenny said, “no.”


He’s not even opposed to tax incremental financing, he said, although he has long spoken against the amount of money Delavan taxpayers have spent on improvements in the TIF district where Lake Lawn is located.


The improvements include the Highway 50 water main and the “boulevard to nowhere.” That’s what Kilkenny calls the North Shore Drive extension the city built to accommodate Lake Lawn’s plans to move the resort entrance from Highway 50 to North Shore Drive.


That plan and others to build condominiums, a water park and a convention center never were realized.


Those assets added up on Lake Lawn’s balance sheet, not the taxpayers’, Kilkenny said.


The best thing for a new buyer would be to know the assets and liabilities before buying the resort, he said.



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