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Changes ahead for Tower’s Gundersen Trust

Board must decide on loan to help city with harbor restoration project

Jodi Summit
Posted 1/31/15

TOWER- The Gundersen Trust Board has some key decisions to make, both of which will be on upcoming meeting agendas.

The board, which oversees a million dollar trust, must decide whether to loan …

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Changes ahead for Tower’s Gundersen Trust

Board must decide on loan to help city with harbor restoration project

Posted

TOWER- The Gundersen Trust Board has some key decisions to make, both of which will be on upcoming meeting agendas.

The board, which oversees a million dollar trust, must decide whether to loan some of its funds to the city of Tower to fill a funding gap on the harbor restoration. It must also decide whether it can remain as a non-profit trust, or convert to a governmental or for-profit trust.

The board will meet with its auditor and the city attorney on Tuesday, Feb. 3, to discuss the possible change in the trust’s legal status and mission. That meeting is set for 5:30 p.m. at city hall.

It’s not clear if the city loan will be on the agenda on Tuesday, but it’s only one of a number of questions about how to best structure future investments to generate income for the trust in the current low-interest environment, and whether or not the trust can loan additional dollars to the city of Tower. In 2010, the trust loaned $204,000 to the city to fund the purchase of a new fire truck. The city is repaying the loan over ten years with 2.25 percent interest, and that loan will be paid off in June 2020.

The Tower City Council has cited the trust fund as a possible source of funding to complete work on the new harbor, but the city has yet to make a formal request to the trust board.

Gundersen Trust

The Martin and Elizabeth Gundersen Trust was set up in 1991, with an initial donation of $400,000, which the city earned from sales of mostly lakefront and forestry land donated to the city by former Mayor Martin Gundersen and his wife Elizabeth. The donation of land to the city was made in 1941, and did not give any specific instructions on how the land should be used. In 1990, the city council decided to sell off some of the lands, since they were not adjacent to city limits and the city had limited means for managing the mostly-forested holdings. The initial land sales totaled $398,929. By the time the legal framework of the trust had been developed, the total had grown to $400,000.

The trust, set up under a court order in 1991, maintained that “all of the net proceeds of the sale of the real property, including the interest to the date of this Court Order, shall be held as a perpetual endowment, in trust, for charitable, educational, and benevolent purposes.”

The trust document also set forth that annual payments (from interest income earned) be made to the trust so that the base amount grows year to year based on the consumer price index.

“The goal of this provision is to maintain the principal base, taking into consideration the effects of inflation such that the principal amount of the trust remain the same in terms of value as that value is on Jan. 1, 1991.”

Proceeds from the annual income, if any, were to be donated to community education (10%), recreation needs in the Gundersen Forest (15%), and the balance (75%) be paid to the city of Tower, to use as it sees fit, to benefit the citizens and residents.

Since 1992, the trust has donated $279,168 to the city’s general fund, plus an additional $55,624 to the city’s forestry fund, and $37,222 to the community education fund. The forestry and community education funds have mostly been used for recreational projects such as the construction of the paved bike trail out to Hoodoo Point Campground and for ongoing maintenance and grooming of the city’s cross-country ski trail system. At its peak, in 2003, the trust generated payments of as much as $46,000 a year.

The recent steep drop in interest rates, however, has meant the trust has failed to make any substantive payments to the city since 2011. The trust board is required to roll over enough annual interest to meet the current consumer price index, to prevent the value of the trust from eroding over time. But recent returns have barely allowed for that reinvestment as well as the payment of other trust expenses, such as an annual audit.

Investments

The trust document specifies that the original principal amount could only be invested in obligations guaranteed 100 percent by the U.S. government or its agencies. The trustees were given permission to use their discretion when making investments of sums in excess of the original $398,929.

Currently the vast majority of the fund’s assets are invested in government-guaranteed funds at the Frandsen Bank in Tower, which are paying out less than one percent in interest. A little over $203,000 is invested in two life insurance annuity funds which pay 3 – 3.5 percent interest, according to trust board member and treasurer Sheldon Majerle. In addition, the fund has the outstanding loan for the fire truck, paying 2.25 percent interest.

Longtime trust board member Gary Burgess, owner of Tower-Soudan Agency, was the main financial resource for the board, but recent illness has kept Burgess away from trust business and he recently gave up his seat.

“We’ve had very little change in our investment strategy since Gary got sick,” said Majerle.

Keith echoed the ramifications of losing Burgess’s oversight, noting the other guiding member of the board was former clerk-treasurer Tim Kotzian.

“Their names were on everything,” she said. Keith said if the trust was changed to operate under the rules of a governmental trust, trust paperwork would all come to city hall, but still be overseen by the trust board, not by the city council.

The trust board was given the authority to loan money from the trust fund to the city, but some board members have questioned whether or not there is additional unrestricted money available for a second loan to cover expenses on the harbor project. About $203,000 of the unrestricted money is currently earning 3 – 3.5 percent interest, and Majerle said the board should be wary of cashing in those funds, which would be hard to match in this investment environment.

The Board

Current members of the Gundersen Trust Board include Gretchen Niemiste (at-large), Linda Keith (at-large, city clerk-treasurer), Sheldon Majerle (forestry board), Lance Dougherty (council rep), Valerie Lenci (at-large), Stephen Abrahamson (forestry board), Josh Carlson (council rep). The board needs to have seven members. The original trust document states that members can only serve two consecutive three-year terms, though some on the board have served longer. Board members are appointed by the Tower City Council, and then approved by the District Court.

At their reorganizational meeting in January, the Tower City Council took three current members with expired or expiring terms off the board: Tim Kotzian, Gary Burgess, and Steve Wilson, appointing Keith, Carlson, and Lenci to the open seats.

Trust board members all serve without pay. In the past, the board has met one or two times per year, though in the future, they have discussed setting up quarterly meetings. Majerle said he was hoping the council would appoint a new member with a background in banking or finance.

The trust is set up under the IRS rules for a 501(c)3 non-profit statute, and also operates under a Minnesota Statute 501B, which oversees charitable trusts.