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2025.04.01 Work Session Packet 4141 Douglas Drive North • Crystal, Minnesota 55422-1696 Tel: (763) 531-1000 • Fax: (763) 531-1188 • www.crystalmn.gov Posted: March 28, 2025 City Council Work Session Agenda Tuesday, April 1, 2025 6:30 p.m. Council Chambers/Zoom Pursuant to due call and notice given in the manner prescribed by Section 3.01 of the City Charter, the work session of the Crystal City Council was held on Tuesday, April 1, 2025, at ______ p.m. in the council chambers at city hall, 4141 Douglas Dr. N., Crystal, MN and via Zoom. If the agenda items are not completed in time for the city council meeting at 7 p.m., the work session will be continued and resumed immediately following the Economic Development Authority meeting. The public may attend the meeting via Zoom by connecting to it through one of the methods identified on the City Council Meeting Schedule for Tuesday, April 1, 2025. I. Attendance Council members Staff ____ Cummings ____ Bell ____ Deshler ____ Tierney ____ Eidbo ____ Therres ____ Kamish ____ Elholm ____ Kiser ____ Larson ____ Onesirosan ____ Revering ____ Budziszewski ____ Hubbard ____ Struve ____ Sutter ____ Serres II. Agenda The purpose of the work session is to discuss the following agenda items: 1. Charitable gambling proceeds. 2. City donations. 3. Crystal Frolics.* 4. Constituent issues update.* 5. New business.* 6. Announcements.* III. Adjournment The work session adjourned at ______ p.m. * Denotes no documentation included in the packet. Auxiliary aids are available upon request to individuals with disabilities by calling the city clerk at (763) 531-1145 at least 96 hours in advance. TTY users may call Minnesota Relay at 711 or 1-800-627-3529. Memorandum DATE: March 20, 2025 TO: Mayor and City Council FROM: Adam R. Bell, City Manager SUBJECT: Charitable Gambling Contributions BACKGROUND The purpose of this work session discussion is to have an overview of how charitable gambling contributions work and how the city expends and can expend the funds. To explain simply, charitable gambling organizations are required under law to contribute 10% of their net profits to the city. Under city code, they are also required to expend a minimum of 15% of their funds in the trade area of the city. As an example, the West Metro Firefighters Relief Association must contribute 10% of its net profits to the City of Crystal, but they must also expend 15% overall between Crystal and New Hope. Because gambling revenue varies from year to year and each organization may have other factors that impact the net proceeds amount, the contributions are not a regular stable amount. Generously, the gambling organizations also regularly make donations to the city for various activities, events, and causes beyond the contribution amounts. Under state law, gambling organizations are limited in how they can expend the proceeds. In turn, cities are also limited in how they can spend the funds. See the attached Lawful Purpose Expenditure Summary (LPES). An organization can donate as much as it wants to a city under Section 10 of the LPES, but ultimately, the city has to use those funds for a lawful purpose. Cities are limited to Sections 1- 7, 10-15, and 19 of the LPES. (*NB - supporting food shelves is an allowed expenditure for gambling funds). Historically, there has been much confusion on the part of the gambling organizations as to how the contributions work in conjunction with donations. When a gambling organization pays its contribution, it cannot direct how those funds are used by the city. As noted, the city is limited by the state law on which lawful purpose expenditures the funds can be spent. On the other hand, donations can be restricted to a specific purpose. The city must also adopt a resolution accepting donations and agreeing to any specified purpose. If the donations are gambling funds, the LPES applies, but the general public purpose rules would apply if the funds are not gambling proceeds. For many years the contributions have been earmarked for specific things, such as Frolics and the Airport Open House. Fortunately, the city has been aligned and supported those events, but it has created an expectation that the majority of all the gambling proceeds are functioning as simply pass- through dollars for Frolics. In 2023, I spoke to the VFW gambling manager about the contributions, but I am not aware of any recent conversations with the WMFRA. Neither organization has appeared to understand how the process is supposed to work and have been sensitive to critical feedback. This is a result of the city allowing it to develop this way. City Code References 1130.09. Distribution of proceeds. Subd. 1. City fund. Each organization lawfully permitted to conduct gambling within the city shall contribute to a fund administered and regulated by the city, without cost to such fund, for distribution by the city for purposes authorized under Minnesota Statutes, section 349.213, subdivision 1, an amount equal to ten percent of the organization’s net profits derived from lawful gambling at premises within the city. For purposes of this subsection the term “net profits” means profits less amounts expended for allowable expenses; the terms “profits” and “allowable expenses” have the meanings given them by Minnesota Statutes, chapter 349 and rules and regulations promulgated thereunder. Payments to the fund shall be made annually on or before March 1 for the prior calendar year and shall be submitted together with verifiable supporting documentation. Subd. 2. Trade area. Each organization conducting lawful gambling within the city must expend 15 percent of its lawful purpose expenditures on lawful purposes conducted or located within the trade area of the city. For the purposes of this subsection, the term “trade area” means the area within the boundaries of the city and within the boundaries of the cities of New Hope, Robbinsdale, Golden Valley, Brooklyn Center, and Brooklyn Park; provided that a contribution to Independent School District No. 281 is deemed to have been made in the trade area of the city. This subdivision applies only to lawful purpose expenditures of gross profits derived from lawful gambling conducted at premises within the city. On or before each March 1, each organization must file with the city the following reports: (a) A report listing all lawful purpose expenditures in the prior calendar year, the name of the entity to whom each check was written, and the city location of the recipient; and (b) A report prepared by an independent certified public accountant documenting compliance with this subdivision. Subd. 3. Election. Each organization conducting lawful gambling within the City may apply the ten percent net profits contribution requirement of subdivision 1 of this subsection against the 15 percent lawful purpose expenditures requirement of subdivision 2 of this subsection. Such election shall be clearly disclosed in the report required by subdivision 2 of this subsection. Additional financial details will be provided at the work session. It may be helpful for the council to adopt a new policy that specifically states what events, activities, or other lawful purposes for which charitable gambling contributions may be expended. This would help provide the council and gambling organizations with greater clarity and perhaps better align future priorities. RECOMMENDATION The council should decide if it would like to take any action on how the charitable gambling funds are used by the city. If there are any changes or affirmative actions that are desired, the council should direct staff to propose a resolution or public expenditure policy amendment for its consideration and include any applicable amount and/or intended recipients. ATTACHMENT • Lawful Purpose Expenditure Summary. • 2023 Letter from City Attorney regarding charitable gambling.     Offices in Minneapolis Saint Paul St. Cloud  150 South Fifth Street Suite 700 Minneapolis, MN 55402 (612) 337-9300 telephone (612) 337-9310 fax www.kennedy-graven.com Affirmative Action, Equal Opportunity Employer      CR205-30-863005.v2 TROY J. GILCHRIST Attorney at Law Direct Dial (612) 337-9214 Email: tgilchrist@kennedy-graven.com Also: St. Cloud Office 501 W. Germain Street, Suite 304 St. Cloud, MN 56301 (320) 240-8200 March 21, 2023 Adam Bell, City Manager VIA EMAIL ONLY City of Crystal Re: Gambling Proceeds Provided by the Firefighters’ Relief Association Dear Adam: I was asked to provide an opinion on how the gambling proceeds provided by the Firefighters’ Relief Association are to be treated for the purposes of the distribution of proceeds requirements in Crystal city code, subsection 1130.09. The code section requires each organization permitted to conducting gambling within the city to: contribute to a fund administered and regulated by the city, without cost to such fund, for distribution by the city for purposes authorized under Minnesota Statutes, section 349.213., subdivision 1, an amount equal to ten percent of the organization’s net profits derived from lawful gambling at the premises within the city. The code also requires each organization operating in the city to “expend 15 percent of its lawful purpose expenditures on lawful purposes conducted or located within the trade area of the city.” The trade area essentially includes the surrounding cities and a school district. Both of these requirements imposed by the city are authorized by Minnesota Statutes, section 349.213. I understand one of the questions is whether contributions of gambling proceeds by the Relief Association to the West Metro Fire-Rescue District (“Fire District”) count toward the required 10% contribution to the city fund. The thought being that since the Fire District was established by a joint powers agreement entered into between the cities of Crystal and New Hope, the contribution should be considered as being made to the city. However, it is clear that only contributions made directly to the city to be placed in the city’s fund established for this purpose actually satisfies the 10% contribution requirement. Under Minnesota Statutes, section 349.213, subdivision 1(f)(2), the 10% contribution must be placed in “a fund administered and regulated by the responsible local unit of government without Adam Bell March 21, 2023 Page 2 of 2   CR205-30-863005.v2 cost to such fund.” The city is the responsible local unit of government as it is the entity that imposed the 10% contribution requirement. Only a contribution made directly to the city and placed in the fund can be counted toward the 10%. While the city participated in creating the Fire District, the Fire District exists as a separate legal entity and is not the “city” for the purposes of the 10% requirement. Gambling proceeds placed in the city’s fund can only be used for the purposes set out in the statute, which includes, but is not limited to, fire services. I understand another question is whether a contribution of gambling proceeds directly to the Fire District can count toward satisfying the 15% trade area requirement. The Fire District is located within the defined trade area, so the answer is yes. However, the 10% contribution requirement to the city must still be satisfied. The city code allows the contributions made to satisfy the 10% requirement to count towards the 15% requirement, meaning once the 10% requirement is satisfied an organization can elect to only contribute an additional 5% in the trade area to reach the total 15% trade area requirement. Finally, I understand there is some question about whether the Relief Association can earmark the funds it gives to the City for the Fire District or for another specific purposes. The answer is clearly no with respect to the funds provided to satisfy the 10% requirement. The City places the gambling proceeds in its fund and then decides how to distribute them for the purposes authorized by the statute. As to other contributions of gambling proceeds, I am not seeing any authority for the Relief Association to limit use of the funds for a particular purpose. Lawful gambling organizations are limited to contributing their gambling proceeds only for a “lawful purpose.” The definition of that term includes “a contribution to the United States, this state or any of its political subdivisions, or any agency or instrumentality thereof other than a direct contribution to a law enforcement or prosecutorial agency.” Minn. Stat. § 349.12, subd. 25(a)(10). When an organization contributes to a local government, it fills out and the city signs form LG555 that simply indicates the funds were provided to a unit of government without specifying a particular use (other than acknowledging it was not for one of the expressly prohibited uses). Once the city receives the funds, it is then limited to using the funds in the same manner as any other city funds (i.e., for an authorized public purpose) without any particular restrictions. The difference is, of course, a gambling organization is not required to provide the city a contribution beyond the required 10% and so it is up to the gambling organization to choose whether to contribute additional funds to the city. Feel free to let me know if there are any other questions. Sincerely, Troy J. Gilchrist Memorandum DATE: March 20, 2025 TO: Mayor and City Council FROM: Adam R. Bell, City Manager SUBJECT: Charitable Donations BACKGROUND The City Council has voiced interest in providing donations to local charities, such as those that address food insecurity. This practice was done several years ago but was ended as part of an effort to reduce budgetary costs. Historically, the funds used to make the donations were from charitable gambling proceeds the city received when a surplus occurred. In Minnesota, cities are generally prohibited from donating public funds to private individuals, organizations, or charities unless there is specific statutory or charter authority permitting such expenditures. This principle ensures that public funds are used for public purposes, as required by law. Authorized Expenditures: While direct donations to charities are typically restricted, Minnesota law does allow cities to allocate funds for certain purposes that may involve collaboration with nonprofit organizations. Examples include: • Artistic Organizations: Cities may appropriate money to support artistic endeavors. • Historical Societies: Cities can provide annual appropriations to county historical societies affiliated with the Minnesota Historical Society. • Senior and Youth Centers: Funds may be allocated to support facilities, programs, and services of public or private, not-for-profit senior citizen or youth centers. • Public Recreation Programs: Cities are permitted to spend funds on public recreation programs and facilities, which can be conducted independently or in partnership with nonprofit organizations. • Contracting for Services: o Instead of making outright donations, cities can enter into contractual agreements with nonprofit organizations to provide specific services that benefit the public. In such cases, it's advisable to have a written agreement detailing the services to be rendered in exchange for payment. • Acceptance of Donations: o Cities are permitted to accept donations from individuals or organizations, provided these contributions are not intended for religious or political purposes. Acceptance requires a two-thirds majority vote by the city council, along with a resolution acknowledging both the donation and any terms set by the donor. • Fundraising Activities: o Generally, cities and their departments do not have the authority to conduct fundraising or solicit donations. However, exceptions exist, such as permitting firefighters to solicit contributions for charitable organizations while off-duty. Cities must adhere to statutory guidelines when considering donations to charitable organizations. Direct donations are typically prohibited unless explicitly authorized by law. However, the city can support community initiatives by funding specific programs or contracting services that serve a public purpose. Crystal Charter Authority for Expenditures The City Charter provides: Section 12.10. Authority for Expenditures. The council may establish a public expenditure policy (“Policy”) to identify certain types of expenditures as being for a public purpose and within the city’s authority to expend city funds on. The Policy shall not limit the authority of the city to make expenditures otherwise authorized by law. If adopted, the council shall review the Policy periodically and update it as needed. In establishing, reviewing, and approving the Policy, the council shall consider whether the expenditures to be authorized by the Policy: 1) benefits the community as a whole; 2) are directly related to governmental functions; and 3) primarily benefits the public interest, not a private interest. In establishing, reviewing, and approving the Policy, the council shall consider the opinion of the city attorney and statewide sources of authority, which may include judicial determinations, Minnesota Attorney General opinions, and findings of the Office of the State Auditor. Expenditures related to any of the following activities shall be deemed authorized if the Policy expressly provides authorization: international, cultural, and economic development programs; community events, festivals, and celebrations; miscellaneous employee benefits; employee recognition; and funding for conference attendance. The council may also provide specific authorization regarding any other expenditure. [emphasis added] (Added, Ordinance No. 2021- 04, November 2, 2021) As stated, Section 12.10 of the City Charter outlines the City Council's authority regarding public expenditures. This section allows the Council to establish a public expenditure policy to identify certain types of expenditures as serving a public purpose and thus falling within the city's authority to fund. The policy should consider whether the expenditures: 1. Benefit the community as a whole 2. Are directly related to governmental functions 3. Primarily benefit the public interest, not a private interest Additionally, the Council is advised to consult the city attorney and consider statewide authorities, including judicial determinations, Minnesota Attorney General opinions, and findings of the Office of the State Auditor, when establishing or reviewing the policy. Staff have not had a specific discussion with the city attorney yet regarding making a donation to a charity. The charter section and the current public purpose expenditure policy further state that expenditures related to specific activities are deemed authorized if expressly provided for in the policy. These activities include: • International, cultural, and economic development programs • Community events, festivals, and celebrations • Miscellaneous employee benefits • Employee wellness programs • Employee recognition programs • Public relations • City marketing • City publications • City volunteer recognition • City council and staff training and development • Memberships in professional organizations • Payment of dues and subscriptions • Food and beverages for meetings Importantly, the charter section concludes with the provision: "The council may also provide specific authorization regarding any other expenditure." This clause suggests that the Council has the discretion to authorize expenditures beyond those explicitly listed, provided they align with the criteria for serving a public purpose. Application to Donations Addressing Food Insecurity: Given this framework, the City Council could potentially authorize an expenditure to a nonprofit organization addressing food insecurity if it determines that such funding: • Benefits the community as a whole • Is directly related to governmental functions • Primarily benefits the public interest, not a private interest To proceed, the council should: 1. Develop a separate policy or amend the public expenditure policy to explicitly include support for initiatives addressing food insecurity; and 2. Consult with the city attorney to ensure the proposal complies with state laws and regulations. RECOMMENDATION The council should decide if it would like to provide any donations to local charities. If so, they should direct staff to propose a resolution or public expenditure policy amendment for its consideration and include the amount and recipients.