CHICAGO: -- The finance director of the Minneapolis Community Development Agency has resigned amid criticism relating to privately placed bonds that were purchased by two of her relatives.
Rebecca Yanisch on Friday submitted her resignation effective Aug. 1. A replacement has not been named yet, according to officials at the agency, which focuses on city economic development issues.
Some government officials spoke up after Minnesota state auditor Mark Dayton said he is reviewing, as part of a routine audit, a $500,000 bond issue the agency privately placed last year. In a local news article, Dayton said he is looking at the matter because two Yanisch family members were among the investors who purchased the bonds.
In April 1993, the agency sold the bonds to finance additional renovations at the city-owned Orpheum Theater. The issue supplemented $8.6 million of debt sold in October 1992 that financed the first leg of improvements.
Agency officials decided on a private placement for the additional debt because they believed the agency's common bond fund had reached its maximum with the $8.6 million issue, Yanisch said.
Both the privately placed bonds and the $8.6 million of revenue bonds will be paid off with proceeds from a $2 ticket surcharge at the Orpheum and the State Theater, which is also owned by the city. The surcharge could be increased to cover debt service on the bonds with approval from Minneapolis city council members, who also make up the agency's board of commissioners.
The agency hoped to sell more than $2 million of private placement bonds with a 9% interest rate, but had difficulty selling all of them, partly because many investors considered them "risky," Yanisch said. Only eight of 80 potential investors contacted by the agency bought the bonds, she said.
As subordinated debt, the privately placed bonds were the last to be paid from proceeds of the $2 ticket surcharge, Yanisch said.
Debt service for the $8.6 million of revenue bonds, payment of the Orpheum's operating deficits, and a subordinated debt reserve fund are paid before debt service on the private placement bonds, Yanisch said.
The Star Tribune reported June 18 that Yanisch's father, Keith Driscoll, and husband, Steve, who is a managing director in public finance at Dain Bosworth Inc. in Minneapolis, each purchased $50,000 of the $500,000 of the bonds sold last year, raising questions about potential conflicts of interest. The questions included the opportunity for Yanisch's family members to benefit from the deal and Yanisch's influence over the generation of adequate revenues to cover debt service.
Steve Yanisch, who the Tribune said bought the bonds while he was employed at Piper Jaffrey Companies, the lead manager of the $8.6 million bond deal, declined to comment on the matter. Driscoll could not be reached for comment.
Deputy state auditor Paul Almirall acknowledged that Dayton is looking into the privately placed bond sale as part of a routine annual audit of the agency. Almirall declined to discuss the audit but said it will be completed by the end of July. The findings are expected to be released in mid-August.
However, Yanisch said yesterday that the auditor's office told the agency that there was nothing legally or ethically wrong with her handling of the private placement issue.
Richard Martin, the bond counsel on the issue, said that he determined there was no conflict of interest on the private placement because the terms of the bonds were not influenced by the family members who bought them. Yanisch's relatives did not get any special benefits by buying the bonds, he said.
"They didn't get a better deal. They took something the rest of the world overwhelmingly rejected," Martin said.
Yanisch declined to release bondholders' names or comment on the alleged purchase of the bonds by her relatives, saying the information is private under state law. She said that as finance director, she has no influence over the amount of theater ticket surcharges or how the surcharges are allocated to pay debt service on the bonds. Any decision to increase the surcharge would be made by agency officials who manage the theater and the city council, she said.
The lack of political support for her work on the private placement issue was a factor in her resignation, Yanisch said.
"It became a factor the way it was treated. There was no recognition that what I did was professional and within policies that were in place," Yanisch said. She helped put together the private placement issue with the blessing of agency and city council officials, she said.
Yanisch said she was "disappointed" that Wait Dziedzic, a member of the city council and chairman of the agency's board, said in the June 18 newspaper article that she should not have involved family members in the private placement issue.
"It was undermining and demoralizing," Yanisch said. Opinions of other city council members were not included in the article, she said.
Dawn Hagen, public information specialist for the agency, said that agency officials, Mayor Sharon Sayles Belton, and a majority of city council members stand behind Yanisch's work.
Some government officials said Yanisch should have steered clear of involving her family in the bond issue to avoid any hint of a conflict of interest on the private placement.
"I don't think that it is even appropriate under any circumstances that you can justify doing business with relatives as a public official. I think that's a serious error in judgment," said Minnesota finance commissioner John Gunyou.