Department of Commerce begins canceling contracts in Virginia City

The Montana Department of Commerce (DOC) has begun the process of canceling concessionaire contracts with the Montana Heritage Commission (MHC) in Virginia City and giving the business owners 21 days to decide if they will sign a new contract with standardized terms. 

Sources have indicated that some of the retail establishments have reported that the new contracts are acceptable and include terms that are favorable to their business. An exception is the concessionaire for the Wells Fargo Steak House, Jason Lange, who reported that his contract offer includes rents due in the amount of 15% of gross revenue. 

Lange is on record in the Dec. 4 edition of The Madisonian saying that the 15% number will cause him to raise prices at the Wells Fargo and make his menu unaffordable for most people. He also stated that not signing the new contract is an option.  

The Fork CPAs, a national accounting firm that specializes in restaurants and restaurant groups, states the following on their website regarding restaurant occupancy costs, “Assuming that your other non-occupancy expenses are around industry averages, you’re aiming for an average occupancy cost per sales of 7-9%. Low occupancy cost as a percentage of sales is about 5-6%; high occupancy cost as a percentage of sales is anything over 9%.”  

The Restaurant Resource Group, a company that provides financial management and support services to restaurants nationwide suggests that total occupancy costs including rent, insurance and taxes, be limited to a maximum of 10% of a restaurant’s total budget. 

The DOC indicated that the cost of the lease involved a variety of factors relating to the business. 

“This determination is made based on how much MHC has vested into each concessionaire. Examples include holding liquor licenses for the business to use, providing kitchen equipment, etc,” said DOC chief marketing officer Mitch Staley in an interview for The Madisonian’s Dec. 4 issue.  Follow-up questions about the cost of lease and other elements of the decision making for the new leases were sent midday on Monday, Dec. 8 and the DOC replied that answering those questions in time for a Tuesday morning Dec. 9 deadline was unrealistic. 

At the Dec. 5 MHC quarterly meeting, DOC assistant deputy director Mandy Rambo indicated that the concessionaire lease revenue required for the MHC to meet its budget statute is only about $750,000 of the $1.1 million the properties are expected to earn. The impact of that is that less money is available for capital improvement projects to help preserve and restore the properties as part of the MHC mission. 

“If the Heritage Commission is not making all of the earned revenue it is being asked to make in its budget authority by the legislature, that number (the amount available for capital improvements) can be reduced drastically,” said Rambo during her report at the Dec. 5 meeting. 

“Specifically, in the last two years, MHC has made an average of about $750,000 in revenue earned, versus the $1.1 million that it's being asked to earn. That means that that $600,000 is reduced to only $250,000 that could be available to be used for capital improvements. That's not even enough cash to complete one large scale improvement project.”  

Rambo went on to explain the scope of the contract review for the MHC commissioners. 

“As we have been reviewing contracts, we found several contracts where we were losing significant amounts of money or where we were maybe just barely breaking even. We've also found that there were contracts that were missing statutorily or state policy required language or clauses. We also found that there were contracts that were providing better deals for like businesses.”

“In order for us to remove any perception of impropriety or favoritism, this contract review process was necessary,” she continued. “A lot of the contracts in question were completed by the prior Executive Director, Mr. Elijah Allen in his last days in role, and provided, again, very preferential terms to lessees, leaving MHC really holding the purse strings for these contracts.”

Allen is awaiting sentencing after pleading guilty to embezzlement of an amount upwards of $300,000 and money laundering, crimes that could see him serve up to 30 years of jail time.

“There will be some contracts which will see very little change, Rambo explained. “Some of them were done appropriately over the last couple of years. Others will see a significant impact to the amount that they are paying to the Heritage Commission. And although we understand  that this will impact their business bottom lines, MHC cannot continue to supplement and subsidize these businesses with our funds, we have several other statutory obligations, including Preservation and Maintenance where we need to utilize our funds.”

Further developments on the cancellation and presentation of new contracts are expected in the coming weeks.