Present and past officers on Thursday described the reasons for the bankruptcy of the Albert Lea Elks Lodge as “the perfect storm” with many elements:

Longtime manager Jim Hoium leaving in 2005.

A rotation of managers and chefs and menu offerings, which did little to provide stability.

A lack of clear communication with members and an inability to quash rumors.

The incapacity of a club accustomed to paid staff to get its members to volunteer.

Members divided into camps about which directions the club should go, usually resulting in an inability to make changes.

New state laws: blood-alcohol limit from .10 to .08 and an indoor smoking ban for workplaces.

A decline in charitable gambling revenue following the opening of the Diamond Jo Casino in 2006 in Iowa 16 miles south of Albert Lea.

A rise in restaurant selection in Albert Lea and an increase in the average age of club membership. Young people tend to go to restaurants and don’t join clubs.

A sharp decline in membership, which resulted in a sharp decline in revenue.

Exclusively in print.
Get your hands on the Sunday print edition of the Albert Lea Tribune to read which companies and people are listed as claimants in the Chapter 7 bankruptcy filing with the U.S. Bankruptcy Court for the District of Minnesota. The listing is on Page 2A.

Elks Lodge No. 813 had about 400 members 33 years ago. The club experienced 29 years of consecutive growth when it had reached 2,100 members in 2006. The largest Elks in Minnesota, it was the 12th largest in the United States at the time.

It now has 897 members. It filed for bankruptcy on Oct. 5. Its liabilities outweigh its assets by more than $153,000. Through it all, the club remains the largest Elks in Minnesota, ahead of Owatonna by about 75 members.

A sign on the door says the place is “closed for remodeling.” Bankruptcy lawyer James Dailey of Mankato advised the Elks to post it. The sign not only is untrue, it is ironic because the club once shelled out $10,000 to avoid shutting down during an extensive $160,000 kitchen remodeling.

The Elks grew, officers say, because it provided fine dining and entertainment in a city that didn’t have the assortment of restaurants it has now. You had to be a member to dine. You didn’t have to be a member to play bingo, raffles, paddlewheels, pull-tabs or tipboards, but gambling did expose to the lodge many people who became members.

The guy

Hoium, who still lives and works in Albert Lea, was the food and beverage manager for the Elks for 28 years. Officers and members past and present speculate on the circumstances regarding his leaving. Elks trustee Mike Saunders confirmed Hoium resigned.

This a prepared statement from Elks Lodge No. 813 trustee Mike Saunders and past exalted ruler Jim Hanson:

“The Elks has been a part of the community for decades — a good place to socialize — but more important, to do community service. About 20 years ago, an Elks employee had some issues that would ordinarily result in termination. The employee received counseling for it, promised never to do it again and was retain. About four years ago, the issues resurfaced, and the employee resigned.
“Though many people asked why, it was obvious the lodge 20 years ago made a decision not to go public with it, and we respected their wishes. As usually happens, speculation ran rampant, gossips had no facts, only innuendo. At the same time, the Elks was receiving increased competition from other local eating, drinking and gambling establishments — Applebee’s, specialty restaurants, Wedgewood Cove and the Northwood, Iowa, casino, among them.
“In the four years prior to the establishment of the casino, for example, charitable gambling had declined 41.6 percent countywide, according to the Minnesota Gambling Control Board. After the casino opened, charitable gambling further declined. The Elks had to change — the old method of subsidizing the lodge with revenue from eating, liquor and gambling didn’t work any longer — just as the Knights of Columbus and Veterans of Foreign Wars (and other clubs) found out.
“Our membership was aging. The average was 56, but with the advent of other places to go, the age climbed nearly 10 years in only five years — the younger people were opting out. Disaffected older members resisted change, but there is no way that the old methods would continue to work in a changed business climate. Two new managers were tried, but both quickly left because they were unable to reconcile the wishes of the younger members with the traditionalists. The only option was to downsize — to offer eating, drinking, social and charitable gambling opportunities similar to the rest of the Elks lodges — and other lodges in town. Again, the traditionalists were unwilling to change.
“We employed restaurant consultants, professional managers, industry experts and advice by suppliers. The message was always the same — change or die. At the will of the traditionalists, we didn’t change — and the prophecy came true.”

Hoium declined to comment for this story. He is legally obligated to stay mum on the personnel situation that led up to his resignation, and Elks board members from the time often prefer to stay quiet out of respect for Hoium. (See prepared statement.)

Suffice it to say, Hoium was liked by many member diners. Waitresses told the Tribune they had to be creative with answers or decline to say anything when diners asked them questions following his departure. The rumors took off.

Saunders said it would have helped the trustees clear the air with the members by being up-front about what had happened.

Hoium, all parties agree, knew the lodge the most and with his leaving there was a vacuum of experience.

The equivalent of a chapter president in Elks is an exalted ruler. One past exalted ruler — speaking anonymously and an example of the divisions within the Elks — claims Jim Hanson, who was the exalted ruler at the time of Hoium’s leaving, is the reason for Hoium leaving. To put it gently, he said they didn’t get along, making work hard for Hoium.

Hanson said that couldn’t be further from the truth. He has long been aware of the claim and said he would like to put it to rest.

He said exalted rulers don’t get to vote at board meetings and he didn’t have any direct authority over Hoium. He said he once asked for a bonus for Hoium when the previous board had forgotten to give him his annual bonus. He said he pushed for a better severance package for Hoium during lawyer negotiations with the Elks board. His request passed 4-2. Hanson said he only happened to be the exalted ruler during a tumultuous time. His term was from April 2005 to March 2006.

Hanson said between the lawyers and the severance package, the departure cost the Elks $100,000.

The new kitchen

Some charge that poor spending decisions contributed to the Elks’ demise. After speaking to waitstaff, members or past officers, many point to a costly kitchen remodeling. They also charge that later money was needlessly spent, giving anecdotes of replacement of plates and installing an electronic point-of-sale system.

Hanson said the kitchen expansion planning started under Hanson’s predecessor, who was south for the winter so Hanson as the No. 2 officer acted in his place. The kitchen renovations were needed because it became difficult to handle large crowds. The club had the same-sized kitchen it had when it was only 400 members. Elks members recall when the state president of the Elks once had to wait an hour for his meal.

Also, the state health inspectors had cited the Elks for inadequate equipment.

To make space in the kitchen, the club built a warehouse — an unheated room added to the building — for coolers, canned goods and other storage needs. Though estimated at $60,000, it cost $73,313. The Elks spent $60,000 in certificates of deposit on the warehouse. The club paid $10,000 for moving the air conditioning units and water connections a certain way that kept the lodge from shutting down for two weeks. The construction company went bankrupt during the build, which created problems, too. The club paid the remaining $3,313 from reserves.

The club asked other inspectors — fire, electrical, plumbing — to go through the kitchen with recommendations. The club spent $87,000, of which the state allowed $57,000 to be paid from gambling revenues to correct the deficiencies. Paying part of the remainder drained the reserves. Because the Elks owned the building outright, they used the asset to open a line of credit at Home Federal Savings Bank. The money helped clear the remaining cost.

Saunders said the plates purchased by the manager who replaced Hoium were at his discretion, approved within his annual budget. Saunders said the electronic point-of-sale system — the computers food-service workers tap when an order is made — were installed because before everything was done on paper or merely tracked by observation.

Hanson said the POS system exposed pilfering, sped up production and told the board trends. They found, for instance, that seafood was more popular than steak.

Because the Elks Lodge is a charitable, nonprofit organization, by state law and under the watch of the Minnesota Gambling Control Board, it isn’t allowed to build large reserves without the money being earmarked. For a lodge running a supper club in a big building, being a nonprofit makes getting through lean times more difficult, Hanson said.

The black cloud

Though some anonymous sources felt the board members would speak negatively of the food and beverage manager who replaced Hoium, they actually spoke well of him. They said he was a manager who was from the standard restaurant business. Walking into a unique lodge setup, with many members upset at the loss of the manager they liked, was a difficult task for anyone.

Even though the same chef who had been there for 15 years stayed on for a time and the same food was being served, some diners complained about the food being different. The only difference was Hoium was gone, Hanson said. Members just wanted to complain.

Eventually, the place cycled through food and beverage managers, interim managers, chefs and tried different food and menu items.

When changes were made, whether by the board or managers, there was resistance, board members said.

“There was a black cloud over everything we did. We had chattering criticism no matter what,” said treasurer Judy Verdoorn.

The rumors hurt the ability to grow members. Many Elks members in other cities compared Albert Lea’s Elks Lodge to a supper club. Though it isn’t rural, it is on the southeast edge of town and not close to most of the members’ homes. Toughened drunken-driving laws and enforcement made spending an evening at the Elks a little more difficult, board members agreed. They said the statewide smoking ban, which came in October 2007, also impacted membership.

Hanson said the Elks board took its eye off the ball. He said the club depended for too long on charitable gambling and when things were changing — smoking ban, new casino in Iowa, young people not joining clubs — the Elks catered to the members who opposed change. The average age of the club right now is 66.

Saunders said in hindsight the board could have communicated Hoium’s departure more clearly, but on other matters, such as when kitchen staff changed, he felt the board communicated well either through the Elkhorn, a monthly newsletter, or through meetings with membership. However, about 17 people would show up at those meetings, he said. Meanwhile, the rumors flew.

Trustee Don Rippentrop said the club tried many fundraisers to offset its sagging finances. He and nearly everyone involved with the Elks lauded the hours donated by trustee Scott Golbuff and his family.

“The blessing and the curse of the Elks is its professional staff,” Hanson said. “The average club, they volunteer. They are used to sweat equity.”

Rippentrop said Elks clubs across the nation are losing members, just like all service clubs and fraternal organizations. Elks Minnesota has about 11,000, down from a high of 20,000.

“People aren’t joiners anymore,” he said.

And having members translates into having revenue from dues, plus having young people to volunteer and to bring fresh ideas.

Debenture bonds

An Oct. 16 letter to the editor in the Tribune charged the Elks lacked a business plan. The writer had been solicited to purchase debenture bonds and declined.

“I was approached several times by people urging me to purchase bonds,” Warren Jensen wrote. “Each time, I asked for evidence of a business plan, a business model, or even a basic fundamental form of a budget. No one was ever able to help me with this information.”

Verdoorn said the club must submit a budget and a business plan every year to the Grand Lodge.

The drive, started last fall, had a $200,000 goal. Debenture bonds were sold at $500 a pop. It actually had two goals; the first was $50,000 to pay liquor and sales taxes to keep the doors open. The second was $150,000 to pay off debt.

That is a figure that turned out to be a close estimate to the $153,181 difference between the $528,851 in liabilities and $375,670 in assets the Elks claimed in the Oct. 5 Chapter 7 bankruptcy filing. Chapter 7 is liquidation, not reorganization.

The club only made the first goal. Between debenture bonds and some donations, it raised $55,000.

Member Paul Sparks, who was on the committee to sell the bonds, said the money was to go toward paying immediate bills that had to be paid to operate, such as sales and liquor taxes and vendor bills. The building could not operate if these bills weren’t paid.

Initially, the organization raised $55,000 in debenture bonds and other donations, Sparks said.

Leadership continued asking for people to consider making a bond purchase or debt reduction donation in the March 2009 edition of Elkhorn.

“We have come a long way but still have a long way to go,” the newsletter stated.

Sparks, who bought a $500 bond himself, said leaders talked about having an extended drive, but by the time that occurred — in the spring — the executive committee advised that the local Elks Lodge would have to close.

“I’m disappointed that it’s not going to make it,” Sparks said. “How I personally feel about the money, I’m not as concerned about losing the money as I am that the Elks isn’t going to make it. That’s too bad.”

Bonds ranged from $500 to $5,000. Buyers are among claimants in the bankruptcy filing. Participants were to get a 5 percent annual return on the bonds.

Members who invested were listed in editions of “Elkhorn” and were also posted on a sign in the lodge entry.

Another local Elks Lodge member who purchased a $500 debenture bond was Albert Lea resident Keith Fligge.

“I thought the Elks was certainly a vital part of our community, and I was hopeful that by doing that, that would give them enough capital to retire some of their outstanding debts,” Fligge said. “Evidently, it wasn’t enough to cover the obligations they had.”

He said he knew it was a risky choice to agree to purchase a bond because he had no way of knowing if there were going to be a lot of other participants.

“I was hoping that by the small part I might play, I was willing to risk that amount in having them move forward on a sound basis,” Fligge added.

Claire Vermedahl, who has been an Elks member with his wife for at least 25 years, said he, too, thought there was a glimmer of hope at the time the debenture bonds were announced. He purchased a $500 bond.

“We, over the years, have enjoyed using the Elks and going to the Elks,” Vermedahl said. “My prime reason for doing it was to try and see if the problem could be solved with a little extra financial help.”

He said he was optimistic about the bonds, but he also recognized that it was a risk.

“I was trying to help the club survive,” he said.

He noted he was disappointed when he found out the Elks Lodge declared bankruptcy.

“It was somewhat of a surprise,” Vermedahl said. “I didn’t realize the conditions were quite that difficult.”

Furnishings

The date for the Elks Lodge to shut down was set for Aug. 31. Verdoorn said that was when the liquor license ran out. Because the Elks were delinquent on property taxes, it could not be renewed.

Freeborn County Auditor-Treasurer Dennis Distad said the Albert Lea Elks Lodge is delinquent on its property taxes for the first half of 2008 and all of 2009.

For 2008, $10,462 is still owed, and for 2009 the amount of $20,509 is owed.

The last payment the organization made was in May of 2008, Distad said. It became delinquent a year later.

If a building that is delinquent on its taxes sits unused for somewhere between three and five years, it will go up for tax forfeiture, he added.

After Aug. 31, service clubs that met at the Elks found other places to meet. If they relocated to the American Legion Club, their members make selections from the same salad bar cart that had been at the Elks Lodge.

After shutting down and before filing for liquidation bankruptcy, the Elks Lodge sold off many of its furnishings. Verdoorn said they were sold to America’s Best Value Inn and to the American Legion.

The proceeds from the sale, she said, went to payroll and to the lawyer, who paid state and federal taxes with it.

The bankruptcy filing lists cash on hand of $506, a Wells Fargo checking account with $164 in it and a Home Federal checking account of $0 with “balance believed to be a negative balance.” Under “machinery, fixtures, equipment and supplies used in business” the filing says “Various items of office furniture, office equipment, kitchen equipment, dishes, tables and chairs and other restaurant fixtures and lodge accoutrements value not in excess of $1,000.”

Anyone digging in Freeborn County District Court files can find Hanson filed a case against the Elks. The club amicably admitted it owed $17,813 for money he had fronted the club.

Jobs lost

In June, kitchen and dining room employees received a letter from the organization’s local officers explaining that leaders of the Grand Elks Lodge, the national organization, had come in the week before and were in control of the local lodge.

“The officers of the Albert Lea Elks have done whatever we could do to try and keep the Lodge going,” the letter stated. “We value the members and certainly have the best and most valued employees in town and appreciate what you have all done for us. We have had tough times, and all of you have been there for the Albert Lea Elks.”

“How long this will last or what will happen after this, we do not know,” it continued.

One former employee, who wanted to remain anonymous for this story, said when she got the letter she knew the Elks was headed downhill. If the organization couldn’t offer its food services, it would never make it out of its problems.

This employee is one of seven employees who have come forward saying they are owed wages totaling $8,400. The claims range from $250 to $2,500, according to U.S. Bankruptcy Court documents.

The employee said her owed wages are for paid time off hours that she had not yet used.

She said she was disappointed when she first found out about her lost hours, but she has come to terms with it.

“The whole thing, it’s sad,” she said. “I don’t think anybody knew what was going on.”

She noted it is hard for her and other employees to talk openly about the situation because they weren’t told many of the facts.

In the letter the food service employees received on their last night of work, the lodge officials acknowledged that the employees would have questions.

“I’m sure you all have questions, as do we, but this is all we know at this time,” the letter concluded.

Many felt like they had been left hanging.

The future

At nearly 900 members and with 135 life members, the Benevolent & Protective Order of Elks in Albert Lea have a future. The officers told the Tribune they intend to exist after the bankruptcy is cleared.

According to the U.S. Bankruptcy Court for the District of Minnesota, the next step is a meeting of creditors at 2:30 p.m. Nov. 18 on the second floor of the Mankato post office.

Once bankruptcy obligations are met, the club will find a place to meet and it will be like starting over, the officers said.