Monday, July 22, 2024

State Treasurer: Buyout provision in Project Grace contract ‘tying the hands’ of LGC, among other concerns

The downtown library on Chestnut between 2nd and 3rd will be demolished as part of Project Grace, if financing is approved by the LGC. (Port City Daily/Alexandria Sands)

NEW HANOVER COUNTY — The state entity that approves local government financing grilled county officials Tuesday about its plans for Project Grace — a one-block redevelopment downtown that combines the library and Cape Fear Museum with residences and other mixed-use. It’s stirred controversy since first proposed in 2018, with discussions dating back even further.  

The Local Government Commission’s approval is the final step needed to bring the project to fruition. State Treasurer Dale Folwell told Port City Daily Wednesday new provisions in the Project Grace agreement were “holding the LGC hostage.”

READ MORE: County OKs financial plans for Project Grace, seeks LGC approval next month

Specifically, he was referring to the $2.5 million buyout that the county added to its memorandum of understanding with Zimmer Development Company. In essence, it states the county can buy back the plans Zimmer devised for Project Grace.

Zimmer would construct the library and museum into one facility first, saddling the county with a 20-year lease totaling $80 million. While the county would retain ownership of the land throughout the timeframe, after two decades, it would also own the building outright. 

Thereafter, Zimmer would invest at least $30 million to purchase 1.2 acres at fair market value and build a 150-room hotel, 100 residential units — 5% assigned to affordable housing — and roughly 10,000 square feet of retail space.

The current appraised value of the southern parcel is $2.5 million, but the county will reassess the price before private development begins and Zimmer purchases its portion.

The private development would also generate sales tax, room occupancy tax and municipal services district revenues, up to $13 million over 20 years.

If the LGC doesn’t sign off on financing as planned, the county would want to still own the library and museum designs rather than start the process all over again.

“New Hanover County can spend $2.5 million at any time, anywhere,” Folwell said. “To put that in an MOU on an idea that’s already this complicated, to me, didn’t feel right.”

Essentially, the state treasurer was alluding that the burden shouldn’t be on the LGC to spend more taxpayer money. If the LGC rejects the plan, the MOU as written guarantees an excessive cost to county citizens.

The project’s MOU was first signed in March 2021, but the county amended the final contract in June before documents were presented to the LGC.

Folwell asked Zimmer representative Adam Tucker during Tuesday’s meeting if there was “any appetite” for removing the buyout guideline.

“No, sir,” Tucker said at the meeting.

“We’ve spent over $1.5 million right now,” he added. “Without that provision, if this goes away, there is nothing for us to be reimbursed for.”

The county could still offer to pay Zimmer without it being in the memorandum and therefore holding taxpayers accountable. But Tucker said the developers “have to have assurances” it could recoup any money spent.

Folwell said it was unproductive to “tie the hands of another governing body.”

“If this board doesn’t approve something, it sends the wrong message,” he said at the meeting.

The county presented Project Grace to the LGC Tuesday to explain its P3 model being used to redevelop a 3-acre block downtown. (Courtesy NHC)

Other questions and concerns were raised by the state agency’s board as county officials presented Project Grace to the LGC. The process was questioned, specifically in having received only two proposals and the one chosen being a local developer.

Chief strategy officer Jennifer Rigby explained the county posted the RFP on New Hanover’s website, as it does with all of its solicitations, and on a number of professional associations, such as the American Institute of Certified Planners and the Architectural Professional Associations.

Mostly, the LGC board didn’t understand why the county was pursuing a public-private partnership, P3, in the first place with its triple A bond rating. 

“The whole purpose of the project is for the whole block we’re trying to revitalize in the downtown area,” assistant county manager Lisa Wurtzbacher said in response. “Certainly interest rates would be cheaper, but we would lose out on the benefits of the P3 model.”

If all is approved, Zimmer will receive 8% back in interest over the 20-year $80-million lease and the county could borrow money at roughly 3.25%, Wurtzbacher confirmed at the meeting. Yet, if the county were to pursue building the library and museum on its own as designed right now, Wurtzbacher said it would cost them roughly $50 million.

“The fact is, New Hanover County is one of the most vibrant counties in the U.S.,” Folwell said. “It has a premier bond rating and generally speaking, no one can borrow money more cheaply than the county itself.”

Folwell said the public-private partnership the county is seeking and the financial plans to back it are “extremely unique.” In essence, the LGC is presented a balancing act between telling the county what to do and making sure they do it right.

“We are running a fine line between respecting the New Hanover County governing board and doing what we always do, which is to give guidance on how anyone in this state, including the state itself, when it comes to building projects, are watching the pennies and paper clips as far as structure and how it’s financed,” Folwell told Port City Daily.

The state treasurer referenced a 2017 law, House Bill 397, passed on behalf of Project Grace, which authorizes the county to undertake “one downtown development project” (though not called out by name, it’s referring to the P3). The bill was sponsored by Rep. Frank Iler (R-Brunswick) and started out as removing property from the town of Carolina Shores but the Project Grace portion was added before it went to a vote.

Per the legislation, at least 25% of the funds cannot be county funds for the total cost of construction and renovation. It exempted the county from having to cover 50% of total costs for a joint development project. 

As Project Grace stands now, the developer is fronting all the costs for design and construction, with the county chipping in $7.5 million for the museum exhibit creation. So the non-county funds surpass the 25% arrangement.

“A special provision from the General Assembly allows you to get around some of the P3 rules,” Folwell said. “When you put out an RFP [to developers] did you say it needs to be 75/25 … or were you just thinking as creatively as possible and financing as cheaply as possible?”

Wurtzbacher said the percentages did not drive the county’s decision but sought proposals that would “put forth the best arrangement for the county.” She also iterated throughout the meeting the benefit of the P3 is for the county to control what kind of development pops up on the southern parcel of land, currently inhabited by the library.

“Under normal circumstances, if you sell a property, you can’t put covenants or conditions on it,” she explained. “With the P3 model, we’re allowed to put restrictions on the land we sell to the developer and control the timing on when that taxable investment is made.”

Folwell compared Project Grace’s finance structure to the county’s new government center. The county entered into a P3 model with FD Stonewater in January 2020. Once a new government center is built, adjacent to the current building, the county will sell the property and building to FD Stonewater for mixed-use development, including residential, retail and office space.

But even that proposal was questioned by the treasurer and LGC.

“At the last minute, when it came to re-financing the government center, we gave them suggestions that ended up saving taxpayers in New Hanover County over $20 million in interest,” Folwell said.

As a result, the county is now borrowing funds through a conventional loan instead of leasing from the developer, as being proposed with Project Grace.

Commissioner Hays, in attendance along with Wurtzbacher, Rigby, intergovernmental affairs manager Tim Buckland, county chief financial officer Eric Credle and deputy county attorney Kemp Burpeau, said the county has received “overwhelming” support from the community.

“We are venturing on an incredibly dynamic, impactful project that has far reaching impacts to our entire downtown area, not just the central business district or Wilmington but in our region,” Hays said Tuesday. “It will bring a state-of-the-art library, museum and services to our citizens that we don’t have anywhere else.”

However, on Wednesday, emails were rolling into the county naysaying the project. Some have been opposed since its inception, noting it will decrease library space by nearly 40% and be wasteful to tear down the roughly 75-year old library, as well as the Borst Building, both required to fulfill the county’s vision.

“Destruction of the 1500 ton library; combining a small library and museum with no room for growth; spending over $90 million dollars to do so is beyond the pale for a lack of stewardship for our history, our tax dollars, our responsibilities,” Diana Hill wrote to county and city leadership. 

Hill has been a leading activist behind Save Our Main Library, a group of over 1,000 locals championing the preservation of the structures.

Elli Klein, also a part of the group, had words for local leaders and media Wednesday in an email: “County Commission: Revisit (again) and Redesign your plans for the above parts of Project Grace and do your demolishing and building on Grace Street. Do what is right for Wilmington and not just what for the developers and their supporters. City Council: This project is in Your City. Stand up for Wilmington. Media: Do more than just publish Developers’ and County Commission talking points. Please do some real journalism and inform the public on this ill-planned boondoggle for the developers.”

The county must legally obtain approval from the LGC for its P3 financial model. Under general statute, the LGC will approve an application based on a number of criteria, including if the contract is preferable to a bond issue, any tax increase is not excessive and if the project is “necessary and expedient.”

Folwell didn’t give any indication as to when he might make a decision, but said he would “continue to keep the lines of communication open” with the county.

“I think we’ll give it a day to breathe,” he said.

This article has been updated to reflect the project spans one block, not three. Port City Daily regrets this error.

Catch up on past PCD Project Grace coverage:

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