NEW HANOVER COUNTY — State Treasurer Dale Folwell is ensuring the Local Government Commission board performs its due diligence before making a decision on Project Grace, four years in the making. The state entity that approves local government financing is being urged by a county commissioner to calendar a vote in the upcoming month.
Vice chair Deb Hays sent a letter to Folwell after the county presented last Tuesday its plans to redevelop a downtown block into a public-private partnership, or P3, with Zimmer Development Company. Folwell, the LGC board and State Auditor Beth Wood listened and asked questions regarding the plans, which require the greenlight from the LGC to proceed.
Hays asked Folwell to add the project to its consent agenda for the next LGC meeting, Sept. 22. It’s the final step before construction can begin, including demolishing the current library and Borst Building, located between 2nd, 3rd, Chestnut and Grace streets. A new library and Cape Fear Museum will be constructed in its stead, which is planned to take two years to complete. It also includes residences and other mixed use, to be built thereafter.
As of Tuesday morning, Folwell said he had not yet received the letter; he also did not confirm whether he would grant the request for a decision by the LGC’s next meeting.
“We’re working as diligently and quickly as we can to either formulate answers for the county commission, formulate more questions, develop suggestions, or put it on agenda,” he said. “Project Grace has been in the oven for a long time and the fact that it’s taken this long should tell your readers this is a complicated transaction. There is nothing simple about it.”
At last week’s meeting, the LGC board and Folwell requested additional details from county officials to help inform its decision. It asked how many developers submitted bids and what the county’s RFP process entailed, where Zimmer receives its funding, the profit margin in the lease arrangement, if the structures were being built with resiliency in mind against hurricanes, and if the public would be in favor of a bond referendum to cover the costs of development.
Most importantly, LGC board members did not understand why a county in “one of the strongest financial positions in the United States needs to partner with anyone,” Folwell said.
Hays told Port City Daily last week that county officials answered each of the LGC’s questions and presented the material “in a thoughtful and thorough manner.” She said it was a productive discussion.
In her Aug. 3 letter, Hays added Project Grace “has been and will continue to be hyper local.” The county will enter into a P3 with Zimmer, also based in New Hanover County.
“We believe this project will create space for locally owned businesses to flourish in a vibrant setting while also bringing in new tax revenue streams to both the city and the county,” Hays wrote.
The county will sign a 20-year lease with Zimmer, costing taxpayers roughly $80 million. Zimmer will manage the construction of the library and museum, as well as at least $30 million of private mixed-use development.
The partnership would “transform the block into a cultural, residential and commercial hub,” according to an op-ed released by New Hanover County on Friday.
According to internal emails, it’s the first time county staff recalls commissioners submitting a unified viewpoint in op-ed format, though they have released joint statements in the past over issues such as GenX, engaging in correspondence with the N.C. Department of Environmental Quality about Chemours.
In the piece, county commissioners detailed unanimous support for Project Grace and highlighted the benefits gained from a P3 model, which Folwell called “extremely unique” during last week’s presentation.
County revenues over the two-decade lease schedule are projected to be $11.6 million and include county tax from private development, the sale of the southern portion of the property (appraised currently at $2.5 million), and revenues from 620 parking spaces.
An additional $13 million is expected from room occupancy taxes, sales taxes and city taxes.
The LGC is responsible for reviewing and voting on the lease agreement only. According to the county op-ed, the LGC “must ensure the lease itself positions the county and taxpayers in the best financial situation given the parameters of the market and the county’s financial standing.”
State statute notes the LGC will approve an application based on five criteria of the proposed plan: if it’s necessary or expedient; if the amount is adequate and not excessive for the proposed purpose; if the government’s debt management procedures and policies are good and any debt will be managed in compliance with the law; that any tax increases are not excessive; and the proposed bond can be marketed at reasonable rates of interest.
During the meeting, Folwell called out the county and Zimmer’s amended memorandum of understanding for an included buyback provision. If the LGC denied the financing plan, the county will still be able to purchase Zimmer’s designs for up to $2.5 million.
Folwell asked if there was “an appetite” to remove this provision, as he said he felt it “tied the hands” of the board. He didn’t think the burden should fall on the LGC to spend additional taxpayer money in the event the plan was rejected. The county said it’s a required piece of the agreement and would ensure it has schematics already detailed as to what the library and museum building would entail.
County assistant manager Liza Wurtzbacher explained Monday, though the LGC has to approve the lease terms, it does not have to agree to the MOU. The LGC only approves memorandum of understandings based on four specific criteria having to do with the length of the contract and amount of financing involved.
New Hanover chief financial officer Eric Credle further explained: “[B]ecause the MOU is not a capital asset acquisition/lease contract that goes beyond five years, it does not require LGC approval.”
The buyback plan allows Zimmer to be reimbursed for its expenses, up to $2.5 million, or only what has been spent by the developer so far. The county’s op-ed confirmed it would only pay as much as the developer has spent.
“If we were to start over outside of a Public Private Partnership with Zimmer, the county would have to incur the costs of the design and construction plans on our own,” the op-ed states. “So this provision is not unreasonable — it just ensures we can proceed with the project and the plans we have now.”
In response, Folwell iterated it was unnecessary to include the buyback provision in the MOU and it “created a red flag.”
Folwell confirmed the LGC does not have a legal obligation to agree with the MOU, but it does play a role in its decision-making.
“They don’t need our approval to spend that money, so why put it in there?” he asked. “I think it puts another level of complexity in an already complex deal.”
Folwell told Port City Daily he is still unclear which statute the county is following: “public private partnership statute, upset bid statute, or downtown development statute.”
“[F]or so many statutes flying around here,” he said, “I had it written down and I regret not mentioning they should clarify which statute they’re operating under. And I’m sure [others] had the same question.”
There are provisions within many that could apply to Project Grace.
The county confirmed it’s guiding its plan based on the Downtown Development Partnership: “a form of public-private partnership specifically targeted to downtown projects that the county is authorized to use through special legislation.”
House BIll 397 was passed in 2017 on behalf of Project Grace allowing the county to undertake the downtown development, exempting it from having to cover 50% of total costs for public-private facilities.
Without the P3 model, the county has stated it would not have control over what was developed on the southern portion of the block if the land was sold outright. Zimmer has agreed to construct a hotel, residential units — including at least 5% workforce housing for 10 years — and retail.
“We would not have the guaranteed private investment in a set timeframe that creates additional commercial opportunities, new workforce housing for our hard working residents, and more lodging for our tourism industry that is growing by double digits year over year,” the op-ed stated.
The LGC questioned why the county was not using a traditional financing method, borrowing the money through a loan process.
“We would be losing out on all the tax revenues we’ve mentioned that will continue in perpetuity even after the 20-year lease term,” the op-ed states. “That revenue offsets what it would cost to finance the project and what we would pay through the lease; and from a financial perspective, this model is the best way forward for our downtown block and our community.”
If the LGC denies the financial plan, the county can request a public hearing. A hearing officer will be appointed to conduct the meeting and present a recommendation to the LGC thereafter.
“We don’t want to be in the business of saying no,” Folwell said. “But we are in the business of spelling it ‘know.’”
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