Special Council Session Recap on Clarksville Marina for December 20th

Clarksville, TN – The city council met in a special called session this evening to discuss the marina and restaurant leases at Liberty Park. Councilman Harris was absent tonight. Councilwoman McLaughlin had to leave before the vote due to a prior commitment. Mr. Campbell, the marina/restaurant selectee, was in attendance.

In case you don’t want to read the gory details, the leases passed in a 9-yes, 0-no & 2-abstain. I voted to abstain, as some important contract questions I had with the leases were not allowed to be answered. Councilwoman Jones also abstained for similar reasons. The contracts were signed after the council meeting. The details follow.

As you will recall, the two leases and supporting documentation numbered 268 pages that we received yesterday evening.  I sent some information to you previously on the marina and basically nothing on the restaurant since we did not have an “official” version that could be released.

When the session started, I made a motion to have discussions tonight and vote at the Executive Session to be held next Thursday, December 29th. This would meet the Jan 1 deadline that had been targeted.  This opened up a 30-minute discussion on this one item. The mayor notified us that we would not be having our Executive Session on December 29th, as it would interfere with holiday plans. Whose I am not sure.  This was the first word we had received that our session would be moving to January 3rd and that would be too late. I changed the motion stating that we could meet in a special or regular session.  The mayor stated she would not call a special session. The motion to delay had no support and went no further.

The mayor basically stated that this was a good contract and was prepared to stay as late as needed to answer all questions.  One council member jumped on that bandwagon citing the hard work, experience and expertise of those who were involved with the contract negotiations and that we should press forward with approval. I asked the mayor if she and Mr. Campbell were then prepared to discuss and approve/disapprove any recommendations the council made on the spot (that was why I wanted a delay to allow for talks between the city and Mr. Campbell and any give or take on ideas/concerns presented).  After more discussions, it was clear that neither the mayor nor Mr. Campbell would accept any further changes, and if the deal wasn’t signed tonight the “threat” was the deal might be off completely or a potential year delay in opening the marina could happen.  So, although the mayor had been overseeing these contract developments for at least 90 days and through 19 different versions, if it were not passed tonight, it would be the council’s fault for failure.  So the bottom-line to this council session was to be a question and answer session only.

The city attorney then began going through the important sections of the leases starting with the marina.  We were to ask questions as a section was discussed.

Here are some of the main points/questions and answers on the marina.

1. Under the agreement the city will own the marina and restaurant.  This was done so no property taxes would have to be paid by the marina and restaurant company.   However, under Article 16.3 in both lease contracts, if any possible property or taxes arose the city would pay for them.  I asked earlier why was this included if we had resolved the property tax issues.  There is some tax clause that if a fair market rent was not being asked/received then some property or penalty tax amount could be charged.  It seems that if we, the city, were not charging rate comparable to what others would pay for such land, etc then a tax could be charged.  While this is remote, it could happen or state and federal laws could change over the potential 62-year life of the leases.  The city attorney stated that this had been discussed (as I had pointed this out in an email to the attorney, mayor and council a few days ago) and that Mr. Campbell did not want the risk or uncertainty of having to pay such taxes at a time when he was investing in an $8-million project.  I countered that the taxpayer should not have to contend with the same uncertainty when they had invested $32-million in this project.  I felt that Article 16.3 should be reconsidered, however, it was apparent there was not enough support on the council to do this.  So if the taxes should ever appear you pay for them.
2. Property tax for the marina, if it were to be paid, would be in the $20,000 a year range.  Rent minimum is $20,000.  However, no rent will be paid the first two years, but the marina operator will have to spend $30,000  (during that period) to advertise and market the marina.
3. Starting in year 6 the minimum rent goes up to $25,000, plus 2%.
4. Starting in year 3 the city gets the higher of either minimum rent or 4% of gross receipts except for fuel sales which will be 1%.
5. The initial contract is for 22 years with four 10-year extensions.
6. At the end of 62 years, the city will own the marina outright.
7. If the marina operator fails to pay rent or goes out of business, we own the marina outright.  However, it appears that if the marina or lease was used as collateral for the loans to build, we could still wind up paying for it.
8. If the city ends the contract, we will owe fair market value to the marina operator.

Here are some of the main points/questions and answers on the restaurant:

1. Like the marina, we will technically own it.  Same rules on taxes and operations.
2. Property Tax for the restaurant and land (a $5 million investment) would be about $25,000 per year.  The initial agreement on minimum rent was $14,400 per year.  As far as I have been made aware of, only Councilwoman McLaughlin and I raised an issue that the initial amounts were too low.  McLaughlin looked to have the percentage of sales kick in sooner to make up the difference, while I looked to raise the minimum payment.  I told the city attorney this and explained that the marina, at $20,000 minimum rent, met property tax amounts and the restaurant should do the same.  He took my proposal up the line and changes were made.  Minimum rent for the first two years is $20,000.   Starting in year three the minimum goes up to $25,000.
3. It appears that in addition to the minimum rent the restaurant will pay an additional fee of 1% on gross receipts between $2,400,001 and $3,000,000. An amount of 1.5% on gross receipts between $3,000,001 and $3,500,000.  A rate of 2% on amount of $3,500,001 and $4,000,000 and above $4,000,001 it is 2.5%.  In the best-case example it seems that in addition to $25,000 in year three, if sales are over $4 million the city gets another $100,000.  This differs from the marina where the city only gets the higher amount of either rent or gross receipts.  This is one of the questions that I wanted to ask for the record to make sure this was the real meaning.

This leads me to why I abstained on the vote.  There were several questions I wanted answered on the record for clarification and reasoning.   A council member called for the question as we were finishing the marina section and the vote closed any further questions.  Only two of us voted to not close the questioning period.  It was interesting that during the council meeting one council member floated a slight jab at me that I had gotten a change/question answered and included in the contract so the contract was good and we should not delay and approve it.  That same person had to ask during the meeting if the city would still own the land.  Since the whole debate, process and listed document titles were on leasing the land for development it makes you wonder if some actually read the documents or took at face value this was a good contract because someone told them so.

A few of my main unanswered questions and points of concern were:

1. Clarification on the rent and gross receipts payments for the restaurant.
2. Why is the city not getting rent for the restaurant land until after a Certificate of Occupancy is obtained for operation?  Land valued close to $1 million will be tied up doing nothing for the city for up to a year or more until the restaurant opens.
3. I would have liked to force a vote on Article 16.3 on having the city pay any future taxes.
4. I would liked clarification that if the business went bust and was used as collateral in a loan, do we really own it or have to pay the remaining loan amount.
5. The original concept for zoning on the restaurant land was mixed-use, which requires some residential construction.  If the city is keeping it, what happens to zoning and the remaining couple of acres next to the restaurant?

There was incorrect numerical dollar amount listed to represent the typed dollar amount (its off by a dollar, but it is a contract break point and that breakpoint could mean a difference of $17,500 more or less money a year for the city.  So which format (written or numerical) is the legal breakpoint? Why didn’t the other council members who said the contract was fine catch that?)

I also had a few other questions on reasoning and approaches taken.  It may appear that I was “deep in the weeds” with some of my questions and concerns.  During my military career, I built a couple of dozen government contract bids so I have an understanding of what goes on in the process.  Also, the past two years on the marina project strongly pointed out that the very unlikely can happen and that contracts are never perfect (including the dollar amount error I listed for the restaurant in this one….I will call our city attorney on this tomorrow).  No one expected a 500 year flood, no one expected that a major subcontractor would go broke, no one asked about the bonding on the project contractor until it was needed and couldn’t be found, no one questioned (the council didn’t know) having the city pay for improvements that the marina operator would have paid for, no one expected the initial marina operator selection not to be able to secure financing and have to withdraw from the project and no one knew until this new contract round what holes were in the contract with the previous marina selectee.  While some may be content to accept that is all is well with this effort, excuse me If I tend to look at the lessons of the recent past on this project and be a less bit accepting until I check all the things remotely possible.

Having said all of this, I have been and still am a strong supporter of the marina and park. I believe the contracts are solid and a good deal for the operator. I had fewer concerns with the marina and more with the restaurant. The concept initially was the city would sell the land for restaurant development and recoup a million dollars upon the sale. It will take a while to recoup that million under this concept. I am not completely sold on the city “owning” a restaurant in order to give a tax advantage. We don’t do that for other potential business interests. The county gets cut out of property tax money with this approach. They would have netted about $63,000 a year if it were not under city ownership.

Editor’s Note: This article contains the view points of Councilman Bill Summers and may not represent the views of the rest of the City Council, the City of Clarksville or ClarksvilleOnline.