County: School board's proposal won't fly
By Steve Herring
Published in News on March 26, 2014 1:46 PM
The Local Government Commission has rejected Wayne County's plan to build two new middle schools through an operating lease agreement with developer Robbie Ferris, president and CEO of SfL+a, an action that could delay the schools' planned August 2015 opening.
And Tuesday morning Wayne County commissioners and County Attorney Borden Parker appeared to place the blame squarely on Ferris and the Board of Education for offering up an untenable plan.
However, commissioners still approved the school board's request to release $2 million in sales tax revenues that will be used to pay for already completed design work on the new schools in the Spring Creek and Grantham areas.
They also approved applying for $6.1 million in state lottery funds for the school board's $12 million renovation projects at other schools.
Commissioners last month initially rejected the school board's request to use the lease method to build the schools in favor of using design/build.
But the two boards compromised, and commissioners unanimously approved the lease plan a week later with no concerns voiced by either them or Parker.
Commissioner Steve Keen Tuesday said that he had been listening to Parker, and that all along there had been "speculative" comments by the "salesperson" (Ferris) about the lease, as well as by the school board about the lottery funds.
Keen said he was sure that the company had worked with leases before, and that it had sold the lease idea to the school board.
"Did they anticipate this?" he said. "In these meetings that we have had, do you think the company actually anticipated this kind of delay?"
"If they have been listening, they have," Parker said. "I have been telling them the lease that they presented is not satisfactory, in my opinion."
Keen said he had been listening and had had "heartburn" all along about the lease. The idea for the lease was to get the schools open, he said.
"I have been telling them all that I would never recommend to this board that they enter a lease that didn't guarantee that either the board of education, or the county commissioners, could get the property back at a price that you knew how they were going to come to it," Parker said. "They have been told from the beginning that is my position.
"It is my understanding that is Jack Edwards' position, who represents the school board. So they clearly know that there have been some problems. Every time we go to a meeting they have a different suggestion on how we may could solve the problem."
There is also a problem with sales taxes, Keen said,
"If the county doesn't own the property, the sales tax will have to be paid and cannot be refunded," he said.
In the past, the school board has deeded property to the county during a project so that the county could be reimbursed for the sales tax. Once the project was completed, the county deeded it back to the schools.
Commissioner Joe Daughtery reminded the board that he had made the motion to approve the school board's plan. He also played a role in hammering out the compromise.
Ferris promised that it was an acceptable method of financing the schools and that it would be approved by the LGC, Daughtery said.
"Anytime any question was brought up about it, it was, 'Well you are injecting yourself and asking questions that don't pertain to commissioners' role in the Board of Education,'" he said. "It was always we basically needed to let them handle it. Sometimes having outside individuals ask some questions, sometimes that is helpful -- not to interfere, but basically to get to the bottom of it.
"And yes, we were all assured through Robbie Ferris that this method was acceptable. The LGC just flatly basically said this is not going to work, and now we are scrambling trying to put this package back together as a capital release."
Interim County Manager George Wood told commissioners that the idea they been interfering was "flat out wrong."
State law clearly states that under an operating or capital lease that commissioners' approval is required, he said.
Also, the Board of Education erred when it failed to get the board's approval for the architectural contract, he said.
Daughtery, commission Chairman Wayne Aycock, Parker, Wood, school board Chairman John Grantham, Superintendent Dr. Steve Taylor, Ferris and other county and schools staff members were at last week's meeting with the LGC.
"You had approved, and the school board had approved in concept, that you would try to go this operating lease route which is one of the roughly four methods in state law that we can use on this," Wood said. "The long and short of it is that the LGC, in their opinion, said that it is a capital lease, not an operating lease.
"The reason they are trying to use it as an operating lease is that the developer would get about a $2 million tax credit for his solar panels if it was an operating lease. The LGC basically has said, 'We would have great difficulty making the necessary findings on that.' They encouraged them, and us, very strongly that if we want to go that route to make it a capital lease."
In an operating lease, payments are considered like rent, and the property being leased is not on the asset sheet. A capital lease is more like a loan, and the property stays on the asset sheet and is considered as being owned by the lessee, in this case the school board.
Another possibility is that the county could consider is using certificates of participation in which the county would issue the bonds, Wood said. The county would in turn give the money to the schools that would then use the plans and bid out the project.
Certificates of participation do not require a public vote and are basically a mortgage on the project being financed.
However, the schools are looking at the capitalized lease option, Wood said.
Aycock said he is not sure that if the county goes back to the LGC with the capital lease that it will be approved either.
"The long and short of it is that we are still negotiating this thing," Wood said. "Robbie wants to approve it on April 1, which is impossible because they have to have a 10-day publication notice of intent to enter into this lease, and we don't even have the terms of the lease agreed to yet.
"Then the school board has to go in and pass a resolution of their intent to do that following that notice. We still have a number of points to negotiate. We are reviewing the state statutes on what our options are. The operating lease option that you looked at, and voted to consider, basically is out. So we are basically starting from scratch in terms of working out all of these agreements."
Wood said here are actually four agreements and all four have to be finalized before he would come back before commissioners with a recommendation.
That would include whether to use a capitalized lease or the more traditional method in which the schools would use the plans and bid out the project, he said.
In that case the county would borrow the money through certificates of participation and provide funding for the schools.