Construction has begun and a lease has been signed for a much-needed new police station in Meridian.

     But a close look at that lease has raised a lot of questions by a few concerned citizens and some city councilmen, many of which have left them questioning the project.

    From the overall costs of the project to the wording of the fine print, many parts of the lease have raised concern. City officials say they plan to make changes to the lease, but right now no changes have been made in writing. And the current contract is signed, notarized, and legally binding.  

    The contract made some city council members concerned enough to call a meeting recently with city officials.

    Ward 3 Councilwoman Barbara Henson and Ward 5 Councilman Bobby Smith met with Chief Administrative Officer Mark McDonald, City Attorney Ronnie Walton, and an appraiser involved in the project to air their concerns.

    “They handed us that proposal at the (city council) meeting. The more I looked at it, the more questions I had,” Henson said. “What I got (from the meeting with officials) was that this was really just a contract that they use all the time, that was really to allow (the landlord) to borrow the money.”

The background

    The city has been looking to replace the mildewed, leaky police station on 6th Street for years, creating and abandoning multiple plans to that end over the past decade.

    In 2004, the city purchased property on 7th Street, about a block away from the current police station, with the intent to build a new station there, but those plans fell through. More recently, the city had plans to locate the police station in part of the Sears building on 22nd Ave., but those also fell through.

    Not long after plans for the Sears building fell through, the city announced that it would partner with Watkins Development, a firm that it has hired as a consultant as a cost of $10,000 a month, to remodel a vacant grocery store building just across the street from the Sears building.

    In May, the city signed a 20 year lease agreement with Meridian Law Enforcement Center, LLC, an entity of Watkins Development, that gives the city the option to purchase the building at the end of the lease term. The landlord purchased the building in June recently began renovations.

    Mayor Cheri Barry said at an August 16 city council meeting that she expects the building to be ready by Spring.

 

Costs of Rental

    Under the current lease, the city would pay at the least, $9.2 million dollars over 20 years.

    The rent on the building will be $460,000 a year, to be adjusted upward every five years according to the consumer price index.

    Meridian Chief Administrative Officer Mark McDonald said the administration plans to reduce that amount by paying $2 million, which is the amount the police department has in seized funds, ahead of the rest of the rent. He said this would bring the total cost of the project down to “the $6 million range,” with $300,000 a year rent.

    If the city can alter the contract and use the $2 million as a downpayment and then pay $300,000 a year over a 20-year lease, that would bring the total cost of the project down to about $8 million, more than $1.2 million less than the price tag under the current contract with Watkins.

    The current lease still calls for $460,000 a year to be paid over 20 years. As of now, that contract has not been changed to reflect a possible lower cost to the city.

    The contract also allows for the city to purchase the building at the end of the lease. However, the contract doesn’t specify the amount that the city will be asked to pay for the building. It says the city can purchase the building for, “an amount equal to the unpaid balance,” but does specify what unpaid balance.

    McDonald said the statement refers to the unpaid balance of the lease, which would be $0 at the end of the lease term, although this is not stated in contract. McDonald said a council order has been issued to change the contract to show that the city can purchase the building for $100 at the end of the lease term.

    That change, also, has yet to be made.  

Costs of Construction

    Another concern councilmen had with the current contract: a possibility of additional construction costs that would fall directly to the city. The contract states that the landlord will only spend up to a maximum of $3.4 million on renovations to the building, and that any construction costs over $3.4 million will be billed to the city.

    The contract states that the city would have 30 days to pay after the excess cost is determined.

    McDonald said he is confident construction costs will not exceed $3.4 million.

    A construction deed of trust on file with the chancery court shows that the landlord borrowed just over $3 million for renovations to the building.

    The landlord purchased the building for $600,000, according the HUD-1 settlement statement of the sale.

    When asked why the city chose to go with the at least $9.2 million lease purchase agreement instead of just taking on the up to $4 million renovation project themselves, McDonald said the lease is actually cheaper in the long run.

    He said there are a number of reasons it’s cheaper but that two of the most important ones are the impact on the city’s bonding capacity and the tax credits that Watkins Development brings with it.

    McDonald said Watkins Development will bring $2 million  in tax credits to the project that would not be available to the city if the city took on the project on its own.

    He said the lease-purchase deal does not impact the city’s bonding capacity, but that borrowing money pushes the bonding capacity closer to its maximum.

    He would not say whether the city was close to maxing out its bonding capacity.  

Maintenance

    Along with the rent, another cost to the city will also be faced with the costs of maintaining the building.

    According to the contract, the city is responsible for all indoor maintenance, including maintenance of HVAC systems and indoor plumbing, while the landlord is responsible for outdoor maintenance.

    The lease says the landlord will maintain the exterior roof, exterior walls, foundation, and plumbing that is in or under the foundation. The contract specifically says the landlord is not responsible to make any other repairs or perform any other maintenance.

    The contract says the city is responsible for all other maintenance. It specifically lists heating and air conditioning, indoor plumbing, electrical and mechanical components, interior painting, and carpets and flooring, among other things.

    It also specifies that the city must keep the building clean and free of pests. It says that if the city does not maintain the building to the landlord’s satisfaction, with written notice the landlord can make repairs and then bill the city.

    City Councilman Dr. George Thomas (Ward 1) said he was told when he voted to allow the lease that the landlord would do most of the maintenance.

    “Our assumption was the advantage of doing this was we didn’t have to maintain the building,” he said. “That’s a big part of the reason I voted for it.”

    McDonald said the contract is a standard, generic contract. He said that David Watkins, owner of Watkins Development, assured him that the landlord would maintain the HVAC systems.

    The lease says that any agreements that are not stated in the lease or official amendments to it are not valid. It also says no part of the contract can be considered to be waived unless a written waiver is signed by the landlord.

    McDonald said he expects maintenance costs to the city to initially be none or very low. He said the only kind of maintenance the building will initially require will be minor like mopping the floors. He said that later on, maintenance costs will increase slightly for tasks such as painting.  

More Concerns

    Henson said she was under the impression, after the meeting with officials, that changes had been made to the original contract.

    “That was a less than desirable contract as far as I was concerned,” she said. “But I think they have corrected most of it.”

    Thomas said he was also under the impression that the contract, at least the part concerning the city’s option to buy the property at the end of the lease term, had been changed.

    “We were told at the end of the lease that we could buy the project for $100,” he said. “After we did the thing, Ronnie (Walton) said he’d go back and correct any grammatical errors, typographical errors, put in that $100.”

    A clerk in the city’s records department said there is not a newer version of the contract. She said amendments could be made in the future, but as of now the contract signed by the mayor on May 17 is the only contract.

    When asked where the city was in the process of getting changes made to the contract, McDonald said he wasn’t sure. He also said he wasn’t sure when asked if all of the proposed changes would have to go before council and when asked if all of the proposed changes had been approved by the landlord.

    McDonald attributed many of the problems pointed out in the contract to the fact that it’s  a standard, generic lease contract and said repeatedly that changes are planned. When asked why the city agreed to and the mayor signed a contract that needs to be changed, he said the contract is “fantastic” the way it is.

    “It’s a valid contract and it’s good,” he said. “But the intent is we want to make it better if we can make it better.”  

 

Mississippi Law Enforcement Center, LLC

    Another concern some city officials had dealt with a mistake in the landlord’s original deed for the property. The landlord is corporation Watkins set up, Meridian Law Enforcement Center, LLC. But the deed to the property was mistakenly issued with the name Mississippi Law Enforcement Center, LLC.

    Shortly after the deed with the mistake was issued, a county resident named Austin Check created an LLC named Mississippi Law Enforcement Center.

    A corrected deed with the correct corporation name was later issued, and a Jackson attorney representing the landlord sent Check a quitlclaim deed, asking him to sign it and relinquish any claim his LLC might have on the property.

    A HUD-1 settlement statement was sent along with the quitclaim deed to prove that the property had been legitimately purchased by Meridian Law Enforcement Center, LLC. The settlement statement showed that the property was purchased for $600,000, plus just under $13,000 in county property taxes.

    The statement also showed that the settlement agent for the sale was Bill Hammack of the law firm Hammack, Barry, Thaggard, and May. The mayor’s husband, Rick Barry, is a partner in the law firm. Hammack also prepared the quitclaim deed.

    Walton said he was unavailable to answer questions for this story, so it was not clear what kind of problems, if any, could be caused by Mississippi Law Enforcement, LLC.

    The city was contacted multiple times over the course of the week with requests to answer questions about the contract, but it was not until less than ten minutes before the deadline for comments that a city official, McDonald, agreed to an interview.

    Barry sent an e-mail with a short general update but declined to take any questions.