Paying off the politicians to change the rules

Apr 26, 2017 at 10:00 am
Flournoy Development

A major property developer is trying to hold the city hostage over 18 apartment units, what are called “workforce” units.

This story last week about the possible demise of a major apartment development on Main Street exemplifies the warped sense of corporate entitlement plaguing America: Offer politicians a victory — a shiny, new project — and they’ll bend their backs and the rules to accommodate you.

The $56 million, 270-unit apartment project at East Main and Clay streets would bring life to a 2.7-acre block near downtown. Its plans include 11,550 square feet of retail and other commercial space and a five-story, 430-space garage.

It’s a great project for the city.

Now, however, the Georgia-based developer, Flournoy Development, says it can’t afford the project… because its deal with the city requires reduced rental rates on 18 apartments. Just 18 of 270...

The reduced-rate apartment requirement isn’t something new. The city didn’t suddenly surprise the developer with this news. Rather, the company seems to have waited until it had enough leverage to renegotiate (and squeeze every last dollar out of the deal) — or something else is afoot.

To keep the project going, the developer is offering the city $500,000, and in exchange it won’t have to offer 18 apartment units at a lower, “workforce” rate.

Deals of this size should not fall apart over such relatively small amounts of money.

The initial response from key Metro Council members — Economic Development Committee Chairwoman Cheri Bryant Hamilton and Councilwoman Barbara Sexton-Smith, among others — has been resilient to the developer’s threats, and they deserve public support. The city needs to maintain its position, and obligate the developer to abide by its original agreement. Yes, as a matter of principle, but also because these apartments were in the agreement for a reason. (More on that in a second.)

A quick breakdown of the numbers as we know them: Per the agreement, 18 apartments would be rented for $950 a month, and the other 252 units for about $1,300. As the developer’s lawyer points out, that difference would total $1.5 million over 20 years.

That is beautiful spin — sounds like a lot of money. In reality, the city is asking the developer to sacrifice $75,600 per year, or around 1 percent of the projected annual revenue. To Flournoy, it’s the difference between annual revenues of $4.212 million and $4.136 million. Not to mention, the company was already in line to receive around $5 million in city property tax rebates over the next 20 years — the city’s welcome mat.

But it’s much more simple than that: If the difference between this project being a worthwhile, $56 million investment, is $6,300 per month, then Flournoy could try something crazy… like raising the rates on the 252 regularly-priced units by just $25.

Problem solved.

The revenue lost to “workforce units” is regained, and the city continues to realize its goal of breaking down economic, residential barriers.

Our metro government has concluded that residential economic segregation is a problem. Our leaders, through years of studies and urban development planning, feel it is important for the future of our city to remove housing barriers, where zoning rules perpetuate the divide between chronically-impoverished neighborhoods and residential areas.

That is why, when faced with the opportunity to attract a $56 million, downtown residential development, part of the deal is that just 18 of 270 apartments be reserved for slightly reduced rates — to begin integrating residential socioeconomic classes.

For Flournoy, like any other corporation, special interest or lobbying effort, this is an investment… the cost of doing business. And this is easy math for them: They give us $500,000 today, we look the other way just this once, and they add to their top line!

This is corporate entitlement in America. Instead of the company revising its model, it’s much more cost-effective to just pay off the politicians to change the rules.

But it’s not the city’s responsibility to make their business work for them.