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Porter County officials ask: Why are taxpayers on the hook for abovemarket value lease in Valpo?

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By LILY REX

County officials are demanding answers for why a lease on a County office was renewed several years early and why it bound the County to an above-market price for 10 years in a contract that approaches $1.3 million over its life.

The discovery of the lease comes just as the Porter County Board of Commissioners purchased the old jail building at 157 Franklin St. in downtown Valparaiso. The Commissioners bought the jail for $3.6 million, as part of their $30 million improvement plan, with the goal of renovating the space to house 911 dispatch and several other County offices.

One of the offices that officials wanted to see move into the old jail was Child Support, which has been housed in separate office space at 15 N. Franklin Street since 1999. The lease on that office has been renewed multiple times since then.

Councilwoman Sylvia Graham, D-At-large, reported that she made the motion approving the purchase of the old jail when the Commissioners proposed it on the expectation that the County would make up for some of its expenditures with money saved by not leasing external office space. Councilman Dan Whitten, D-At-large, also told the Chesterton Tribune that the money saved from Child Support’s lease was a motivating factor in his vote on the jail purchase.

County Attorney Scott McClure, the Board of Commissioners, and the County Council were all under the impression that the lease expired this year. In a surprising turn, the Commissioners received a letter on May 29 stating that the rent for 15 N. Franklin St. would increase by 2 percent in 2019, per the terms of a 10-year lease extension signed in 2014.

The lease extension was approved at the Jan. 21 meeting of the Commissioners in 2014. It was not on the agenda for that meeting, and Commissioner Laura Blaney, D-South, who is still on the Board and was in 2014, was absent that day due to illness. The minutes for that meeting also reflect that Commissioner President at the time, John Evans, R-North, canceled some of the items that were on the agenda due to Blaney’s absence. The minutes quote Evans as saying, “Commissioner Blaney is not with us today, she has fallen victim to the stomach flu. Because of that we are going to cancel a couple of matters that are on our agenda here and I want to make this announcement now so that if you are here for those you won’t wait until the end of the meeting.” The matters postponed were business from the Plan Commission and a discussion of a redistricting challenge. The items that remained on the agenda were appointments to the Jail Museum Advisory Board and Plan Commission, a discussion of utilities at the Porter County Jail, and routine requests from three department heads.

After Evans made his announcement, the Board agreed on its appointments, then launched into a discussion of the lease for the Child Support office at 15 N. Franklin, which had last been renewed in 2007, was set to expire in 2018, and was not on the Commissioners’ agenda. The reason given for the extension was $30,000 in improvements that were made to the building by Courtney Morgan LLC--the building’s owner--at the direction of the tenant, Porter County Prosecuting Attorney Brian Gensel, who is still in office. The lease reflects that the improvements included converting file storage into additional office space and adding reserved parking spaces to the agreement.

From 2014 to 2018, the County paid $87,757.32 in rent on the space. Per the new agreement, the rent will increase by 2 percent each year from 2019 to 2024. The rent for 2019 will be $89,512,47, plus a portion of the utilities. The lease governs the cost of utilities by using 2013 as a base year and charging the County 40 percent of the difference between the given year’s utility bill and the base amount from 2013. The excess for 2017 was $1,087.83, so the County is on the hook for $435.13 in 2019.

The property at 15 N. Franklin St. was bought by Courtney Morgan LLC in 2004, whose registered business agent with the Indiana Secretary of State was Charles Williams at the time of the extension. Charles Williams, also known as Chuck Williams, is a Valparaiso businessman and the Treasurer of the Indiana Republican party. Later in 2014, Courtney Morgan LLC sold the building to its current owner, 15 Franklin LLC, whose registered business agent is William Ferngren. William Ferngren is also registered as the business agent of Pavilion Partners LLC at the same principal address.

Williams is the managing partner of Pavilion Partners LLC, which is under contract with the Department of Natural Resources to renovate the 90-year old pavilion at Indiana Dunes State Park and build a banquet center with it. In opposition to the new work, local environmental group Dunes Action was formed, and last month, it accused Pavilion Partners of violating Title 14 of Indiana Code by using state resources for construction on the site without the approval of the Indiana Historical Preservation Review Board. The letter also asserted that Pavilion Partners failed to obtain a valid permit for demolition on part of the pavilion.

Dunes Action sent a letter to Prosecuting Attorney Gensel asking him to investigate the matter. In response, Gensel recused himself and appointed a special prosecutor to investigate the allegations, citing his “personal and professional relationship” with Williams.

Whitten questioned why Gensel had no qualms about signing a lease extension with Williams in 2014 when he now says he can’t prosecute Williams in the event of a trial. He emphasized that Gensel signed the lease agreement a week before it was brought to the Commissioner’s meeting, and he also questions why Gensel never brought up the extension, especially when the Commissioners and Council were mulling the jail purchase earlier this year with his office in the mix. “This is very clearly not the way things are supposed to go,” he said. “Government is supposed to be transparent.”

Commissioner Jim Biggs, R-North, also questions why no one was told about the lease, but he wasn’t quick to assume that Gensel would have thought to bring it up. “I wouldn’t expect Brian to remember the terms,” he said. “Brian needed the space and Courtney Morgan LLC had the building.”

Biggs was on the County Council in 2014 and said he “vividly remembers” the Council discussing the lease as part of the budget hearings for that year; however, the Council was never notified that the lease had been extended, and it didn’t know that Williams had secured a tax exemption for the property, either.

According to Porter County Assessor Jon Snyder, Williams took advantage of an Indiana statute that allows landowners who have property leased by municipal entities to file for an exemption on their property taxes. Williams first filed for the exemption in 2009 and 15 Franklin LLC continues to receive it. In 2009, Williams secured a 37 percent exemption. He secured an increase in the exemption to 42 percent starting in 2010.

Snyder said the exemption appears to be in order, except for a discrepancy in square footage. The lease states that the County is using 3,200 square feet of the office space, but the application for the tax exemption says the County uses 3,972 square feet, which it says is 42 percent of the available space.

Snyder is reaching out to 15 Franklin LLC to have them remeasure the square footage of the space child support uses. He says the firm will have 30 days to comply with the request, just as any other entity would. According to County Auditor Vicki Urbanik’s calculations, the tax exemption Williams secured for the property has saved 15 Franklin, LLC more than $80,000.

This is a figure that shocked Biggs, considering that the County is paying well above market value for the space. Biggs reported the County is paying $27 per square foot for the space, when the going rate in downtown Valpo can be as low as $13 per square foot. “That contract should have never seen the light of day in front of the Board of Commissioners,” he said. “If that came before us now, I would laugh it out of the room.”

The exemption added another layer to Whitten’s concern: “It’s a huge misstep, and it’s costing the taxpayers a lot. Every penny of this is public money in some shape or form.” Both Whitten and Biggs questioned why a fair market rent analysis was not ordered or considered before the lease was signed. “When we’re talking about spending or allocating public money, we should be held to a higher standard, and they failed,” Whitten said.

Biggs noted that the building was acquired by Courtney Morgan for $1.1 million in 2004. “We’re paying them nearly $1.3 million in rent over the life of the lease. We paid for that building. Just us. That’s how lucrative that contract was.”

What now?

Blaney said the discovery of the lease doesn’t halt plans for the new jail since “the cornerstone of the plan is moving 911” and the Commissioners have a space needs study in the works to determine how they’ll divide the building.

McClure said the Child Support could still move in at a later time. He added that the goal of the purchase was to house 911 and save as much money as possible by moving as many offices as they can into a building owned by the County instead of leasing. The new space could also relieve some space constraints at the Courthouse down the street, he said.

Biggs maintained that “the decision to purchase this building was a very smart decision,” noting that the old jail was built in the 1970s for upwards of $7 million and had “massive” upgrades between then and now. The Commissioner’s paid $3,621,500 to buy it back in April after it changed into private hands in 2002. The owners at that time invested in up-to-code elevators, adding heating and air conditioning throughout, adding windows, replacing the roof, installing fire sprinklers, and repurposing 4,000 square feet of the space into a restaurant from which the County can accrue rental income to offset costs of operation.

 

 

Posted 6/25/2018

 

 
 
 
 

 

 

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