Documents anonymously provided to City Pulse last week show that the property owner, developer Harry Hepler’s Summit Street Development Co., made an offer to the city late last month for staying at the North Precinct for the next four years, the same lease length agreed to with the school district. Hepler’s cost analysis for doing so shows the city could save $386,049 over the next four years. Savings could be even greater if the city agreed to allow Hepler to buy City Hall.
Such a cost analysis has not been made public by the city, even though the city says it has its own “cost-neutral analysis.” In an announcement last week, Lansing Mayor Virg Bernero said the move “will cost the city the same amount of money over the term of the agreement as the current lease.” An email statement Tuesday afternoon from Bernero’s chief of staff, Randy Hannan, said: “We don’t agree with (Hepler’s) analysis.”
Hannan declined to release a copy of the city’s cost analysis Tuesday, saying the Lansing City Council will see it first at a budget hearing on Thursday. The Council will consider a budget amendment from the administration that would re-allocate money to pay for some of the $875,000 in planned renovations at the Hill Center, 5815 Wise Road, about seven miles south of the North Precinct.
The Lansing School Board unanimously approved the lease agreement at its April 17 meeting, nearly three weeks after Hepler presented his offer. According to Hepler, it was at least the second offer he has made to the city since February to keep LPD at the North Precinct. The city has leased the North Precinct since 1997. It leases the space, near the Saginaw/Larch streets intersection, for about $300,000 a year.
According to the proposal, Hepler offered to extend the lease for four years at market-rate rent, $435,960, annually. In the school district lease, the city would be rent-free for the first two years, pay $25,000 in the third year and $125,000 in the fourth. It also needs to spend $875,000 over four years in building design and improvement, plus $130,000 to move.
The school district has also agreed to fix the community pool at the Hill Center by 2016. The city hopes to move into 87,000 square feet of the Hill Center by the end of August.
However, Hepler also offered to donate gym and general event space at the North Precinct; pay for most janitorial work; maintain and upgrade the grounds; and make building improvements, according to the proposal.
While the city says it will pay at least $1,155,000 to go to the Hill Center for four years ($150,000 total in rent plus $875,000 in building upgrades and $130,000 in moving costs), it has not disclosed specific costs for custodial, utilities and maintenance work, which the city would pay for its space, according to the lease agreement. Starting Oct. 31, the city is also responsible for grounds and exterior maintenance.
When factoring in all of the operational costs, Hepler’s estimates show that over four years, the city would pay $2,062,331 for staying at the North Precinct versus $2,448,380 for moving to the far south side. The city’s North Precinct lease expires Aug. 31.
“I guess we’re asking the city to reconsider (the lease) just on the basis of what the costs (of moving) are and the savings we can deliver to the city,” said Steve Purchase, vice president of Hepler’s H Inc. “We weren’t interested in getting in a bidding war with the school district. We wanted to deliver something that makes sense for the city.”
Hannan said the administration asked Hepler in October to “propose a shortterm lease extension with no strings attached. Mr. Hepler in late March 2014 presented us with a proposed lease extension that included long-term options to purchase City Hall and a city-owned parking ramp. That wasn’t a responsive or acceptable offer, so it was rejected.”
Hannan added that Hepler’s and the district’s offers are “basically cost-neutral compared to the current lease agreement. This cost-neutral analysis does not include the other benefits of our agreement with the school district, which includes the renovation of the Hill Center swimming pool.”
That renovation will cost the district between $350,000 and $500,000, even though a funding source is still unknown, the State Journal reported last week.
The second angle to Hepler’s proposal involves the city’s reported desire to sell City Hall. Hepler is prepared to defer rent payments to the city if it gives him the first option to purchase City Hall and the North Capitol parking ramp as collateral. Hepler said it could free up another $550,000 annually in cash flow that could go into the city’s rainy day fund.
“At the end of the term, if you wanted to sell City Hall, we ask for the option to buy it. We trade the deferred rent,” Purchase said. “If the city decided it didn’t want to sell to us, it could just pay us their rent that’s accrued at that time, no interest.”
Hepler said he sees “long-term residents or a hotel and restaurant space” for City Hall — a “structurally solid, historical structure with an advantageous footprint.”
While the school board has already approved the lease, the Lansing City Council will soon consider a budget amendment from the administration to free up costs for repurposing the Hill Center. According to the lease agreement, the city has to put up $400,000 for renovations within 20 days after the district approved the lease, which was on April 17. Another $75,000 will go for design, permitting and inspection costs. The city projects that money to be moved from higher-than-expected income tax revenue.
Because she feels she has been left in the dark over the cost analysis, Councilwoman Carol Wood — who chairs the Ways and Means Committee handling the budget amendment — said Monday she would not support the amendment. Moreover, the city has spent over $187,000 since March 2010 on a long-term consolidation study at the South Washington Office Complex, plus another $30,000 on studies for moving to the Hill Center.
“We’ve been studying since 2010 and still have come up with no solution,” she said. “If I had to vote up or down on (the budget amendment), without additional information, I wouldn’t support it.”
Councilwoman Judi Brown Clarke also has more questions than answers when asked how she feels about the move.
“I’m very curious of the costs,” she said. “Side-by-side, what does it look like? I have quite a few questions. I also don’t have a good handle on what the overall public thinks of the move.”
A source with close knowledge of the LPD, who spoke on condition of anonymity, said not involving the public on important community-police issues is a growing problem within the department — and is evident with the Hill Center lease.
“If I was rolling this thing out, I’d ask for public input. And frankly, the City Council should have but it didn’t,” the source said. The source added that the department has started outgrowing the North Precinct, which should be taken into consideration. Hepler said he’s responded to resolve that issue by donating space.
As far as response times for moving operations several miles south, “Time will tell,” the source said.
“I’m not contending whether we move, it’s how we’re moving,” the source said.
But, like Wood, the source wonders about the long-term plan, which seemed most feasible by repurposing the city-owned South Washington Office Complex.
“I just don’t get it. I don’t understand why they’re doing it this way long-term,” the source said. “It’s like putting a Band-Aid on. Are they going to stay in Harry Hill for 10 years? I’d say no. If that’s the case, why are they doing it?”