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Judge dismisses challenge to Jackson’s $9M hotel loan

Westin_Jackson_rgbAny questions about the legality of the City of Jackson about $9 million to a developer of a downtown Westin Hotel won’t be answered anytime soon, if ever.

Hinds Senior Circuit Judge Tomie Green late Tuesday dismissed Jackson lawyer Herb Irvin’s request for a declaratory judgment on whether Jackson would violate the Mississippi Constitution by putting up general fund money to back a $9 million loan to help Capital Hotel Associates build the $60 million hotel.

The hotel is planned for 315 Tombigbee St. at the site of the vacant Mississippi Valley Title building. Jackson City Council agreed to the loan arrangement last February.

» READ MORE: Westin developers aim high on room rates

Irvin had asked the court to examine the legal appropriateness of the City guaranteeing the loan of a private business.

He had expected a quick ruling but said he was stunned Tuesday when Green ruled he had no standing to seek a declaratory judgment. Green said Irvin should have made his challenge within 10 days of the City Council’s February approval of the loan commitment.

Irvin had hoped Green would wait until the Mississippi Attorney General’s Office had joined the request for the declaratory judgment.  Given Green’s ruling, “it is not likely” Attorney General Jim Hood will get involved, spokeswoman Jan Schaefer said.

Irvin had considered Hood’s participation in the action critical considering the statewide implications the outcome held for dealings between local governments and private developers.

Irvin said he is weighing an appeal to the Mississippi Court of Appeals. He said other procedures are possible as well, but declined to detail them. “I don’t want to put them on alert so they can go around it,” he said.

Just a few hours before Greene’s ruling, Joseph Simpson of Capital Hotel Associates predicted Irvin’s challenge would fail.

He called the question raised by Irvin “absurd” and emphasized the role the federal government and other levels of government have had in similar urban renewal and economic development projects over the decades. “If that is the case, you would never have a Trustmark Park or a Nissan plant,” he said.

Simpson noted that private investment is to cover over half the cost of the 204-room luxury hotel. “It’s not like our neck isn’t on the line,” he said.

Simpson and his partners have targeted a first quarter groundbreaking on the hotel.

Along with the City’s $9 million loan pledge, Hinds County has agreed to put up $20 million.

Irvin said he did not challenge the Hinds County loan because it is not secured by the county’s general fund. Thus, the constitutional prohibition may not be applicable, he said.

“The county got a special loan from the State and then gave the loan to the Westin, Irvin added. “I looked at that question briefly and decided that it wasn’t worth pursuing. My issue was with all of the bad financial decisions that the City had made — in concert with JRA (Jackson Redevelopment Authority).”

Irvin thought his argument against the public loan on a private project would be strengthened by a Dec. 30 ruling in an unrelated case in Hattiesburg.  In that case, Tenth District Chancery Judge M. Ronald Doleac ruled that Hattiesburg violated the state constitution by agreeing to pay the interest on a loan of up to $137 million to private company Groundworx. The company would use the money to buy land and build a sewage application system it planned to later sell or lease to Hattiesburg.

Until built and controlled by Hattiesburg, the treatment facility would have no public purpose, Doleac ruled, and further cited case law that “a public purpose cannot survive without an element of management and control by the City.”

Groundworx attorney Andy Taggart Jr. of Jackson declined comment Tuesday.

Meanwhile, the agreement Jackson and the Jackson Redevelopment Authority have with Capital Hotel Associates specifies the JRA will issue up to $10 million in bonds and the City will secure them with general fund dollars.

Irvin said the arrangement’s constitutional flaw rests with the pledging of taxpayer dollars as collateral.

Irvin cites Article 7, Section 183 of the Mississippi Constitution of 1890:

“No county, city, town or other municipal corporation shall hereafter become a subscriber to the capital stock of any railroad or other corporation or association or make appropriation, or loan its credit in aid of such corporation or association.”

The controlling urban renewal bond statute is section 43-35-21 of the Mississippi Code, according to Irvin.

The section specifies that using tax dollars to make or back a loan requires a “public purpose.”

For their part, both the City and Redevelopment Authority claim urban renewal statutes give them authority to guarantee loans or bonds to private enterprises. The JRA, in its contribution agreement with the Westin developers, cites the Mississippi Code’s urban renewal bond statute.

The section specifies a municipality can issue bonds to finance the undertaking of “any” urban renewal project. However, Irvin noted that both principal and interest for the bonds must be paid from money “derived from or held in connection” with the undertaking for which the bond was issued.

Further citing the statute, he noted, “Bonds issued under the provision of this article are declared to be issued for an essential public and governmental purpose.”

Jackson attorney Ron Farris focuses much of his practice on public-private developments. Municipal loans backed by general fund dollars that go to private projects do not “in every instance have to be for a public purpose,” he said in an interview Tuesday.

In many instances, the public purpose can be broadly defined, according to Farris. “My role is often to help identify” the public purpose, he said.

“Often, it is defined by what the project is yielding to the public,” Farris said. “I do not believe that the City must absolutely own or lease the project.”

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