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AG opinions, legal precedent pose hurdles for deal to fund Jackson’s Westin Hotel

Westin_Jackson_rgbChancery Court hearing challenging to Hinds County, JRA co-signing for hotel bonds

 

By TED CARTER

A pledge of tax money as collateral for $30 million in bonds for a Westin Hotel in downtown Jackson has put the Hinds County Board of Supervisors and the Jackson Redevelopment Authority at odds with a state Supreme Court ruling and a string of opinions from Mississippi attorneys general.

Jackson real estate developer Don Hewitt, managing member of Advanced Technology Building Solutions, sees the opinions and court precedent as critical to persuading Chancery Court Judge William Singletary to deny approval of a $30 million “contribution agreement.” Through the agreement, the JRA and Hinds County would backstop half of the cost of the $60 million Westin that Capital Hotel Associates plans for 315 Tombigbee St.

» READ MORE: State High Court, attorneys general have addressed public backing of private sector

 

Hewitt said his complaint is focused on the JRA, but presumably the Chancery Court in any contribution denial would include Hinds County.

Hewitt has tried and failed in recent years to get development deals done with the JRA and acknowledges that the demise of a Westin would increase the likelihood of Jackson building a convention center hotel, a project in which he wants to participate.

He insists that in each of his deal proposals with the JRA, he and his partners brought their own financing to the table. On the other hand, the JRA has elected to make taxpayers co-signers on several downtown development projects and intends to do so with the Westin. “For starters, there is the Iron Horse Grill, Standard Life, the Sleep Inn, The King Edward,” Hewitt said in an email.

Seven opinions from the state’s attorneys general over the past 25 years have advised local governments and entities created by them that using public money to backstop private projects runs afoul of the state constitution. Those opinions followed a 1944 Mississippi Supreme Court ruling that a deal Jackson made to share the cost of digging a gas well with a private company overstepped constitutional boundaries.

Guidance from the Mississippi Auditor’s Office issued in April 2012 also emphasizes that the co-signing of loans for private enterprise is out of bounds unless the action has specific statutory authority, a process that requires the Legislature to approve a “special” bill. A Mississippi AG opinion from August 2013 affirmed the Auditor’s guidance.

Hewitt’s filing, which was to be heard by Chancellor Singletary Thursday, also cites a recent Chancery Court ruling in Hattiesburg that forbade Hattiesburg from using general fund tax dollars as collateral for a privately built and owned water and sewer plant. That case –Groundworx vs. City of Hattiesburg – has been appealed to the Mississippi Supreme Court.

Neither Jackson City Attorney Monica Jones nor Mayor Tony Yarber will comment on the hotel challenge, spokeswoman Shelia Byrd said Monday.

Hinds County Board of Supervisors Attorney Pieter Teeuwissen did not return phone calls and an email seeking comment. JRA attorneys have a policy of not discussing JRA business in the media.

The AG opinions go back to 1984 and are as recent as 2013. They address questions from public entities across Mississippi. For instance, the 1984 opinion advised the Clay County Board of Supervisors against levying a tax to pay for health care privately owned Clay County Medical Corp. provided indigent residents. AG Lee S. Coleman’s office cited the state’s 1890 constitution as well as case law in advising “an appropriation of county funds to a private corporation is specifically prohibited.”

One of Yarber’s predecessors, Harvey Johnson, championed a $94 million convention center hotel deal that would have put taxpayers on the hook for $40 million. Johnson and other city officials insisted the hotel to be built by Dallas’ Transcontinental Real Estate, or TCI, would hit revenue projections and default risk would be minimal.

But before a 28-day Request for Proposals expired in late 2011, Hewitt and Texas partners Journeyman Austin entered the picture. That led the JRA to call off the whole deal by rejecting proposals from both TCI and Journeyman Austin.

Hewitt said the rejection of the Austin developers came despite their proposal to keep city money out of the deal. “We were not asking for a contribution agreement,” he said.

Hewitt said he still wants to be part of building a convention center hotel but worries a new Westin downtown will wipe out any market for a convention hotel.

Hewitt in late March challenged the contribution agreement Hinds County and the JRA have with Capital Hotel Associates, made up of a group of investors that includes Joseph Simpson, also a partner in the Iron Horse Grill deal.

Simpson said he considers it “absurd” to claim public money cannot go into urban redevelopment projects and said investors are confident the high-end, 204-room Westin planned for downtown will generate the projected nightly room rate of $145.

The public is to have a $37 million stake in the Westin, an amount that includes the bond money and $7 million in sales tax rebates through tax increment financing.

The Westin developers say funding will come from private equity, according to Hewitt.

“That’s not cheap money,” Hewitt said, questioning why banks are shying away from something they “should love.”

Hewitt concedes he is not winning friends among supporters of downtown redevelopment. “Their argument is that it is going to stop economic development,” he said of his challenge. “All they have to do is amend the Mississippi Constitution to allow the City to backstop private debt.”

Hewitt said one theory is that the City of Jackson is following the playbook that helped it prevail 71 years ago in its suit against the private gas company, Mark Twain Gas.

Should the Westin deal go wobbly, the City could argue as it did in 1944 that it had no constitutional authority to go into a well-drilling deal with Mark Twain Gas and thus should be let out of any contractual obligations. In that instance, the City would cite the constitutional prohibition detailed in Article 7, Section 183 section of the state constitution, Hewitt said.

Hewitt said opponents say “sour grapes” are behind his objections to the Westin. “How is it ‘sour grapes?” Hewitt said. “I just don’t want another deal to go bad.”

 

 

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