Foster School Rejects: County Sends City a Message

[XLFD]

If it seems like I've been fighting for the rule of law in regard to the Foster School property all year, I have.  It started back in February when the city council unanimously voted to create a Obsolete Property Rehabilitation Act (OPRA) District, and then wished to award the owners of 304 and 307 East Foster Street, Datum Point Real Estate (DPRE) LLC an OPRA certificate which would relieve them from paying most taxes on their proposed multimillion dollar improvement.  

In March, they held a public hearing at a council meeting and I arose to claim their use of the act was fraudulent, saying:

XLFD: (7:45 in):  "Nathan Gillette and his parade of LLCs is not unfamiliar with fraud, he bought the Foster School property for less than a tenth of its value by swindling a hapless school board into thinking he would do something special, and never did.  Our city is no stranger with fraud either, so it's not surprising that these two would get together and commit even bigger fraud.  This hearing is predicated on the premise that these parties working in concert established an OPRA district encompassing the addresses 504 and 507 E Foster on January 23rd.  That district is illegitimate, and here's why.

The OPRA section 2(b) defines "Commercial property" as  "land improvements... the primary purpose and use of which is the operation of a commercial business enterprise... including, but not limited to, office, engineering, research and development, warehousing, parts distribution, retail sales, and other commercial activities. Commercial property also includes a building or group of contiguous buildings previously used for industrial purposes...  Commercial property does not include... land.

Foster Elementary has been used solely for instructional not commercial activity during its long life, so even if you, Nathan, and the assessor call it commercial as a 'property class', it does not fit the definition of "commercial property" in the OPRA statutes.  But the City and Nathan are trying to tell us that 504 E Foster, composed of a playground and a playfield, somehow meets the OPRA definition of "commercial property".  The State Tax Commission and any third grader would call you silly for thinking so, it's that elementary.

If neither is commercial property, neither can be "obsolete property" under the OPRA, and thus an OPRA district cannot be formed, ergo, tonight's exercise is just a strut around town with the emperor's new clothes.  Let Nathan Gillette use some of the money he saved by defrauding the school board in fixing up his property, according to the assessor, he has already decommissioned all of the plumbing and heating systems in an attempt to commit more fraud, and in paying his share of property tax, because his company has had this property for a year and a half and still hasn't paid anything."  [END comment]

                                                Datum Point Real Estate's developers Nathan Gillette and Ryan Garone

The city manager and attorney gave no better explanation then than that they and the assessor were unanimous in thinking that it was "commercial property".  It wasn't then nor has it changed into that since, but apparently they convinced some people in Lansing that they were right, because they were able to get the certificate earlier this fall despite my acknowledged but unanswered contacts with what is pretty much a useless rubber-stamp state treasury department.

So, when DPRE LLC came back looking for another subsidy that resembled an OPRA but came in the form of a Commercial Rehabilitation Act District, the Ludington Torch got in front of it and made roughly the same argument in September as to why it wasn't a "qualified facility" (after introducing the problem in August).  And even though it seemed even more stark, the council would once again pass the CRA district without batting an eye, because once again city staff thought it fell within the definition.  

One big difference between the two tax breaks is that the CRA district can be evaluated and rejected by the county where the district is.  But the law doesn't mandate that they do this oversight, so I had to figure out a way so as to get them to look at it and consider the plain language of the law.  I went to the county board meeting held the evening after the city approved the district and pitched why I believed the city had erred and offered to meet with County Administrator Fabian Knizacky to share additional proof of my assertions and interpretations.

At worst, I figured, they would accept the findings of the learned city staff.  But I had held out hope that the city/county schism over development projects, culminating with the creation of a new Brownfield Authority serving the two cities in the county, might assist me.  The City has shown that they will throw money freely to developers, more than tripling the giveaway the county's brownfield authority would approve for the 106 Laura Street project.  In that conflict, the county commissioners I talked with were fearful that the city would be giving away more taxpayer money than what was prudent.  Just like me.

So I was pleasantly surprised Commissioners Krieger, Hartley, and Anderson, saw merit in my assessment, and other commissioners were willing to see more.  I had a fairly productive meeting with Administrator Knizacky where we both learned a lot of things and I shared some of the records I had received from the City.  One thing I had learned was that the county had yet to receive their copy of the resolution, a requirement, and so the 28 days to reject the district would still be in play at the county's next meeting.  Once it was received, and it was the next day, he would give the City an opportunity to respond to the district's legitimacy.

And in the couple of weeks that followed, City Attorney Ross Hammersley would draft a 44 p. memo to the county board members making a case as to why he thought a school and playground qualified as commercial property.  I made a FOIA request to the county the week before the city and county would meet on Monday (10-10-23) and Tuesday, respectively.  I received that packet, looked at it and was concerned.

While I didn't think it made a clear-cut case as to showing the property was commercial in regard to the CRA, I did think it was persuasive enough to make some commissioners have doubt.  And it was written by a well-respected Traverse City attorney.  Worse, it had an email from a member of the state's Department of Treasury saying his interpretation was consistent with the City's. 

A resolution to reject the CRA was put on the county agenda toward the end of the meeting, so there was hope that they could still rule that way.  The night before the county meeting, I addressed some of the main points contested so as to improve on that hope.  This was sent to the county via an email:

"This communication is sent to address some of the City of Ludington's arguments shared with you in an October 2nd memo in regard to the recently created DPRE's Foster School Commercial Rehabilitation Act District (CRAD). I apologize beforehand for not being able to provide you with this information earlier, but I feel there are certain points that need to be added, clarified or highlighted to make the best decision on the forthcoming resolution to reject the establishment of the CRAD in addition to my comments from the last meeting and the materials I have already provided the County for the record.  

To accomplish brevity, I will focus primarily on the main issue of contention regarding whether the property in question is a "qualified facility", but only after I clarify the commission's statutory powers and duties under the Commercial Rehabilitation Act (CRA) found in section 3.  The county must be served notice via certified mail of the CRAD hearing prior to its creation by the city.  After it is created, the city must send a copy of the resolution to the county, at which point the county may reject the establishment of the district by its own resolution within 28 days of receiving the copy. 

The word 'may' indicates the commission can use its discretion on whether to act on rejecting a CRAD or not, and the county has used that discretion to effectively ignore considering rejecting a second CRA district passed for a downtown restaurant on that some evening.  Your consideration is asked for because there are a few existential issues that come up with this particular property, and since the County is potentially losing 10 years (and more through extension) of tax revenue once a CRAD certificate is issued, you all have a duty to the county's residents to make sure this public subsidization is done properly, lawfully, and without any appearance of impropriety.

The CRA describes what a "qualified facility" is by defining it in sec. 2 in relevant part:  "Qualified facility also includes...  vacant property which, within the immediately preceding 15 years, was commercial property as defined..."

The application for a CRAD certificate shows that the only part of the district being sought for tax relief is 304 E Foster, a playground for 13 of the last 15 years, unused land zoned commercial for the last two.  Though zoned as commercial, 304 E Foster is not "commercial property" as defined by the CRA in subsection (a) as developed property that had some purpose for commercial, industrial, and multi-residential housing in its past, noting explicitly that "Commercial property" does not include any of the following: (i) (undeveloped) Land.  

A look at the city's memo shows that the LLC seeks a CRAD certificate for only 304 Foster, vacant land without a commercial use over the last century.  One may accept after a little suspension of disbelief, the arguments of a city attorney or treasury bureaucrat claiming otherwise, but it's not favorably viewed by the layman to hear that a historical playground area will meet the definition of a "commercial property" and allow for massive local subsidies through both OPRA and CRA certificates for the purposes of rehabilitating seesaws into townhouses.   

For purposes of the CRAD, the city argues that the phrase "vacant property which, within the immediately preceding 15 years, was commercial property" allows the parcel at 304 Foster to qualify because their assessor zoned it as commercial over a year ago.  Those who look at why the state legislature used words found in our statutes and try to decipher their intent, may see a problem with this definition.

it is confusing as to whether the vacant property must be commercial property for the last 15 years or any time within the last 15 years, but one would think that the lawmakers would have inserted "any time" (or something similar) before "within" if they meant that.  As noted, 304 Foster isn't well-defined as a "commercial property" at any time under the CRA and could be rejected on that basis.

But neither the city nor this citizen can explain legislative intent better than documents created when the laws are created.  In this case, the original CRA was enacted in 2005 with different language of what was a "qualified facility".  The state broadened the term into what it currently is via HB 4759 of 2011 and offered this in their legislative analysis (emphasis added):  

(2) It would add, instead, new language to make the definition of "qualified facility"
apply to a building or a group of contiguous buildings (or a portion of those buildings)
previously used for commercial or industrial purposes, obsolete industrial property, and
vacant property which, within the immediately preceding 15 years, was commercial
property. This would expand the current definition so that, among other things, vacant
property (that had been commercial property in the past) in all communities in the state
would be eligible for the commercial rehabilitation program."

The fraud here is that 304 E Foster has always been, within the last 15 years vacant, undeveloped property without any history of commercial, industrial, etc. use even after being zoned as commercial.  The developer has already received OPRA certificates for both properties under questionable circumstances, and to qualify for both of these subsidies, the developer must certify with their qualified signature that the rehabilitation project would not have been performed if not for the reception of the respective tax break. How does an honorable entity claim that, then comes back nearly a year later on for more tax breaks under similar statute?

Thank you for taking up this issue as far as you have; I am not trying to throw controversy your way, but I hope that the commission can consider the rejection of this CRAD whose tax breaks could last for decades to the detriment of county coffers and my fellow citizens."

I took great pains in writing this defense of my assertion, quite literally.  A health condition left me bedridden and the hours I spent in front of my computer on a nearby chair were agonizing ones.  I hoped my words would make an impact, but I knew I would probably not be able to summon enough strength to go to the meeting.  Shortly after 9 PM, I got a message that night confirming that my efforts were not in vain.  The managing editor of the local newspaper would headline the event later that night:

Taxing district shot down by county board

PERE MARQUETTE TWP. — The commercial rehabilitation act district proposed for the Foster school property was denied during a regular meeting of the Mason County Board of Commissioners Tuesday night at the Mason County Airport.

On a 6-0 vote, the board decided to deny the district for the proposed development of housing. The Ludington City Council approved the district after a public hearing, and the county had the right to object to the finding of the Council.

“It’s not about being supportive about housing,” said Chair Janet Andersen during deliberation of the resolution. “It’s about the definition and whether this fits. I don’t think there’s a person who’s sitting here who isn’t supportive of housing in this community.”

The properties, 504 and 507 Foster St. in Ludington, were the Foster Elementary School building and the playground, parking lot and playing field across the street from the building that is a half block. The developers, Datum Point Real Estate Development-Foster School Acquisition Ludington LLC, received an approval of an Obsolete Property Rehabilitation Act previously.

Several of the commissioners voiced their thoughts when it came to housing and the county’s need for it, but many spoke about how the property in question didn’t seem to fit within the applicable description of the law that sets up the districts.

“The facilities in question are not qualified facilities within the meaning of the statute,” said Commissioner Nick Krieger.

Ross Hammersley, the city’s attorney, sent the county a memo on the philosophy behind the city’s approval of the district. Ludington City Manager Mitch Foster said the memo describes line by line how the project does apply.

“The state tax commission, who approves these and again approved the OPRA for the Foster school and property under the same definition of qualified facilities,” Foster said. “We aren’t talking about the certificate right now, it’s just the district itself. And under the district, it has to meet certain definitions.

“From our perspective, from our city attorney’s perspective, our state tax commission’s perspective — who recommended this originally — it met those definitions and those requirements.”

But commissioners disagreed.

“Foster school is not a commercial property, and I agree with Commissioner Krieger with his interpretation as well,” said Commissioner Jody Hartley.

Datum Point is proposing to build a 14-unit townhouse on the property where the playground, athletic field and parking lot are proposed. Between 20-30 units are planned for the school building itself. The firm bought the property in November from Ludington Area Schools for $20,000.  [END article]

The county commission showed a lot of courage in their unanimous decision to reject the district, and thereby reject any future CRA certificates for DPRE LLC for the Foster School property.  The Ludington and Scottville City Councils could learn a lot from the fiscal sanity of the county board and their current administrator and from their obeisance to the obvious legal definitions that should never be twisted in order to subsidize one entity over all others.  Because everybody else will either have to lose public services or pay more in taxes/fees to make up for the favoritism that arises when cities are allowed to pick winners and losers.

Like they tried to do here.  

[Willy]

Congratulations X. Well done. You presented your case flawlessly. I would have loved to have been at City Hall when this news broke and to hear all of the negative comments they would be uttering about you. It's obvious they were trying to take advantage of the taxpayers again. These shysters at City Hall try to give the impression they are working so hard for the good of the community when their goal is to stick it to us any chance they get. If the Foster project was such a good idea and was so sorely needed as they claim then there would be no need for a tax charity handout at our expense. They saw an opportunity to stick it to us and if not for your hard work an diligence, I have no doubt they would have succeeded. Thanks for all you are doing. I hope your feeling better.

[Freedom Seeker]

Well if that ain't just the cat's pajamas! Well done, X, well said Willy!

Thanks County Commissioners for listening and seeing the wisdom and quick analytical knowledge X has. It blows my mind how Ludington City can so viscously defend their wrong opinions time and again.

[XLFD]

The projects of Lofts on Rowe, 106 Laura and Foster School rehab shows that current city staff and the city council are keen on giving away tons of money for these private endeavors, so much that they double dip.  In LOR they bumped up TIF from $2.8M to 4.3M,  In 106 Laura they avoided sanity by creating their own Brownfield to put a maximum $600K giveaway to $2.3M.  This time, not satisfied with sizable OPRA tax breaks, they go for CRA tax breaks on the same parcels.  They do it when they are told (by me or the County Brownfield) that it isn't ethical or legitimate and do so without any sign of remorse.  

I would love to be friends with city hall, but I can't agree with the ways they have been working against the people all the time but have no problem making downstate developers rich with the community chest containing the fruits of our hard work.  Willy's political commentary and comic-ary is spot on, and there needs to be a shift in paradigm because they are only getting worse and totally deaf to the mostly silent masses.  

[Freedom Seeker]

What I don't understand is, who down at city Hall is so naive or "big-city growth-hungry?" to fall for and/or push these projects that are "making downstate developers rich with the community chest containing the fruits of our hard work"? It has to be some "transplants" from "downstate or elsewhere" who don't appreciate the quiet quaintness of a once-beautiful, peaceful and unique blessing of what Ludington was. That dissatisfaction must permeate the mindset of naive long-time local councilors like Johnson, Winczewski, and others who begin to believe that the grass is greener in the big cities when in my opinion these ugly, "population dense" projects are ruining the character of the quaint little town

[stump]

 So what happens now? I doubt the city will impose  taxes on the developer. Will the developer sell the property for 20 times what he paid for it?   Appel the decision and get it overturned my guess.

[XLFD]

Gillette and Garone came in saying they were going to tear the historical school down and build townhouses all around.  I wasn't keen on that plan, but the school and DPRE-FSR-LLC told us it would save the school on demo costs (BS since the school had officially stated earlier that demo costs would not feature into a sale of any of the schools being vacated) which were stated to be in the $500K range.  We were getting a bargain they told us at a school board meeting where the sale was and its terms were a last minute add, and though the city and school had had multiple communications with the LLC, made a lot of plans, it was understood that due to the location of the school and its past purpose, that there wouldn't be any local subsidies they would qualify for.

There is no method for appealing the county's action in the statute, and I don't see the LLC hauling it to court because the law just doesn't support them-- they might even find the judge revoking the OPRA certificate in a countersuit or at least laying the legal foundation for that.

Grifters Gillette and Garone should reject the OPRA already given to them, but they won't because they have shown their lack of character and commitment to the people in this area by being firmly committed to their three frauds.  I am actively involved in getting the state to rescind an OPRA certificate that they never should have issued in the first place, and I am motivated to do so.  Build the cheesy townhouses already, and do it with all that money you saved by lying to our naive local officials.  I will be keeping an eye on it to make sure they pay their fair share.

[shinblind]

Could it be said that the Ludington School District actually ''warehouses'' students and is not engaged in educating them and thus would meet the requirements of the CRA as a commercial endeavor?

[stump]

    Shinblind, don't give them any ideas, the people overseeing this are stupid enough to think it could be a possibility.   When you look back at the school board  they should be held accountable for taking a lower bid , like over 10 times lower . Where was the local Historical group? I thought they were all for the keeping of everything Historical.   NOPE, sell the building cheep, and demo it, the screw the tax payers and build a cheap apartment building.