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Friday, Feb. 08, 2008

Versailles finances property deal

Bonds worth more than twice Frankfort sites' value

State government's largest landlord is selling nine Frankfort office buildings valued at $20 million for more than twice that sum to a Georgia company, in a complex deal being financed by the city of Versailles.

Last month, the Versailles City Council rushed through approval for $56.5 million in 30-year bonds from the city's Public Properties Corp. The tax-free, low-interest bonds will pay for the property. This benefits major Frankfort landowner Rodney Ratliff, who along with partners is selling the properties now leased by the state, and H&W Development LLC, which is buying them.

But critics ask why a city would finance a deal between private businessmen that creates no jobs and takes place in another county. Versailles is in Woodford County. Frankfort is in Franklin County.

Such use of public bonds, and concerns about liability if the deal goes sour, explain why the Frankfort City Commission passed when H&W approached it first with the same deal last year. Only after Frankfort said "no" did the businessmen take the proposal down U.S. 60 to Versailles, which embraced it.

"It's their prerogative. I personally think they're making a mistake," said Frankfort City Commissioner Rodney Williams, a vice president at Republic Bank and Trust. "How could you be an enabler in a house of cards that could basically fall down at any time?"

However, Versailles Mayor Fred Siegelman said lawyers in the deal assure him "it's a win-win" for the city. Those lawyers include influential Frankfort lobbyist Terry McBrayer, representing H&W.

To give Versailles an incentive to participate, H&W has agreed to hand it $1.5 million from the bond issue, which the city hopes to use toward the cost of a new police station, Siegelman said.

Even if the state government pulls some agencies out of the leased buildings and stops paying rent -- which, in fact, the state plans to do in coming years -- the revenue losses could not hurt the city, because H&W will manage the properties and European bank Dexia will provide a letter of credit assuming liability for the bonds, he said. And, at the end of 30 years, if the buildings remain and no major players have changed, Versailles should own the buildings outright, he said.

"It was brought to us and explained that we could do this," Siegelman said.

The only other time Versailles' Public Properties Commission has issued bonds was to renovate the abandoned Texas Instruments factory in the city for new use as the headquarters of the Kentucky Community and Technical College System. That project, four years ago, brought hundreds of jobs to Versailles and cost $6.3 million.

To justify using public bonds on a private deal this time, the city drafted ordinance language that wrongly suggested state jobs were at stake if Versailles didn't help Ratliff sell his properties.

"The city (of Versailles) has determined that a substantial number of city residents are employed by the Commonwealth of Kentucky," according to the ordinance passed by the council. "In order to increase or preserve employment opportunities for the residents of the city, the (Public Properties) Corporation, acting for the benefit of the city, should proceed to acquire nine office buildings to be leased to third parties."

But state officials say they do not plan to cut or add employees based on who owns the leased buildings.

Only Versailles City Councilwoman Ann Cox voted against the deal. The other four council members present voted for it.

Cox asked her colleagues why the council called special meetings to hurry approval for the bonds in 48 hours. Before the council acted, she wanted the city to appraise the office buildings and audit their finances. More than anything, Cox said, she wanted independent experts to examine Dexia's proposed letter of credit, to be sure Versailles won't be on the hook if revenue from the buildings doesn't cover the bond payments.

Cox discussed the deal this week with the state attorney general's office. A spokeswoman said the attorney general has not opened an investigation of the matter.