Fayette County

City spent millions to renovate old courthouse. Why do its finances remain secret?

A limited liability partnership that oversees the day-to-day operations of the former Fayette County courthouse refuses to provide detailed information on the city-owned building’s finances and how much each of the tenants in the courthouse pay in rent.

The Lexington Herald-Leader requested the leases from the city and Historic Courthouse LLLP through a Kentucky Open Records Act request. The leases were provided, but the amount each of the tenants in the former courthouse pays per month was redacted or blacked out. Those leases are with Breeders’ Cup, Limestone Hall or LexEffect, VisitLex, The Thirsty Fox and Zim’s.

Officially rededicated and opened in November 2018, the former courthouse has won several historic preservation and other awards. The project has been lauded for turning the once-dark and vacant building in the center of downtown into restaurant, bar, event and office space.

But the courthouse’s finances and its operations have never been publicly disclosed because the courthouse is run by Historic Courthouse LLLP, which says it’s a for-profit entity — even though its board is made up of city employees, and the city invested millions in tax dollars in the project.

Its day-to-day finances are not approved by the Lexington-Fayette Urban County Council. But some members of the council raised questions about the building’s management during a meeting last week.

Historic Courthouse LLLP and other entities associated with the courthouse were created in March 2016. The city received up to $11 million in state and federal historic tax credits to finance the project in addition to $22 million in city money.

Cities and counties can not receive tax credits. That’s why the Historic Courthouse LLLP as well as a nonprofit called Historic Courthouse Square Development Inc. and Historic Courthouse GP Inc., which would serve as the general partner of Historic Courthouse LLLP, had to be created, city officials told the council during a recent council committee meeting .

180601-visitors-center-rb-0(2) (12)
Reggie Beehner

According to the March 2016 agreement, Historic Courthouse LLLP has the lease for the courthouse until Dec. 31, 2091. .According to the 55-page lease, Historic Courthouse LLLP pays the city $1 a year. Historic Courthouse LLLP must also pay for all “utility charges, repairs, liens, insurance” and other operation expenses. The lease said Historic Courthouse LLLP “will furnish to landlord, upon request, a proof of payment of all items.”

The city said all the leases for the courthouse combined generate $285,000 a year.

CRM Companies has a contract to manage the historic courthouse for $30,000 a year, according to documents provided to the Herald-Leader. CRM could also receive up to $3,377 a month, or more than $42,120 a year, to pay for security, according to its management agreement. Historic Courthouse LLLP released CRM Companies agreement without redactions after CRM Companies agreed to let the newspaper have it.

Still, that leaves more than $200,000 available each year for other expenses.

Where does that money go?

Susan Straub, a spokeswoman for the city, said the remaining expenses include: “insurance, taxes, accounting services, and operational and capital costs not covered by the tenants.”

The Herald-Leader requested a breakdown of those expenses through an Open Records Act request. The courthouse group responded by providing checks and some of its financial information up until Dec. 30, 2017. The group, through its attorney, claims money spent after Dec. 30, was not public money.

Kara Read Marino, a lawyer for Historic Courthouse LLC, said the city put in $22 million but “the remainder of the renovation was funded by the private investor through equity and a loan.”

According to information provided to the council during a Tuesday General Government and Social Services committee meeting, the total cost of the renovation was $32,710,890, about $34,757 less than the total funding of $32,745,647.

City officials said the CRM contract to manage the building was bid, but admitted the leases with the individual tenants were not.

Historic Courthouse LLLP claims it is exempt from the Open Records Act but voluntarily provided the records requested, with the redactions.

The partnership claims the lease amounts are exempt from disclosure under the Open Records Act because providing the information would create an “unfair commercial advantage to competitors of the entity that disclosed the records.”

Amye Besenhaver, a retired assistant attorney general who specialized in open records and open meetings decisions, said an exemption in the law that protects trade secrets does not apply to the leases between the courthouse group and the groups that lease space from it.

“These are not records confidentially disclosed” to Historic Courthouse LLLP, she said.

Historic Courthouse LLLP board members are city employees. The current board members include CAO Sally Hamilton, deputy CAO Glenn Brown and former General Services Commissioner Geoff Reed. According to state statute, any agency where the majority of the board is appointed by a public agency is considered public and must comply with the Open Records Act. The statute also says any agency that was created “by to state or local statute, executive order, ordinance resolution or another act” is also considered a public agency.

In addition, state law says any organization that receives 25 percent or more of its funding from taxpayers is a public agency, said Bensenhaver. More than half of the reported $32 million project was paid for with city money, according to financial information provided to the council on Tuesday.

The Herald-Leader sent a letter to a lawyer for Historic Courthouse LLLP challenging the group’s assertion the lease amounts are not public record and that Historic Courthouse LLLP is a public agency. In response, Historic Courthouse LLLP, in a letter dated May 7, refused to reverse its decision and said the leases were private, proprietary information that did not have to be released.

Some council members said during Tuesday’s council committee meeting they have received complaints from the public about the lack of access to the building, particularly the top floor.

That top floor space is rented to LexEffect, a private company. The public can not take tours while LexEffect, which is paying rent, is holding events, such as a wedding, city officials said. They are trying to work out times where the public can come and see the top floor when LexEffect does not have any scheduled events.

To get the tax credits, 50 percent of the building had to be rented to privately-owned businesses, city officials said Tuesday.

But there have been other issues with the building. The two elevators were not installed correctly, causing frequent outages since the building opened. One elevator has been repaired. The second elevator will likely be repaired sometime in the fall, the earliest the elevator can be taken off line without disrupting events there.

Councilwoman Amanda Bledsoe said dodgy, unreliable elevator service is costly to the businesses who are paying to lease space in the building. Bledsoe said she has a friend who is a caterer who frequently caters events there.

“When the elevator goes down on a Saturday and you’re trying to cater an event.... that’s not acceptable,” Bledsoe said. Trying to unload food on a Saturday during the popular downtown farmer’s market, which is adjacent to the courthouse, is also problematic because there are too few places to park and unload, she said.

“It’s a chess game, I get it and I’m not trying to be critical,” Bledsoe said Tuesday. “But logistically it’s a challenge.”

Hamilton said Messer Construction, which was the general contractor for the renovation, is covering all costs to fix the elevators.

Council member Richard Moloney said he doesn’t understand why the city and the limited liability partnership won’t release more information and provide the council with a detailed accounting of how the $285,000 generated from the leases is spent. The city uses money from its general fund to pay debt payments on the $22 million the city borrowed to pay for the renovation.

180601-visitors-center-rb-0 (29)
Reggie Beehner

Moloney said prior to Tuesday’s meeting he has also been told that the council can’t get the lease amounts for the courthouse because it is now managed by Historic Courthouse LLLP.

The council needs to know more about the courthouse’s finances, he said.

“We have to know what’s going on because if something goes wrong we have to know. We have to have a plan.”

Moloney said the city’s stance on the courthouse also doesn’t make sense given the council can get information on other quasi-government properties that it owns or funds.

“I am on the airport board and we can get the leases for the tenants at the airport,” Moloney said of the Blue Grass Airport. “We know how much the leases generate for the shops in the Lexington Civic Center. Why can’t we get the leases for the courthouse? We own the building.”

Related stories from Lexington Herald Leader