P3 law would move private property off tax rolls

The pressing issue is the P3, or public-private partnership, legislation. (We used to call such bills “turkeys.” Now they are “partnerships.”)

House Bill 309 and Senate Bill 132 intend that projects like the Owensboro and Louisville waterfronts and the University of Kentucky dormitories be lawfully constructed without the messiness of competitive bidding.

An 11-member public authority in Frankfort — composed of design builders, construction managers, contractors, design professionals (including engineers and architects) and other appropriate professions — would “promulgate administrative regulations setting forth criteria that shall govern these projects.”

Public-private partnerships threaten many local governments, especially Franklin County, with absolute devastation. There are so many public leases in Franklin County between private developers and the public that their exemption might bankrupt the Franklin County’s school system and government.

Conservative columnist Jim Waters recently wrote that for most of what’s being done in the name of public-private partnerships, such as building dorms, there’s no need for P3 legislation “unless it strengthens the accountability process by getting rid of blank checks for crony capitalists and costly non-compete clauses.”

Waters is right on target. What’s not said is that the proposed legislation would frustrate that accountability and legalize those non-compete clauses. Talk about crony capitalism. These bills win the prize.

As a Madison County school board member and past chairman, my immediate concern is for lost revenue for Madison County’s secondary schools. But the issue is far greater. Here’s the background.

In 2015, the Madison County school board became deeply involved in a protective civil action litigating to what extent a private partnership with Eastern Kentucky University may avoid property taxes. The action is now in its third level of administrative proceedings in the Kentucky Board of Tax Appeals. The private entity is Grand Campus Properties.

The developers (and EKU) argue that despite deeded title to the real estate being private, the private-to-public leasehold (Grand Campus to EKU) exempts it from taxation. No entity has argued this way before, i.e., that a standard triple-net lease to a public entity creates a property tax exemption.

Should Franklin County lose its property tax revenue on such a theory, there would be a budget disaster. For Madison County, the loss would be some $280,000 a year on the Grand Campus property alone. About half this sum would be school district monies. The other half belongs to city and county governments, the library board, EMS, health department, rural utility and other local boards.

Most galling to the school district is that this very profitable development would never have passed zoning without the promised increase in tax revenue. Accordingly, two local administrative bodies have denied an exemption. A state board decision is anticipated in April.

Meanwhile HB 309 (page 8) obviates the necessity of further approval with a special exemption of its own: “Any provision of a public-private partnership agreement issued by a post-secondary institution which provides for a lease by or to the post-secondary institution shall be valid and enforceable if approved by the governing board of the institution.” The project would escape requirements for both authorization by the legislature and scrutiny by the Government Contract Review Committee, under the P3 legislation.

These bills are well-greased with support from both political parties and the Chamber of Commerce.

They also include an emergency clause, making the new law effective immediately upon approval by the legislature and the governor. That April hearing by the Kentucky Board of Tax Appeals (delayed since December) will probably be pointless.

The developers and the university know whereof they speak.

This story was originally published March 1, 2016 at 12:58 PM with the headline "P3 law would move private property off tax rolls."