Embassy survives eruption of ire


Embassy Square was the side show that took center stage during the Henderson City Council’s public forum on its 2004 audit Monday evening.

Because the city’s expenses associated with the public-private partnership have been an obvious drain on the coffers and were cited in the audit as part of the reason for the sharp drop in the fund balance, the audit questions were intertwined with the downtown redevelopment project. Half of the $800,000 drop in the city’s fund balance from projected levels to audited levels at the end of fiscal 2004 can be directly attributed to the cultural side of the Embassy project.

Whether the project is a convenient whipping boy for people frustrated by the high rate of property taxes or the prime example of the city’s financial problems, it was the talk of the forum.

“First time I’ve ever been fired from volunteering,” Embassy Square Foundation founder Sam Watkins joked to those around him before the forum. He and foundation Executive Director Kathy Powell, who was paid by the city during her first several years of Embassy service, attended Monday’s meeting but did not speak.

City Manager Eric Williams acknowledged Embassy Square’s role in the fall of the general fund balance, but he spent much of his PowerPoint presentation arguing that the short-term financial pain is more than worth the likely long-term gains.

He said the planned library, gallery and theater on the cultural side of Embassy Square — the portion that the Embassy Square Foundation is building and that was envisioned as not needing city money — have drawn major media coverage, have won the support of foundations, businesses, and the state and federal governments, and will address major issues ranging from crime to education to economic development.

The city budgeted more than $1.3 million in a capital improvement project to cover upfront costs for the construction of the library, gallery and theater. That money, which included $950,000 in a loan, covered land acquisition for the block bordered by Breckenridge, Wyche, Winder and Chestnut streets, as well as design fees, legal fees and other setup costs for the Embassy Block Cultural Foundation, now known as the Embassy Square Foundation.

Somehow, those city-paid expenses wound up totaling almost $1.8 million. The overrun of $395,570 is close to the $399,500 the city paid for the DAV building on Breckenridge, and Williams cited that council-approved purchase in discussions of the overrun, both Monday and in previous correspondence.

But the DAV building was always going to be a part of the land acquisition, so its entire price can’t explain the overage. And federal grant money, not city money, went to purchase one of the properties on the block. The project budget shows that the amount the city spent on land was $1 million, only $100,000 over the initial budget. Meanwhile, the costs of professional, legal and administrative services exceeded the budget, and planning and design cost $616,515 instead of the budgeted $345,250.

City Attorney John Zollicoffer said Monday night that he didn’t know his legal fees had exceeded the city’s budgeted amount for Embassy Square. He said the problem could be that expenses he submitted for reimbursement, such as the cost of a review of the paperwork he filed to gain the foundation tax-exempt 501(c)(3) status, often were counted as his fees.

Zollicoffer freely acknowledged that he has served since 2000 as the attorney for the city and foundation. Just as the city government gave Powell’s services to the foundation to serve as executive director — the city stopped paying her salary in 2003 — it offered Zollicoffer’s legal services, for which he said the foundation now pays directly.

The city attorney was the man who wrote the Nov. 10, 2003, contract between the city and the foundation on the transfer of the Embassy Square South land. Zollicoffer said he was representing both sides in the creation of that agreement, and both sides knew it.

Representatives of the city government, led by then-Mayor Chick Young and including current Mayor Clem Seifert, and of the foundation, led by Watkins, met in 2002 to hammer out what they wanted in the land contract, Zollicoffer said, and he drew it up.

The gist of the deal is that the city deeded the land to the foundation so the foundation could use the property as collateral for a construction loan for the 40,000-square-foot library. The foundation agreed to build a library and/or gallery and/or performing arts center and, when it completed as much of the project as possible, to deed the land and buildings back to the city. The city would not be liable for any mortgage on the site.

That contract faced questions and criticism Monday night.

Council member Elissa Yount asked whether the contract would have been legal if the city hadn’t won passage of special legislation in the General Assembly in 2003 to change the city charter. Zollicoffer, who wrote the charter-changing legislation, said the land transfer would have been legal but more complicated.

The bigger question about the deal Monday was whether it guarantees that Henderson will receive a refund of the $1.8 million it has spent on the cultural center, most of it on land purchases.

Responding to public comments from Tom Hannon and the Rev. Harold Harris, Seifert read the portion of the contract that covers the issue. It commits the Embassy foundation to repaying what the city spent on land and any other expenses connected to the cultural center — up to the amount of money the foundation has available on the day of the land transfer.

On that basis, Seifert has said and repeated Monday that the city will get its cash back.

But, as Yount noted, there’s no telling when that day will be (the audit estimates three to five years), and the Embassy foundation might not have any spare cash. If not, the city will have to forget about the $1.8 million.

Monday’s crowd of nearly 100 people applauded after Hannon said, “If we had the $1.8 million back, I think we’d have a fund balance that would be very adequate.”

Watkins in the past has said his job is to raise the money to build the library and theater, not to repay the city. Notes from a Finance and Intergovernmental Relations Committee meeting in October indicate that Powell said the city should expect to get an $8 million library for its $1.8 million but not the cash.

Other speakers, including Samuel Smith and Eugene Burton, said that while Embassy Square is a good project, it shouldn’t have taken priority over so many other problems in the city.

No one Monday night criticized the existence of Embassy Square or the goals of the project.

Still, City Manager Eric Williams devoted a large portion of his 35-minute presentation to a defense of the Embassy Square South project.

“Remember the old Embassy Theater and dilapidated and blighted properties?” Williams asked. He did not mention that the block in question was largely free of such properties. The DAV occupied a big piece of the property, several businesses operated on Chestnut and Winder streets, and three houses on Chestnut Street were considered worthy of historical preservation.

Williams said the project’s supporters include the White House; Govs. Jim Hunt and Mike Easley; Sens. Jesse Helms, John Edwards and Elizabeth Dole; U.S. Reps. Eva Clayton, Bob Etheridge, Frank Balance and G.K. Butterfield; state Sens. Alan Wellons and A.B. Swindell; state Reps. Jim Crawford, Stan Fox, Lucy Allen and Michael Wray; assorted other state luminaries; and major local taxpayers.

He also pointed to grants totaling more than $3 million from state and federal agencies for the project and said no city money is being used in the actual construction.

And the city keeps lobbying for government grants for the project. Seifert is leading a city delegation including Watkins and Powell to Washington this afternoon to meet with Butterfield, Etheridge, Dole and Sen. Richard Burr before returning Wednesday night, and the No. 2 priority for the lobbying trip is a request for an additional $1 million construction grant from the Department of Housing and Urban Development to support the Embassy project.

The only higher priority on the list is the Kerr Lake Regional Water System, for which the city is seeking $1 million in the Environmental Protection Agency appropriations bill for planning and design of the water plant’s expansion.

The city has three types of items on its federal agenda: appropriations, authorizations and grants. This week’s trip involves only the requests for appropriations.

The other funding requests on Henderson’s list are $450,000 from the Agriculture Department for the redevelopment of abandoned and neglected houses and $80,000 from the Department of Justice for a public safety initiative.

Council member Mike Rainey asked why the Clean Up Henderson project should get so much more than an issue that has caused so much community concern, crime. Seifert said the requests, honed by lobbying firm The Ferguson Group, probably reflect the amounts available under specific programs.

The council agreed with Seifert’s suggestion to drop one other item on the request list, an undetermined amount of money from the Labor Department for work force development. Seifert said the request was so vague that it would hurt the city’s chances of getting other requests fulfilled.

The Ferguson Group’s description of the Embassy project created questions from the council. The one-page pitch says the foundation has raised $8.9 million from 83 people, 32 corporations, 17 civic organizations and seven other foundations.

Yount and Seifert were unsure about the various numbers on the information sheet, including a total Embassy Square project cost of $27 million and a foundation goal of raising $6.8 million in the next 18 months.

Yount asked about the mention of a community park as part of the cultural center. Seifert said that reference was to some green space in front of the site of the proposed city hall building on the civic, North side of Embassy Square, but the Ferguson Group information places the park on the cultural, South side.

(Williams, during the public forum, said the city hall and accompanying administration building by the police station are so far off the front burner that “they’re not even in the kitchen.”)

Even what appeared to be an uncontroversial Embassy item on Monday night’s agenda faced a series of questions from Yount, backed to some extent by Seifert.

The council held a public hearing on whether to allow the foundation to transfer $118,000 from a $218,500 community development block grant from a parking lot to the library construction.

Planning Director Grace Smith explained that the grant couldn’t be used on part of the parking lot because the property belongs to and would be used by Variety Wholesalers. So, with the blessing of the state agency overseeing the grant, the city and foundation proposed a simple bit of juggling: $118,000 shifted from parking to library construction and $118,000 in private foundation funds from construction to parking.

With the 2003 land-swap deal in mind, Yount asked for a written promise from the Embassy foundation that the city would not be stuck with the bill for building the parking lot. She worried that the lot would go unpaved until the city retook possession of the land and with it the responsibility for the lot.

Powell said there’s nothing to worry about because the lot will be paved and paid for in two weeks.

The council approved the funding switch on a 6-0 vote (Ranger Wilkerson and Bernard Alston were absent), and the Embassy project moved on.