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Metro Council Members Call For More Protections In City-Owned Surplus Property Sales

Take three seemingly-disparate projects: the Louisville Urban League's track and field complex, the Urban Government Center redevelopment and two historic buildings on Bardstown Road. All of them share a key detail: the land or buildings were owned by the city, but city officials say they aren't needed for government use.

Declaring the properties "surplus" allows Louisville Metro to sell them cheap. That could mean pricing them below their assessed value, or selling them for a dollar. Often that low price is considered a subsidy for potential developments seen as worthwhile to the city and community.

But with Louisville's budget shrinking, some Metro Council members are scrutinizing how the city sells these surplus properties. They say some deals have cost the city — either because they're over-discounted, or because promised developments haven't panned out.

Some have called for Louisville Forward and the Jefferson County Attorney's office — which negotiate and write the deals — to write in more or different protections for the city. And one council member says the deal-making process should be overhauled.

Brent Ackerson (D-26) is critical of the expectation that Metro Council should simply rubber-stamp deals made by the mayor's office.

"These are assets that belong to the city, these are assets that can affect our budgets," he said. "The more we give away things, the question is, what are we getting in return for that? Because we're not Daddy Warbucks, you know. The city runs on a tight budget."

City services and staff were hit hard this fiscal year, as growing pension and employee healthcare costs forced officials to pass a budget that was more than $25 million below what the city needed to maintain last year's levels.

Ackerson said council members should be involved in surplus sales earlier in the process. At present, Metro Council has the power to deny a deal by declining to approve the surplus status for a property. But it cannot as a body influence the sale price of a property, nor what is written in the contract. The only place the council can make changes is to the resolution authorizing a property to be designated as surplus.

And Ackerson said he isn't satisfied with how little input the council has in the current deal-making process. He would like representatives from the Mayor's office or Louisville Forward to formally discuss potential sales with council members before committing to the projects.

"They might need to come to us in advance and say, 'Here's what we're talking about. Can you support this if we strike this deal? If not, what is it that you're looking for?'" he said.

That way, he said council may have the ability to tweak terms of an agreement to make it acceptable, rather than having to vote to pass or kill it after the details are already decided.

Knowing about potential sales earlier in the process could help prevent costly mistakes, in Ackerson's view. He offered the example of 814 Vine Street, which has been held up in committee because the city promised the land to two groups.

Now, if council approves the surplus designation for the property, which is part of the Urban Government center, Louisville Metro will pay a $150,000 settlement to The Marian Group. That developer planned to build shotgun homes on the vacant lot. At the same time, the Paristown Preservation Trust, which leased the land for parking in 2017, will pay $500,000 to The Marian Group and purchase the land from Metro for a dollar.

"I'm not accusing anyone of doing something wrong. But there's the potential that wrong can be done," Ackerson said. "In order to avoid the potential, we need mechanisms in place that allow the branch of this government being the Metro Council to question things."

'Evolving' Economic Development Processes

Caitlin Bowling, a spokeswoman for economic development agency Louisville Forward, said her team works regularly with Metro Council members to apprise them of their work and to hear their feedback and concerns.

"We're continuing to communicate with Metro Council about their expectations, because that's something that has been evolving, as have our processes with developments and any surplus resolutions," she said.

The biggest procedural change is some deals now contain provisions that would give Louisville Metro the first right of refusal to purchase a property if the buyer decides to sell it within a preset timeframe, she said. The Urban League deal, which the city is backing with a $10 million bond, is slightly different. It includes first right of reverter, and includes this disclaimer:
If the Project is not developed within five (5) years from the date of title transfer of the Property from Metro to Developer, Developer agrees that the Property will revert back to Metro. James Peden (R-23) said at a recent Metro Council meeting that development agreements for surplus property sales should include a standard line to give Louisville the right of first refusal for repurchasing a property at the price it sold it for under certain conditions. "If whatever you're doing doesn't work out, if you try to flip it, whatever it is, we have the right to buy back for whatever it is you bought it from us — whether it's that dollar, that symbolic dollar that we sometimes charge, or a few thousand dollars more," he said. The much-criticized sale of two Bardstown Road buildings included no such protection. Those properties were sold for a second time last month, for $1.12 million. The city sold them at a discount for $425,000 in late 2016 with the hope they would be turned into a Sterling Beer brewery. Councilman Brandon Coan (D-8), who represents the district where the historic properties are located, said council members learned from that experience. He said they want the city to have the opportunity to repurchase properties for the original price so that "someone else doesn't promise us something, fail to deliver and they get to keep the property." This Bardstown Road project didn't include a development agreement; Louisville Forward only writes these agreements for sales in which the city is investing in the project, such as the Louisville Urban League's planned track and field complex in the Russell neighborhood. A development agreement is a type of contract that dictates the terms of certain city property sales, and includes details including how the property would be developed and what might happen if that fails. Bowling, with Louisville Forward, could not say whether right of refusal clauses would become standard in surplus sales. She said each deal is different. This article has been updated to clarify that some city deals use right of first refusal, while others use right of first reverter. The Urban League deal includes the latter.

Amina Elahi is LPM's City Editor. Email Amina at aelahi@lpm.org.

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