Application Denied: After LGC Setback, County Will Still Pursue Civic Project

By Johanna F. Still, posted Sep 23, 2022
The Local Government Commission has denied New Hanover County's financing application for its public-private partnership, Project Grace. (Photo courtesy of New Hanover County)
The Local Government Commission on Thursday squashed New Hanover County’s long-planned hopes for its public-private partnership, Project Grace.

However, county officials maintain the effort will continue in some fashion. The exact scope and structure of Project Grace 2.0 are unknown at this time, but county officials have said they intend to proceed at a minimum with replacing the library and relocating the museum to downtown.

The most likely scenario entails the county issuing debt to finance the public facility, county manager Chris Coudriet said Friday. 

The LGC, the state commission charged with overseeing local governments’ large monetary transactions, denied New Hanover County’s application for a financing agreement for Project Grace at its Thursday meeting. A motion to approve the application failed to garner a second and the item did not reach a vote. Failing to approve (either by vote or by a failed motion to bring the matter to a vote) results in an application denial, according to an LGC spokesperson. 

It wasn’t the smoothest course to arrive at Thursday’s LGC review. Initially planned for consideration in July, the LGC delayed the item because of the deal’s complexity, and in August, the project was presented, but not voted on. After that presentation, whereby county representatives faced tough questioning from LGC officials, the board of commissioners issued a public op-ed, urging N.C. State Treasurer Dale Folwell to put the item up for a vote in September. 

During the Thursday meeting, Folwell said Chairwoman Julia Olson-Boseman urged him to “put it up for a vote, up or down,” so the county could “move on.” 

Addressing what moving on meant in the event the deal was struck down, Olson-Boseman told the LGC, “We can enter into private negotiations with any builder that we would choose – without needing an upset bid.”

In 2017, New Hanover County secured an exemption to a state law that governs public bid requirements; the exemption applies solely to the 3-acre block where Project Grace is planned. Even with the legal carve-out, the county still issued a request for qualifications and proposals for the project “to see the interest in the marketplace,” Coudriet told the LGC board Thursday. 

Only one firm, Zimmer Development Co., responded to the RFP. Under the deal with Zimmer, the company planned to oversee the redevelopment of the entire downtown block between Chestnut and Grace streets fronting Third Street. Zimmer would have built a replacement library and new museum on the north end of the block facing Grace Street and demolished the existing library to erect a mixed-use development, including a 151-unit hotel and apartments (including 5% workforce housing). Zimmer representatives could not be reached for comment Friday. 

The county planned to sell roughly one-third of the block where the library currently sits to Zimmer for the private development for the fair market value, last appraised at $2.65 million. Though it would retain ownership of the land of the remaining two-thirds of the block, the county would lease the new civic center building on that portion from Zimmer for $4 million over a 20-year period. This long-term lease is the mechanism that triggered the need for LGC approval. 

State law prevents public entities from attaching restrictions to the sale of public land. New Hanover County’s legal exemption for Project Grace created a workaround to the rule, and through an agreement with Zimmer, the county could have attached conditions to the sale it otherwise wouldn’t be able to. 

“With the deal as it’s structured, we can guarantee the housing investment, we can guarantee the private investment, we can guarantee the outcomes that we have promised to our community,” Coudriet said. 

In a letter sent last week ahead of the LGC meeting, Folwell asked the county to amend three aspects of its deal. The county adopted two of Folwell’s suggestions at its board of commissioners meeting Monday but did not incorporate the third: a request to open the private sale to Zimmer subject to an upset or public bid process. 

“We certainly agree in a traditional setting [an] upset bid is the appropriate path, but with the upset bid process, we cannot attach the conditions that we want,” Coudriet said at the meeting. 

For the lease of the public portion of the project, Zimmer had calculated an 8% profit margin in its financing arrangement with the county, company officials previously told the LGC. This is higher than the interest rate the county could have obtained on its own, which was 3.2% last month (likely higher now that the central bank rose rates again this week). 

Since they were first presented with the arrangement, LGC officials took issue with the county’s choice to finance the deal privately at a greater expense. County officials have said the ability to control the entire block and ensure the generation of millions in tax revenue would make up for the overall cost, at $80 million (vs. the estimated $66 million under a traditional build-borrow method). 

LGC assistant general counsel Cindy Aiken told the board that she had no question about the legality of the deal before the board, which staff recommended approval of. 

“You’re asked to find, is this amount being paid by the county adequate but not excessive?” she reminded the board. “As an attorney, I understand their angst about the state of the law about putting conditions on the sale of public property.”

Diana Hill, a lead organizer of the Save Our Main Library group that coordinated a petition that garnered more than 1,300 signatures in opposition to the project, shared her concerns with the LGC Thursday. “We taxpayers are being asked … to downsize and confine two of the most important public services in New Hanover County,” she told the LGC. Both the library and the museum would reduce in size under the plans. 

Historic Wilmington Foundation executive director Travis Gilbert spoke about the library building’s current historic value as a contributing structure to the Wilmington National Register Historic District. “The destruction of one contributing resource is like a domino,” he told the LGC, sharing it could potentially shrink the district’s overall footprint and reduce the number of structures eligible for historic tax credits. 

As the discussion ended, N.C. Department of Revenue Secretary Ronald Penny said he probably wouldn’t have made the decision to pursue the project had he been a county commissioner. 

Shortly after the LGC’s denial, the county shared a release, reiterating its intentions to continue with the museum-library redevelopment portion of the project. As negotiated in an amendment this summer in its agreement with Zimmer, the county will purchase the firm’s design plans for $2.5 million. Not including staff time, Zimmer absorbed the brunt of the planning costs associated with the project, according to Coudriet, though the county did fund an initial market study, site analysis and due diligence work prior to the RFQ. 

“The most likely scenario at this point is the county issuing debt to construct the museum and library facility,” Coudriet said Friday. “As to whether there is private development or not on the southside of the block, it appears the LGC is only prepared to approve a traditional, conventional financing model.”

Should the county issue debt traditionally, it would still need LGC approval, Coudriet said. 
In a statement, Wilmington Downtown Inc. chairwoman and county commission vice-chair Deb Hays said she was “quite disappointed in the handling of this issue by the LGC and their decision.”

“This project has been supported and approved by the NHC Board of Commissioners since 2017, and our current Board of Commissioners are still united in full support of Project Grace and moving forward because we see the value that this project can bring to our entire community…to give them a state-of-the-art education and civic center to learn from and relish our history and to envision our dynamic future,” Hays said Friday. “I remain steadfast and fully support the plan to move forward with the construction of a visionary civic center with [a] state-of-the-art library and museum on this block, and am committed to help transform this entire block into an inviting gateway to Wilmington and New Hanover County.”
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