Project Grace proposal fails at state level, county plans to find new way forward

Project Grace proposal fails at state level, county plans to find new way forward
Published: Sep. 22, 2022 at 5:48 PM EDT
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WILMINGTON, N.C. (WECT) - New Hanover County’s plans for a major project will not move forward as planned after Local Government Commission officials expressed concerns about the terms of the project’s lease agreement. However, county officials say they will continue working to find a plan to rebuild a library and museum.

The item was scheduled for the LGC’s consent agenda on Thursday, but was removed for more discussion after Folwell asked to take a closer look at the details. The commissioners discussed the project and heard from members of the public, as well as New Hanover County staff and Chairwoman Julia Olson-Boseman who asked the project be approved, but explained if it’s not — this isn’t the end for Project Grace.

“If the LGC declines this particular model, we do have the statutory authority with the legislation that was secured to proceed with another developer. We’ve already been through the RFQ process, we’ve been through the RFP process, we could engage with another firm. And we would have to explore a development model that would ultimately be acceptable to the Local Government Commission,” County Manager Chris Coudriet said.

Folwell’s opinion on the request was clear.

“Because of what I’ve said up to this point on this transaction, I am voting against it. But I promised the chairwoman I would put it on the agenda and she said ‘vote it up or vote it down, we’ll move on to something else if that happens,’” Folwell said during the meeting.

He wasn’t alone in his concerns.

“I have had two people seek me out supporting this project. I have had ten times that number of people seeking me out to oppose this project. I do not intend to support this project,” LGC Member Paul Butler Jr. said.

There was only one motion to approve the plans from the LGC, but that motion failed to gain any other support.

“No second being heard the motion fails for lack of a second,” Folwell said after the motion was made.

In response to the LGC’s vote, New Hanover County released a statement.

“We appreciate the LGC’s consideration of the financials for this project and the LGC staff’s thoroughness and recommendation for approval, and we are certainly disappointed in the outcome,” Coudriet said.

“This public private partnership would have ensured that the county could control the uses on the entire block so they are complimentary to what our community vision is, while also bringing in tax revenue through the private investment in a well-timed and expeditious way for the community’s benefit. At this time, based on board actions to date, the county still plans to move forward with a new state-of the-art museum and library, it will just be in a different structure and will not have the same near-term transformation of the full block that we had hoped for.”

Despite failing to gain support of the LGC, taxpayers will still be out millions for the work done so far.

“The county will purchase the full design and construction documents for the library and museum facility at a cost of $2.5 million from Zimmer Development, as outlined in the Memorandum of Understanding amendment. Then the county will assess next steps, including the cost of issuing debt to build the facility and the timeframe for when to proceed. As additional information is known, the community will continue to be kept informed,” according to the statement from the county.

Not new concerns

On Thursday, Folwell sent an email including a brief summary of the project plans.

“New Hanover County is seeking approval of an $80 million request for a public-private partnership to build a mixed-use development known as Project Grace in downtown Wilmington. The project, which includes a new library and museum, has been subject to intense scrutiny from LGC members due to the nature of the financing agreement under which the county would sell the land to the developer and then lease it back,” Folwell wrote in an email Thursday morning.

Although the LGC does not have final approval on the project as a whole, according to the county the approval for a portion is required.

“The LGC is not voting on the overall plan for the block or the Memorandum of Understanding, but the lease agreement the county is requesting to enter into with Zimmer Development,” according to the county’s website.

Folwell’s concerns are not new and on Wednesday legal counsel for his office sent an email to members of the LGC. The issues Folwell has taken with the lease comes down to the total cost of the agreement and the burden on taxpayers and how the price is determined.

“Specifically, the County has structured Project Grace such that the anticipated future tax streams generated by the developer’s planned hotel and apartment projects are part of the justification for the total rent amount (which is greater than the estimated cost of construction of the library/museum facility),” according to the email obtained by WECT.

New Hanover County defends its decision to go with the partnership. One of the reasons Commissioner Rob Zapple discussed on Monday is the current economy and the rising interest rates.

On Monday, Folwell criticized the county’s decision to enter into the public-private partnership, questioning the need for such an agreement.

“I personally think this lease is very expensive. I mean, $80 million lease over a 20-year period for a library that is estimated to cost somewhere around $45 million implies that this development company is going to make at least in their own words, an 8% profit. And that’s even before they put debt on the transaction,” Folwell said.

The public-private partnership, or P3, is a legal route governments can take outlined in state law. The county has continued to emphasize the right to enter into these agreements, and says this is the best route to take for Project Grace.

Folwell admits that P3 developments are sometimes worthwhile, but says there is a time and place for them.

“We’re talking about one of the most financially solid counties in the United States. Partners are great, but most of the time people need partners because they’re weak, not because they’re strong,” he said.

This is not the first time that Folwell and the LGC have taken a closer look at P3 developments in New Hanover County. The Government Center, which is currently under construction, was also proposed as a lease-purchase agreement. But in 2021, County Commissioners revised the plans and took on debt to fund the project after the LGC raised concerns. Folwell said that move ended up saving taxpayers millions.

“On the governmental Center for New Hanover County, we saved over $20 million in interest — $20 million in interest on that transaction by not going to P3 route … As I said earlier, it just seems like everything is super complicated in New Hanover County these days,” he said.