The city and Downtown Investment Authority have reached a mediated settlement in the nearly yearlong legal fight with Metropolitan Parking Solutions LLC over the company’s 2004 development agreement for three Northbank parking garages.
The settlement agreement signed Feb. 22 ends the city and DIA’s dispute with MPS that reached the 4th Judicial Circuit Court.
The tentative settlement terminates the 2004 agreement in favor of a deal that forgives more than $62 million in development loans the city has paid MPS over time.
MPS was allowed to request biannual development loans from the city and DIA to cover the company’s operating losses and ensure a 6.75% annual return on the company’s $3 million investment in the garages built nearly 18 years ago at the Duval County Courthouse and near VyStar Veterans Memorial Arena.
The settlement will allow MPS to continue owning the garages but gives operating control and all future parking revenue to the DIA. It also gives the city the option to buy the structures in 2041.
DIA and City Council members have been concerned for years about the financial strain the development loan payments to MPS have on the DIA’s budget.
The company struck the original deal with the Jacksonville Economic Development Commission in 2004 to build, own and operate the three garages as public parking structures. The DIA succeeded the commission.
At the time, JEDC officials said the project would amount to a $53 million private investment.
In a Feb. 22 memo sent to city Chief Administrative Officer Brian Hughes, DIA CEO Lori Boyer said ending the development loans to MPS, referred to in the agreement as “tranche requests,” would free about $2 million in annual cash flow for the authority.
The DIA’s annual garage expenses, including the loan payments, are about $5 million, according to the DIA.
In a Feb. 17 email, the Council Auditor’s Office said the principal balance of the development loans paid to MPS is $62.58 million.
That does not include 2.85% in interest accruing annually on the loans, according to the Council Auditor.
A chart presented at the Feb. 23 DIA board meeting shows the development loans, with interest, total $77.42 million.
The DIA negotiates and oversees economic development agreements and tax increment financing accounts in the Downtown Northbank and Southbank Community Redevelopment Areas on behalf of the city.
City control
The settlement and Boyer’s memo show DIA and the city could pay MPS as much as $4.35 million in lease payments over the 29-year life of the deal.
According to Boyer’s memo, the city would pay MPS $150,000 per year in rent and put $25,000 annually in a maintenance reserve fund controlled by the city and DIA.
The DIA charts show some discrepancies with Boyer’s memo and a legislative fact sheet summarizing the settlement circulated Feb. 22 to the Mayor’s Budget Review Committee meeting.
The chart shows the rent payment as $175,000 per year plus an annual development loan write-off.
The new agreement runs through 2051 but gives the city and DIA the option to buy one or all of the garages from MPS in 2041.
The DIA and city would pay $250,000 to $265,000 for the parking structures plus any outstanding rent and prorated forgiveness of any of the company’s outstanding development loans.
By 2041, the garages would be at least 35 years old.
The DIA and city could choose to buy one or all of the garages at a prorated cost.
The settlement also requires Council to approve refinancing of about $27 million in industrial revenue bonds remaining from the garage construction to lower the current interest rate.
In total, Boyer said in her memo the settlement will have a $13 million net present value savings to the city.
Council will have to approve the settlement for the new agreement to take effect.
The lawsuit
MPS filed a lawsuit in September 2020 alleging the city and DIA were in breach of contract and in default when the city withheld portions of several development loan payments to the company.
City attorneys and the DIA filed a counterclaim in October 2020 alleging Jacksonville-based MPS was in default for failing to provide financial reporting obligations under what was planned to be a 26-year agreement.
The city’s counterclaim cites a 2019 Council Auditor’s review of the contract that found reports for the garages’ revenue provided by MPS were incomplete and not compliant with the development agreement.
In April 2021, the dispute moved to closed mediation that resulted in the settlement released Feb. 22.
The settlement shows the DIA, city and MPS agree to dismiss the legal claims within 14 days of the new deal closing.
‘Uncollectible’ loans
The 2004 agreement says MPS was supposed to pay off the principal of the development loans with any excess annual cash flow generated by the garages, but they were not profitable.
If the settlement is approved, the city will not see that money repaid. Boyer said the city does not budget that debt on the books as a “recoverable cost.”
“Those are carried on the city’s books today as uncollectible in the sense that there is no way to recover those funds and they exceed the value of the garage,” Boyer said Feb. 22.
“So it was never anticipated that we were actually going to receive proceeds for those.”
Council President Sam Newby introduced two bills Feb. 22 as part of the meeting’s addendum at the request of the DIA and Mayor Lenny Curry.
One bill would approve the settlement and the terms of the new agreement. The second would allow the bond refinancing and voids legislation Council approved in April 2021 that authorized the city to borrow $32.9 million to purchase the garages and pay off outstanding construction debt, if the court found MPS in default.
The legislation also creates a capital reserve and maintenance fund for the garages.
The settlement has MPS putting $577,738 into the fund and DIA contributing a $428,207 lump sum into the fund in addition to its annual contributions.
Approvals and payments
The DIA board voted 8-0 on Feb. 23 in support of the settlement and the legislation. The vote followed unanimous approval Feb. 22 from the Mayor’s Budget Review Committee to file the settlement legislation with Council.
Boyer said DIA and the administration are asking Council to approve the bills in a one-cycle emergency so the bonds can be refinanced before expected interest rate hikes by the Federal Reserve.
Before the agreement is final, the DIA would be required to make two more development loan payments to MPS as part of the negotiated settlement that could be up to $3.92 million.
According to the agreement, the DIA owes MPS a $1.42 million tranche payment from 2020 and 2021.
The city also agreed to pay a tranche request for up to $2.5 million for a six-month period or pay for a partial period starting Jan. 1, 2022, and ending 15 days before the new agreement closes.
The Council Auditor’s Office said the last time DIA honored an MPS payment request was August 2021 for $1.94 million.