Mobile County is moving closer to resolving an internal dispute over rent the city of Mobile pays for office space in Government Plaza, though some are concerned the terms being considered in a possible lease amendment would be “inherently unfair” to the county.
There has been friction because of how the city of Mobile pays the existing lease for at least two years, but the issue flared up last year during Mayor Sandy Stimpson’s re-election campaign.
At the time, Mobile County Commission President Connie Hudson aired public grievances about the city’s decision to purposefully stop paying its rent to the county in February 2017, which city officials said was a response to losses incurred collecting the county’s sales and use taxes.
Mobile has collected those county taxes for decades based on a lease agreement from 1989 that allows the city to keep 5 percent of the proceeds as payment for the service — money historically used to pay the county for rent and utilities at Government Plaza.
One of the initial intents of the arrangement was to line up a stable tenant for Government Plaza once it was completed, which put the county in a better position to obtain the loans needed to construct the $73 million structure.
It worked fine enough for two and a half decades, but trouble began in 2014 when the state created an online payment program for all sales and use taxes. That pulled away businesses paying taxes through the city, reducing what was generated through the 5 percent fee.
Seeing declining revenues, city officials chose to stop making those payments altogether last February, which did not sit well with commissioners, who said the decision was made without consulting the county and in violation of the 1989 lease agreement.
Since then, attorneys from both sides have been working to find a workable solution for the remainder of the lease, which expires Sept. 30, 2020. While nothing is finalized, the commission voted 2-1 this week to authorize attorney Jay Ross to move toward a “settlement.”
“We’re now just going back and forth over the wording of the settlement agreement, but I hope to have that resolved in the next couple of days,” Ross said. “It’s anticipated that the city will accept, though we’ve been told it won’t require the City Council’s approval.”
As proposed so far, Ross said the settlement agreement would require the city to pay the county all of the rent and overhead that wasn’t paid to the county in 2017 under the terms of the current lease — something Ross and another county official told Lagniappe has already occurred.
The terms of the amended lease would see the city paying the county $55,000 per month through September 2020, which would go toward its utility expenses.
According to Hudson, the city’s average utility cost has been around $93,000 per month, adding that the county would be picking up the difference going forward. In terms of rent itself, she said the city would pay nothing.
Ross later clarified that the $55,000 payment for utilities would not fluctuate, adding that the city would be obligated to pay it through the end of the lease even if its offices were moved out of Government Plaza.
If approved, the city would also end its collection of the county’s sales taxes within 90 days and forfeit its claim to 5 percent of those proceeds.
In all, the deal cited by Ross appears to be one that favors the city. Mobile has previously paid the county no less than $77,000 excluding utilities — an average of $100,000 per month or a little over $1 million per year. Through 2020, the new rate will total $1.9 million.
However, according to Ross, the city intends to waive its claim to roughly $416,000 that’s been held by the county since 2016. Because no agreement has been finalized, representatives from the city’s legal department declined to comment.
Ross said Monday’s vote gave him the authority to work toward ironing out some of the details, though any final document will require the commission’s approval.
Commissioners Jerry Carl and Merceria Ludgood gave Ross the go-ahead, but Hudson withheld her support and voted against the measure earlier this week. During an April 9 meeting, she read a prepared statement voicing objections to the agreement as currently proposed.
In her view, Hudson said the terms of the agreement “forgive the city” for payment of “all rent owed to the county” from 2018 to 2020, adding that the city currently occupies around “135,000 square feet of space at Government Plaza.”
“That’s a total of 33 months of the city paying zero in rent,” Hudson added. “The minimum rent, per the current lease agreement, requires the city to pay no less than $77,000 per month. Using that figure, rental payments made by the city for 33 months would total $2.5 million. That amount would be realized as a loss with this lease amendment.”
Hudson also noted the county would have to subsidize nearly $40,000 per month of the city’s utility costs for the space it currently occupies, which she said would add up to $1.2 million between now and the end of the lease agreement in 2020.
When adjusted for the money the county will keep by no longer paying the city its 5 percent commission for collecting the county’s sales taxes, Hudson said the amended lease could cause up to $2.7 million of revenue loss for the county over the next two years.
“That’s $2.7 million that could go toward the cost of county operations, or raises for county employees, or toward capital maintenance and upgrades at Government Plaza,” she said. “I find it particularly egregious that after forgiving 33 months of rent, the county would also agree to subsidize city utility costs. The county does not subsidize city hall utility costs for any other Mobile County municipality.”