MILWAUKEE, Wis. – This week, there has been several major, new developments with the MPS “deal” to sell Malcolm X to 2760 Holdings LLC, from news articles, MPS e-mails obtained by WILL, and statements made by MPS.

The Term Agreement, which was approved by the MPS Board and Common Council last Fall, has not yet been finalized into a contract.  Multiple deadlines in the Term Agreement have been missed – and the way the Term Agreement is structured raises serious legal issues.  Furthermore, MPS, in a statement, conceded that the deal was rushed through in the Fall as a result of pending legislation from the state.  Among the new developments:

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1.      The deal was rushed through for political purposes

o   MPS admitted this week that the deal was rushed through last Fall due to pending legislation from Madison that would allow choice and charters to purchase empty school buildings.  MPS’ statement said that the deal was “accelerated due to proposed action designed to circumvent the legal rights of the Milwaukee Board of School Directors to complete this project.” (Milwaukee Journal Sentinel)

§  MPS’ e-mails, obtained by WILL, support this statement.  They were full of references to “a condensed timeframe,” “time is of the essence,” and “urgency” to get the deal done.

§  Last November, MPS Board Member Larry Miller wrote to the Common Council:  “clouding the process is the pressure from the State legislature concerning MPS facilities. This has put undue burden on a process that should have a natural course.”

o   In the selling of Malcolm X, there was no competitive bidding, a request for proposal (RFP), or public advertising.  MPS departed from this normal procedure and it may be illegal.

§  This had several members of the Milwaukee Common Council worried.  Alderman Bauman, in an e-mail obtained by WILL, stated that he “had concerns with the developer chosen” and “would have preferred that they did competitive bidding.”  He also criticized the process, saying that the “transaction is unnecessarily complex for apparently political reasons.”

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§  An article by the Education Action Group (EAG) highlights some of these concerns.

o   Misleading talking points.

§  Last Fall, MPS repeatedly said that the deal is a “break-even” one for the district.  However, during the same time, on October 18, Dennis Klein of KBS Construction (a principal of Holdings) e-mailed MPS, saying that this talking point was wrong.  Klein said that MPS was “overstating [their] position” and “in short term, the building cannot be used.”  He added:  “the term break even is misleading.  MPS is paying more rent than I am spending on the building.”  However, the talking point continued to be used.

o   Holdings is getting part of the building for “free”.

§  Nonetheless, as part of the bizarre transaction, MPS’ lease payments of $4.2 million for the educational part of the building are equal to Holdings paying $2.1 million for Malcolm X and another $2.1 to renovate the building.   What this means is that the non-educational part of Malcolm X is basically given to Holdings for free – which Holdings will use to collect profit from retail and apartment contracts.

 

2.      Yet, right now, there is no contract to sell Malcolm X to 2760 Holdings LLC

o   According to MPS – as reported by the Wisconsin Reporter – “negotiations are still underway” and Malcolm X will remain empty, unoccupied for all of 2014 and likely 2015.  Meanwhile, St. Marcus could have put a school into Malcolm X starting Fall of 2014, serving 900 low-income children.

o   Holdings has not applied for tax credits that were deemed essential to the deal.  MPS Superintendent Gregory Thornton last Fall cited tax credits available to a private buyer as one of the main benefits of the deal.  In the Term Agreement, Holdings was supposed to apply for low-income housing tax credits from the Wisconsin Housing and Economic Development Authority (WHEDA) by February 2014.  However, according to WHEDA, these tax credits were never applied for.  With the deadline missed, according to WHEDA, they may not be obtainable until 2015.

 

3.      Will there ever be a contract?

o   MPS said this week that “any timeline changes would come back to the Board once negotiations are completed.”  Alderman Bauman of the Milwaukee Common Council added that any changes would require Common Council approval.  (Wisconsin Reporter)

§  There have been at least two missed deadlines.  The Term Agreement stated that Holdings will apply for low income housing tax credits by February 2014.  They have not done so.  Term Agreement also states that MPS will begin leasing back Malcolm X in April 2014.  It’s highly unlikely this will occur given that there is no contract right now.

§  Consequently, the deal will likely need to be revised and go back to the MPS Board and Common Council for approval.

o   The City Assistant Attorney said that “it could take a couple years for a developer to proceed with a project like that.”  He added that, as of now, there was no time frame for sides to finalize the sale. (Wisconsin Reporter)

 

4.      “Deal” may be illegal if it makes it into the final contract

o   Holdings got a $2.1 million “no-bid” construction contract

§  Under state law, the MPS Board must establish rules and procedures for competitive bidding for construction projects.  Wis. Stat. 119.16(4).  These policies must be followed, according to case law in Wisconsin.  According to MPS Administrative Policy, formal competitive sealed bidding with public advertising is required for construction projects on school buildings.  The bid is awarded to “lowest and responsible” bidder.  MPS Admin Policy 3.09(7)(C).

§  We have these laws to protect the public from corruption and ensure honest government.

§  But, Holdings received a $2.1 million deal to perform construction, renovations, and repairs.  The deal was not publically advertised and no one else was allowed to make a bid.

§  Yes, Holdings is obtaining title to Malcolm X, but MPS is immediately leasing a portion of the building back and has the option to purchase it at a later date.  Also, MPS plans to exercise substantial control over the construction and renovations of building.

o   If the “deal” does make it into a final contract, a taxpayer has the right to challenge it for violating the competitive bidding laws. (WILL)