A Disastrous Deal for Taxpayers: The Beach Club Lease Renewal of January, 2018

The Beach Club lease renewal will result in lease fees that are so incredibly low, the unrealized revenue to SRIA/Escambia County will amount to $50 Million dollars over the life of this lease term.  How was this allowed to occur?

The 128 unit Beach Club condominium complex at Pensacola Beach recently renegotiated their lease with the Santa Rosa Island Authority.

The original 1949 lease had been amended in 1985 (but this amendment was not recorded) and it was amended again in 1985 a second time (recorded).  The original lease was set to expire in 2048--but instead the Island Authority renegotiated this renewal, ahead of schedule and on VERY favorable terms for Beach Club.  This happened in 2017 and the parties signed a new amendment in January of 2018--starting the clock on a brand new 99 year lease.

Because of the changes made to this renewal that was just completed and finalized this year--the properties on this land will only pay ad valorem taxes on improvements, not on the land.  The property's owners will pay a lease fee to the SRIA.

This lease fee, according to the property appraiser, is a total of $23,593.78 yearly----- or just $184.33 per unit per year!!

This amount of a lease fee for such a valuable piece of Gulf-front property is ridiculously low, so much so that I feel it is borderline scandalous.  Why was this rate negotiated down to such a small amount?  Who decided this was appropriate?  Why are the taxpayers that own this land being treated so unfairly in this deal?   These are questions I am asking and that I will continue to ask until I get a good answer.  So far I have received no good answers. (Similarly priced condominiums on the Gulf of Mexico in Perdido Key pay in excess of $4000 MORE yearly in taxes and fees as do the 128 owners of Beach Club now as a result of this "re negotiation.")

Meanwhile, a quick look at section VI of the second amendment to the original Beach Club lease, signed in 1985, clearly states that the minimum rent [lease fee] will be $25,000.00 or $500.00 per unit per year, whichever is greater.[EMPHASIS ADDED]    So why is the lease fee only $184.33 per unit 20 years later in 2018 when the minimum per unit 20 years ago was $500 per unit?  Why?

This same section, section VI, goes on to state that the rental amounts will be tied to the "CPI, 1967,

Unpacking the Beach Lease Mess Part II: Fixing the Problem Going Forward

Although we may not be able to fix some very bad deals (For Escambia County) that were negotiated in the past, we MUST reform the re negotiation process going forward.  This MUST happen.  

As I've discussed at the last meeting, and as I discussed here, here, and here--there is a massive problem with the way several recent "re-negotiations" have been handled at Pensacola Beach.

Several have and/or will lead to a staggering loss of revenue for the taxpayers going forward.

Some are questioning now whether the most egregious of these renewals can or should be "unwound" because the terms are so destructive to the taxpayers that own these properties.  

We shall see how that unfolds....

Meanwhile, we must fix the problem going forward, we MUST prevent this abuse of the taxpayer from EVER happening again in the future.  I have put together a simple, multi-step plan that I believe will solve the problem, make things right, and address this issue going forward.  It goes like this:

   --Establish a moratorium on ANY more large condo lease renewals by SRIA and without BCC    authorization until a standard process and standardized lease models/templates can be put into place with the SRIA.

1       --No renewals of any existing “Master Leases” ever.

2     -- No leaseholder shall be compelled to renegotiate any executed, lawful lease prior to expiration         UNLESS such a leaseholder makes the affirmative choice to do this. (in other words, if the status quo of your lease is to your satisfaction, you do not have to make any changes to what you are paying now-if you want to renegotiate early—you can)

3      --Homestead property that currently carries a perpetually renewing lease and pays full ad valorem         

Unpacking the Beach Lease Mess Part I: Who Owns the Beach?

The subject of Pensacola Beach leases draws lots of heated opinions and positions.  I only care about insuring we don't ever again get taken to the cleaners via pennies on the dollar lease arrangements with the owners of million-dollar condos on the Gulf...

Last week the BCC had a good discussion on the various problems with the leases on Pensacola Beach.  For those that are interested, the video of that discussion is here.

The problem with any discussion about leases, lease fees, and taxes--is that other issues get brought into the discussion to conflate the underlying topic....then the discussion devolves among those various "camps" of folks that have differing agendas.  Beach Lease Holders that pay full ad valorem taxes on improvements and land+ Lease fees, Condo Owners that pay ad valorem taxes just on the improvements and not the land + Lease fees,  The property appraiser, The SRIA, the Escambia Board of County Commissioners, Activists that want to prevent fee-simple title from ever being granted to private parties for any part of this land, and last but not least, the Lawyers on both sides of the issue who make lots of money fighting over valuations of appraisals and other aspects of the leases and taxation.

For my part--I simply want equity by and between lease holders going forward.  I do not want to re-litigate the past, nor do I want to discuss the distinctions between fee-simple title and leases.

Should million dollar condos on the Gulf at Pensacola Beach pay about half the amount of taxes and fees of what million dollar condos on the Gulf in Perdido Key pay?

In short, I simply want to insure that a "Beach Club" type lease renewal NEVER again happens to the taxpayers.

So let's just boil it down and start with the basics, and work our way down to what matters, and to do this we will ask some rhetorical questions.  (then I'll provide answers that are my opinions and what I believe to be true with supporting facts, however I am open to any dissenting opinions)

1.  Who is the lawful OWNER of ALL the property that was deeded to Escambia County via the 1946 Public Act of Congress and subsequent 1947 Conveyance granted to Escambia County---including those portions that currently lie in Santa Rosa County?

Answer: The Citizens of Escambia County and NOBODY ELSE! (But multiple, subsequent sub- leases of various portions of this land have been made by Escambia to Santa Rosa County, and to private parties in Escambia County.  And multiple leases have been made between Santa Rosa County and private parties on the portions of properties leased to Santa Rosa County that lie in Santa Rosa County)

2.  Was it, and is it, legal for Escambia County to enter into leases, including leases that are perpetually renewing, for portions of this one large property that was given to Escambia County by the Federal Government in 1947?

Answer:  Yes--(otherwise someone would have challenged the underlying legality of the granting of these initial and subsequent leases  in court at some point--or the courts would have at some point weighed-in on this question and invalidated these leases at some point over the course of one of  the court's multiple "cracks" at this question during litigation over the last 5 decades on various aspects of beach leases.....)

3.  Is there a distinction to be made between Ownership of Beach Land under Land Title Law and Equitable Ownership of  the same Beach Land for Tax Purposes under the Law?

Answer:  YES--1000% yes  (More than half of the leases made by Escambia County to various 

How $92 Million Was Given Away, and Nobody is Held to Account, Part II

Fixing the beach lease renewal process will help stem the subsidies from Escambia County Taxpayers for expensive properties on Pensacola Beach...

As we explained in Part I, the SRIA renegotiated two large condominium leases in 2016 that will result in $92 Million in unrealized income for Escambia County taxpayers over the term of those leases.

Congratulations to the individual owners of these condominiums for being on the positive side of such a favorable deal!  Good on ya!

But Escambia County and the SRIA are the losers here, because this creates a situation where millions and millions of dollars have been left on the table.  And taxpayers of Escambia County are and will be the losers.

Right behind these two 2016 condo complex renewals will come many more.  If we don't modernize the fees and standardize this process, just imagine how much revenue will be left "on the table" when these condos come in for renewal-----if we leave the rates unsustainably low as was the case with Beach Club and Emerald Isle??

That's why the disastrous method utilized currently to "renegotiate" these leases must be standardized and fixed on today's market rates.  Otherwise, Escambia County taxpayers will continue to absorb the subsidies that are being given to beach property owners via overly generous lease renewals.

How, you ask, does this affect Escambia County taxpayers?

Here's how.

Many of the services provided on Pensacola Beach are subsidized by Escambia County.  The less the SRIA takes in via leases, the more the county will have to pay (subsidize).  It is inversely proportional.

Here are some current examples:

Above:  A comparison of taxes paid by beach properties compared to mainland properties

Public Works and roads crews for Pensacola Beach  $2.5 Million Dollar subsidy from Escambia County Taxpayers

Via De Luna resurfacing?  $1.3 Million yearly paid for from County Funds.

Sheriff's Law Enforcement Services?  Subsidized more than $50,000.00 per year by Escambia taxpayers.

So we have to fix the lease renewal process going forward, we must.  This is the only way to insure everyone is paying a proportional amount for the services received.

This is an important issue I will stay-on until it is fixed.

How $92 Million Was Given Away, and Nobody is Held to Account, Part I

Two (2) ill-conceived lease renewals at Pensacola Beach in 2016 will cost Escambia County Taxpayers more than $92 Million in un-realized revenue over the course of these particular lease terms.  This should not have happened, and it should never happen again.

In 2016 a lot was going on.

There was a campaign going on, and it was drawing lots of attention.

There were local campaigns, and folks were pre-occupied with a lot of stuff.

I had my hands full with my own campaign for BCC in 2016.  I was busy.  We all were busy. I wasn't on the Board of County Commissioners yet.

Amid this backdrop, two very important things happened that will cost Escambia County Taxpayers a TON of money going forward...  How much, you ask?   How about this.  Get Ready.

$92,100,096.

This is a tremendous sum of money and the taxpayers should not have been subjected to this steep a loss---but the deal is done, it happened, and there is no going back and unwinding it.

This is what we lost..... But how did this happen??

Two condominium complexes on Pensacola Beach "Re-Negotiated" new 99 year leases at ridiculously LOW per year, per unit lease fee rates for their respective Gulf-Front properties in 2016.

The immediate impact is the lease fees for these properties are significantly less than what similar properties in Perdido Key are paying.  When one looks at the delta between what similar properties in Perdido Key pay and what these two complexes in Pensacola Beach will pay--it is inconceivable to the average person....how could this have been allowed to happen?  How?

There's a huge delta between Pensacola Beach property tax payments and what similar properties in Perdido key, above, pay.

Because we don't have a time machine and we cannot go back after the fact and "unwind" these deals-the only thing we can and should do going forward is to learn from our mistake. We should never, ever allow the taxpayers to be treated so badly.  Ever.

So how do we fix this going forward?  Here is what I propose....

From now on, ANY new lease with SRIA, any renegotiated lease, should be required to be either

A.  Perpetually renewing, which courts have determined will pay ad valorem taxes on property and improvements

or

B. Renegotiable at 99 year increments--which will preclude ad-valorem taxation.  But such leases will, and should, however, pay a MARKET RATE lease fee to SRIA for the land portion of the property, complete with escalation clauses worked into the renewal to insure the lease fees keep pace with inflation.

It has to be one or the other, this is only fair.  It can never again be a re-negotiable lease with a lease fee that is at the 1946 level.  This is nothing but a ripoff.  So we have to fix it by allowing the lessee to pick between two options as I have listed above.

If we do this, we will never, ever, again be taken to the cleaners like we were with the Beach Club and Emerald Isle Condo lease renewals in 2016.

We will fix this, it is time, and it is fair.

Competition on a Level Playing Field is Good and it is Fair

Our Local New Car automotive dealerships give a significant boost to our local economy yearly--as is illustrated above.  Is it too much to ask to help insure they are treated fairly? 

The issue of "Pop-Up" Car Sales has been a concern that the Escambia County Commission has dealt with before.  But nothing was done.  The proverbial can got kicked last time this issue came around.

The problem continues.

And this time we will solve it.

We have a situation where our "brick and mortar," well-established dealerships have to compete with out of town firms that come to Pensacola, set up tents in parking lots at University Mall or the Fairgrounds, and try their level-best to undercut our locally-owned, well-established car dealerships.

They often times send flyers out in advance, flyers that lead some to believe they have actually "Won" something.  Once these unsuspecting locals show up, they are pressured to buy a car.  A certain percentage of these persons can be "qualified" for a loan (albeit at high rates)--and the "contest " where someone thought they won a prize becomes a situation where an unsuspecting local is sold a vehicle at an inflated price with not fallback protection if the car falls apart or breaks down.

NOPE--these guys are long-gone by the time the problems start.  And folks get stuck with lemons in many cases--with NO RECOURSE.

The Free Market Capitalists might not like it-----but the bottom line is fairly simple;  regulations are necessary, and they are good.  And regulations are fair and they actually foster competition if they are done properly.

We will craft an ordinance that will be fair to all car salesmen---local and out-of-town.  But there will be built-in safeguards to protect consumers and to insure warranties offered are actually backed up, and that all sales of cars are done via licensed dealers who compete on a LEVEL PLAYING FIELD.

Once we do this, I think we will see less and less of the circus tent, pop-up car sales.

And this will be good for consumers, and this will be good for folks locally.

This should have been an easy win, something easy to fix a few years ago.  We will fix it right this time, though.

Speakers at Public Forum: Is there a Potential Compromise?

I have developed what I feel may be a good compromise on the issue of speakers at our meetings sharing minutes.  I will present it tomorrow and we will see if it garners support....

I relinquished the chairmanship of the Escambia Board of County Commissioners last month, and a lot has happened in the short period of time since I handed the gavel to my counterpart in District 3.

We brought in a new member to our board, Robert Bender from District 1.

We began a new policy--which I think is outstanding and I strongly support--where we will start doing one of our two monthly meetings during the day and combine it with what was previously an "agenda review" meeting held during the day. 

This change will allow us to be more efficient, and will free-up staff to concentrate on doing their day-in, day-out jobs in the afternoons following this new, daytime meeting.  (Under our previous format, we did two monthly review meetings where we reviewed the material prior to that night's regular meeting.  Then, we would do  a second meeting the same date, except at night, where the same topics would be covered.  And our entire compliment of senior staff was expected, and were, present at both meetings.  It was what we always did but it was inefficient.  Kudos to Chairman May for making this very good change) 

Under Chairman May's new initiative, the second meeting of the month will be during the day, and will be a combination of what was previously a day review and a night meeting.

And this is a great idea I strongly support.

But one thing has changed that I think still might need some minor tweaking.......

The Public Forum speaker's rules have also been changed abruptly...

We previously would allow speakers who did not wish to speak the opportunity to "cede" minutes to another speaker who wanted to speak on the same topic.   And some speakers would get multiple citizens to "cede" minutes to them so that they could expound on a topic beyond the simple 3 minute time limit.

The newly imposed rule disallows this prior practice.  Everyone can and will be heard, but nobody can "give" minutes to their fellow speakers.  That's the new rule
While I believe this new protocol has it's attractive qualities---I do think there are some issues which require more time to describe.

I also think there are some folks who do not like to speak publicly.  This policy effectively boxes them out.

So here is where I think a compromise may be appropriate--because there is nothing wrong with a person compromising, as long as that person is not compromising his/her integrity or going against a core value/belief.

I believe it is fair, and also efficient, to allow a LIMITED amount of sharing of minutes at public forum. 

The CONs of the current Policy:

--If we tell folks they can no longer "share" minutes, this all but guarantees that more speakers will speak now, and they will more than likely read scripted speeches and take the maximum time.

--folks that are afraid of public speaking may stop attending out of frustration

--fewer will not simply "wave in support"--but rather speak for their full allocation of time to make a point about their anger over the new policy.  This may make meetings go longer

A SUGGESTED COMPROMISE  (Below is my suggested compromise that I will bring up tomorrow)

1.  Allow for sharing of minutes on a limited basis
2.  Speakers who want to speak receive the full 3 Minutes.
3.  Speakers who want to cede time to another citizen can either speak for 3 Minutes themselves or  if they so choose, they may cede a maximum of 1 minute.
4.  No more than "5" speakers can cede time to any one person, and any person receiving minutes ceded from other citizens may only receive a total of 5 minutes of ceded time.
5. No individual speaker can speak for more than 8 minutes total

I believe if we can massage the current policy, we can still be efficient and simultaneously we can keep alive a long-running practice that encourages citizen input.  In short, I think we can achieve a win-win compromise.

I'll suggest this as a compromise tomorrow, we shall see how it is received by my peers.