As the Florida’s legislative session reaches its high-water mark and the Senate and House wind up budget conference meetings, there’s a small item that Senate Appropriations Chair JD Alexander slipped into the very end of SPB 7052, which implements the General Appropriations Act, in Section 58. It’s easy to overlook.
This small item directly impacts eight major state agencies and more than 2,100 state employees and calls for the immediate termination of all existing leases with the Koger Executive Center in Tallahassee along with the relocation of the agencies and employees that work there no later than December 31, 2012.
This is, undoubtedly, part of a larger demand by Alexander to relocate 13,000 state employees over a six-month period to about half the amount of space in mostly inferior private and state buildings.
Florida Department of Management Services, 2012 Lease Realignment and Optimization Plan:
The 2012 Lease Realignment and Optimization Plan (“plan”) could substantially reduce the state’s lease costs by vacating the Koger Center and relocating the respective state agencies into alternate locations, preferably state-owned facilities. This plan summarizes relocations, implementation costs, timing, and estimated net savings. The savings will be achieved by reconfiguring multiple state-owned facilities and a few existing private sector leases, to better utilize the space. Although significant reconfiguration is contemplated in one private lease, the majority of impacted, improved square footage will be in state-owned assets. Overall, this plan vacates the Koger Center lease and produces estimated net savings in the range of $65 to $69 million over the remaining lease term of seven (7) years.
… DMS, as directed by the Senate Budget Committee and working with our consultant Vertical Integration, Inc., has developed a plan that could substantially reduce the state’s private lease costs by vacating the Koger Center master lease and relocating the respective state agencies into alternate locations. This plan improves utilization of state-owned facilities and may produce estimated net savings in the range of $65 to $69 million over the remaining lease term of seven (7) years. As directed in Chapter 2011-47, Laws of Florida, and further encouraged in your December 12, 2011 letter, DMS will continue to work with Vertical Integration, Inc., to negotiate the remaining leases over 150,000 square feet.
This shuffling idea which purports to save money, in reality, could cost the state millions. And questions remain as to whether Alexander’s plan serves to enrich a well-connected Tampa real estate broker, Ann W. Duncan, who also served on the Board of Governors when Alexander was putting the pieces together for his Florida Polytechnic University plan.
Aside from some serious questions on the financial side, this plan has several potentially negative drawbacks, including:
1) It will be difficult to move 13,000 state employees in six months.
2) It will be potentially disruptive to the already intense workloads of eight significant state agencies and pull them away from their public services.
3) It sets a precedent for Florida government doing business with the private sector (i.e., it calls for the State vacating private-sector contracts and reneging on negotiated leases)
4) It undermines economic development messages that encourage private business to invest in communities (i.e., Koger made $12.5 million in improvements when DMS under Jeb Bush negotiated the current leases and disregards the incentive given the state of 20 months of free rent at the beginning of the lease period [valued at more than $16 million]).
Some suspect that this decision appears to illustrate a fashion of contempt government leaders may have for state employees, as evidenced by the shifting of workers to smaller, less desirable work spaces. Also, it has been reported that the move appears to be a “sneaky, very ‘un-Republican’ attack on a private business by Senate leadership that ignores basic property rights and business obligations; it sends the message that anyone can walk away from a commitment or contract without cause by invoking a poor economy or tight budget.”
A great concern is that the success of this plan will turn the Koger Executive Center, one of Tallahassee’s largest office complexes, into a ghost town. This would have a significant negative economic impact on the surrounding area, including the Center’s remaining tenants, most of which are vendors to the agencies currently housed at Koger along with the various stores, restaurants and apartments nearby.
One of the biggest questions to ask is “Why Koger?” Why has JD Alexander singled out this privately-owned office complex for destruction?
Well, two weeks ago, on the Senate floor, when Sen. Mike Fasano asked Alexander why the state is cancelling all these leases (including Koger’s), Alexander replied, “In this case, this particular lease has an addendum that has provisions that are specifically not allowed to be included in leases with the state, and under a 1988 statute, the remedy is that the lease is null and void. They negotiated with the Executive branch to put this addendum on, its provisions that carry over the obligation, even if the lease is not appropriated, which are again, specifically not allowed under state law from 1988 on. The remedy is to null and void the lease, so we have followed the law and are not appropriating the lease in an effort to correct the inappropriate or illegal lease.”
Yet, this explanation conflicts with a document prepared by Marty Fitzpatrick of Broad and Cassel law firm, which represents Koger on the legal points related to the lease. The document negates Sen. Alexander’s contention that the lease is “null and void,” and it further describes why it would be illegal for the Legislature to declare it so.
From this document:
The Absence of a Six Month Right to Terminate Conforms to Then Existing Law:
The current statutory requirement permitting a State Agency to terminate a lease with a private Landlord to move into State-owned building does not apply to this Lease. Fla. Stat. § 255.249(4)(e)2.b., was not effective until July 1, 2006 – two years after the Koger Lease was executed. Applying this requirement to the Koger Lease would be an unconstitutional retroactive change of that Contract.
The Dark Space Provision Does Not Void the Lease:
- The Koger Lease contains the following language: “The State of Florida’s performance and obligation to pay under this contract is contingent upon an annual appropriation by the Legislature.” This statutorily required language is not amended, supplemented or waived, and it is printed in the same type as the remainder of the Lease.
- The dark space provision in the Lease Addendum confirms the existing statutory obligation to backfill vacated or unused space. Rent is deferred until vacated space is needed for future occupancy. This provision does not impact any agency tenant being excused from late payment of rent because of the unavailability of appropriated funds, or being excused from performance because of extraordinary circumstances like the abolishment of all or a large part of the agency.
- The State’s prior approval of the Lease terms – it was negotiated by then-Governor Bush’s administration and approved by agency general counsel, OPPAGA and the Legislature (for at least the past 8 years) – establish that the Lease is valid. If the validity of the Lease was truly at issue, the State would have raised this issue with the Court, not propose a law to justify its abandonment.
Result of the State’s Abandoning the Koger Lease by Appropriation Proviso:
- The Tenant State Agencies will have to compensate the Landlord for more than $93 million in unpaid rent (plus interest) over the remaining term of the Lease.
- Even if the dark space language truly rendered the Koger Lease void, thus preventing full enforcement of its terms, this would not make the Lease criminal or illegal so as to absolve all further obligations.
- Voiding the lease would require that the parties be placed in their status quo ante, including restitution to the Landlord of amounts paid or defrayed at the front end of the Lease as consideration for the 15 year term (approximately $33 million). See, e.g., Webb v. Hillsborough County, 128 Fla. 471, 479 (Fla. 1937) (confirming rule that “general obligation to do justice” requires governmental body to restore the true owner where such body obtains money or otherwise benefits from unauthorized act).
Also, a document written some time ago by Steve Turner, the managing partner of Broad and Cassel and lead attorney representing Koger, responds in even greater detail negating the report prepared by Vertical Integration that led to this initiative by Sen. Alexander. Not so incidentally, Vertical Integration is owned by that well-connected Tampa broker Ann W. Duncan, mentioned above.
So, “Why Koger?”
This might be an important question to have fully answered before passing SPB 7052.