This could be Memphis Mayor A C Wharton’s “McChrystal moment.”
Sometimes, people step over the line, try to blur well-understood lines of responsibility and ignore common practice. Sometimes, leaders have to draw a line in the sand and say enough’s enough.
President Barack Obama did it with General Stanley McChrystal. Now, Mayor Wharton needs to do it with Memphis City Council Chairman Harold Collins.
Bad Idea
Mr. Collins has written the mayor, telling him that the legislative body wants to spend $15,000 to review the Wharton Administration’s settlement with Performa Entertainment, long-time manager of Beale Street.
It’s essentially throwing good money after bad – City of Memphis spent almost $3 million on lawyers and accountants chasing Performa with little consternation shown by City Council – but that was then. This is now, and the city charter makes it clear that this second guessing about a legal settlement is not within the Council’s authority.
Legislative bodies by their nature and by our form of government tend to push the limits of their authority and to blur the lines between the branches of government. Often, it’s not worth the effort for the administrative branch to push back.
It’s worth it this time. This review clearly crosses the line and injects the City Council clearly into the province of Mayor Wharton.
Line in the Sand
It’s time for him to draw the line. The review is a specious notion regardless of who has the authority. As anyone who has negotiated a difficult agreement knows, it is impossible to second guess decisions made in the highly charged atmosphere of legal negotiations. It is also a feature of successful negotiations that there are things that each side may like and there are things each side may hate. Nothing is so central to successful negotiation as compromise and horse-trading, and it’s easy to take a microscope to individual elements of an agreement and suggest it’s a bad settlement.
It’s just impossible to understand the give and take of the negotiations if someone’s not involved in it. City Attorney Herman Morris and his staff were charged with reaching an agreement that was fair and equitable. Already, some of the Council statements have misstated what street revenues are and how they were accounted for.
More to the point, the Council does not have the power to contract with an attorney. That is one of the mayor’s powers. Chairman Collins wrote: “I do not believe that the Council is seeking to challenge the settlement.” What would it mean if the Council did want to challenge it? The mayor has sole authority to contract and negotiate settlements. Is Chairman Collins suggesting that the Council is prepared to challenge the city charter in court if it changes its mind?
Just Say No
The Council wants to select the attorney who’ll get the $15,000 (we’re betting the number goes up). In his letter to Mayor Wharton, Chairman Collins wrote: “This will provide, in my opinion, a sense of independence and give a level of confidence and comfort to the Council and citizens. It is therefore important that we remove any suggestion that the attorney we select was chosen or approved by you to insure that the public perceives this as a truly independent review.”
We’re hard-pressed to imagine that the public is giving this much thought in the first place, but again, it’s the mayor’s legal authority to appoint attorneys, so again, we hope Mayor Wharton will just say no.
John Elkington played his trump card weeks ago, and after several years of innuendoes, rumors and charges, it’s hard to conclude anything except that he won the high-stakes game of money and reputation that characterized the $6.4 million argument about Beale Street management.
Getting the Facts
One of Memphis’s most respected accounting firm, Watkins and Uiberall, shredded a $750,000 “forensic audit” by Parente Randolph, the Philadelphia firm hired by Memphis Mayor Willie W. Herenton, to prove that Mr. Elkington’s company, Performa Entertainment, owed the city millions. In a letter to John Ryder, receiver for Beale Street Historic District, Bill Watkins wrote: “It is my professional opinion that Parente Randolph’s report is not forensic, is not an audit, and its purpose is hard to discern.”
In other words, the conclusions by Parente Randolph were directed by city government to justify preconceived opinions. Those lawyers made more than $2.5 million as city government threw everything but the kitchen sink at Mr. Elkington to get him to fold and settle.
“After devoting more than 200 hours to this review, it is my professional opinion that Parente Randolph’s report is seriously flawed,” said Mr. Watkins in his letter. “No money is missing. All money in question is accounted for and no money has been misappropriated.”
Move On
There weren’t exactly people lining up in 1982 when Mr. Elkington was chosen to revitalize Beale Street. Before and after photos paint a 1982 ghost town (all it needed was tumbleweed) and today, it’s a vibrant street that draws more visitors than any other tourist attraction in Tennessee.
At this point, it doesn’t sound like Mr. Elkington is expecting a thank you. But it’s time to move on.
The council must approve this contract, correct? Aren’t they obligated to exercise due diligence?
I agree with what you are saying to an extent. However, I simply do not understand how the city has been screwed out of any money from Beale Street for 28 years and nothing improper occurred. I would be thrilled if SCM could explain this.
My understanding is that the contract with Performa said that after Performa recouped the money that it invested in the revitalization of Beale Street, they were to keep 5% of rents and the remainder of the money was to go to the city. One of three things had to have happened in the past 28 years:
1. Performa still has not recouped the money they invested in the revitalization and, therefore, no money is due to the city. If this is the case, why would Elkington be fighting to maintain a lease on a money-loosing venture?
2. The street has broken even where Performa has made their money back but there was no additional money due to the city. Virtually impossible.
3. The street has been producing profits above the amount that Performa invested, and they have kept those profits that should have gone to the city.
Which of these occurred? Am I missing something? Seems pretty simply on the surface. Please explain how it is that continuing to pay Performa 5% for decades to come (by the way, how much money are we talking about in total over these years?) without them doing anything more AND paying $420,000 in legal fees for Elkington IN ADDITION TO the $2.5 to $3 million the city spent in legal fees is a good deal for taxpayers.
While you are at it, maybe you can dispel another rumor. I have heard that Elkington used lots of tax credits and grants to revitalize Beale Street back in the 80’s and didn’t necessarily put his money on the line as people like to say. Is this true?
Unfortunately, I am still waiting for our local media to adequately explain the situation.
Good questions Mark. Has the city ever been paid any revenue above the 5% Performa got.
The details of the contract and the related revenue is not the issue of the original post, but since Mark brought it up I’ll add something.
Let’s start with the assumption that Beale is making money hand over fist, which may or may not be the case. As the paring back (cancellation) of the Red White and Blues celebration has illustrated, there are events downtown that are sponsored by such groups as the Beale Street Merchants Association that the public might assume is supported entirely by the city government. What does the contract say concerning these expenditures? If funding for such events as the St. Patrick’s Day Parade, New Years Eve festivities, Red White and Blues celebration and numerous other events held on Beale Street throughout the year to keep it a lively attraction was deducted before the city received any financial return- then I can understand why there was nothing left to present to the city on an annual basis.
Good luck with “our media” exlaining anything but the shallowest of things for only as long as it has any buzz value. Let’s face it, the local media’s lack of investigative reporting and lack of continuity is a BIG PART of how to shove anything under a rug, a Memphis Hallmark “deniability”.
This seems like more of a distraction than a worthy cause, you can’t save any money lost in the past and you can’t build anything worth having by trying to pinch pennies.
The council should put more emphasis on making enough money to dwarf anything Elkington will ever see instead of once again, arguing over bread crumbs to distraction. How short sighted van they be, how backwards? I have a feeling we are about to see.
The “C” key is next to the “V” key, shshshshh, don’t tell my thumbs, they ant to go to the van.
It seems that the city knew that it wasn’t owed any money or it wouldn’t have settled, and the Watkins audit was persuasive to us about expenses and Performa’s decisions and role.
We asked about Mark’s comment, and here’s what we were told:
Performa in 1982 signed a lease with the Beale Street Development Corp, not with the City of Memphis. The lease calls for Performa to develop the Beale Street Area and to run the development. For the use of the property Performa would have to use its own funding or get funding from other sources – The City and County had provided all the funds that they received from Federal Grants, which totaled close to $1.6 million, which the City and County paid to the contractors directly, no Grant funds were given to Performa or Elkington. The development required an additional $19 Million and these funds had to be raised by Performa, it is this private money that had to be repaid. On this amount of funding a recoup period of 25 to 30 year is not unreasonable.
As stated in the lease with the Beale St Development Corp – Performa is to receive a 10.5% fee from the rents collected and under Real Estate practice – a Real Estate Agent is entitled to a Commission for the Lease that he/she worked on, in Performa’s case it is 5% of Rent Collected for the term of the lease.
As with any business operation not every year is a profitable year. There are ups and downs. Some year there is a profit and in other there are losses. Overall the Beale Street project has shown a steady increase since 2004 and should show another profitable year in 2010 barring any major Economic or Natural disaster. One can never tell with 100 year old buildings.
Since opening the tenants of Beale Street have collected and paid to the State and City in Sales Taxes over $41 Million Dollars, and untold millions in other taxes and fees, to say the City hasn’t received benefits from Beale is incorrect.
As part of the Rent Formula in the Lease Performa would have to pay its landlord (the Beale Street Development Corp) any rent that would be due. The Beale Street Development Corp. in its lease with the City of Memphis would keep for its self up to $15,000 per month or $180,000 per year- then the Beale Street Development Corp would pay the City of Memphis, anything in excess of the $180,000. It is the responsibility of the Beale Street Development Corp to pay the City of Memphis.
“We’ve been told” is not credible or useful unless we know who is the source of your information. Or should I say your oracle?
I’ve been told Elkington isn’t entitled to the 5% golden parachute and furthermore the deal hampers the city’s ability to negotiate with management companies.
Would someone please give us a real number of what Elkington stands to gain from the agreement and what we lose by “moving on” and licking our wounds?
And please spare me the lecture on the riches realized by sales tax revenue and “untold millions in fees.” Instead why don’t you tell us what the city and county didn’t collect in property taxes for the term of the lease.
I’m waiting.
Mary-
I think “real” numbers would be fun as well if they can even be identified in such a tangle of agreements formed between participants of a public- joint public/private- private enterprise.
I can state one thing we stand to lose, from personal experience in the field, if the city is not willing to walk away from this: We jeopardize the health and continued success of Beale Street itself. The vast majority of private developers do not enjoy participating in games of political football. It is a costly and time consuming game- one for which banks and financial institutions (thus developers) have little patience. It creates unstable ground where one might want to make an investment and the last thing you want is to add one more variable into the equation when launching a new business. If the city council decides to turn Beale Street into any more of a lightning rod than it already is, we stand to further tarnish its image as an attractive place to start and run a business. The political posturing of the city council could not have happened at worse time considering several recent highly publicized disturbances that have occurred on Beale Street.
Mary:
It’s hardly a golden parachute if the city acknowledges that your numbers were right, and it sure appears that there was no challenge at all to the audit. And there’s it nothing about the agreement that hampers the city’s ability to negotiate with management companies (if that is in fact the direction the city even goes with this).
You don’t lose anything by the agreement, because it’s not tax money. And after his audit proved that the city was wrong, it only seems fair that Performa is paid for the legal bills defending itself from legal action that never materialized.
Or at least that’s our take on it. A good settlement is when both sides get something out of it. The city now has control of Beale Street, which was its objective, so it looks like a good agreement to us.
Thank you for the synopsis. I feel like that is more information in one place than I have read in any of the local “news” sources.
Regarding the sales taxes, I don’t think anyone is saying that “the City hasn’t received benefits from Beale.” I am just concerned that the terms of the contract were not upheld.
In general, I think almost all of this ill-will and uneasiness about the settlement could be alleviated if the books were opened up. Some numbers I would like to see include:
How many years since 1982 were profitable and how many lost money?
What is the average rent for a space on Beale Street?
How much money does 5% of rents until 2035 add up to?
Finally, what exactly does the Beale Street Development Corp do?
Thanks for looking into this.
-mark
SCM said:
“A good settlement is when both sides get something out of it.”
No, a good settlement is when the party who was in the right is made whole. Move on — settle the matter but why would you argue that Elkington is entitled to future profits –the 5% — that by all rights should go to the city?
I’m not disputing the conclusions reached by the second audit. I’m angry about what the settlement provides going forward. I thought that was perfectly clear in my earlier post so I’m perplexed why you are giving me a lecture.
Finally, a management company will likely disagree with you about Elkington’s continued involvement and generous compensation contract.
Why can’t the City Council hire a lawyer and hold hearings about the Beale Street settlement?
Although I think a good policy analyst would be better than a lawyer, it would be nice to have a complete accounting of this whole affair.
I’ll do it for $15,000.
I’d say worry about it later, now isn’t the time to quibble over ants when elephants are jumping the walls.