This letter is to explain to the community the reason I am concerned about the proposed lease of the Cundiff Square property from the City of Somerset (“City”) to the University of Somerset (“University”). When the decision to sell or lease the Cundiff Square property to the University was announced Mayor Keck (“Mayor”) stated that the City will be made whole in that transaction, meaning that the City will be paid in full for the acquisition cost of the property, the demolition cost and interest. The phrase “be made whole” means that the City will get all of its money back. For example, if the University writes a check to the City for $1,355,730.60 the City will be paid in full. My concern is that the lease must be fair to the City. I do not have any personal agenda regarding the Mayor or the success or failure of the University. I am concerned about one transaction – the lease.
After reading the Mayor’s commitment for the City to be made whole I wrote several e-mail messages to the City Attorney to request a copy of the proposed lease agreement between the City and University. I did receive a copy of the proposed lease. The lease states, in part, that the annual rent payment by the University to the City is: $46,667.00, and that the rent payment comprises the City’s purchase of the land for $1,000,000, the City’s interest expense of $119,480.60 and demolition expense of $236,250. I learned that the interest expense of $119,480.60 is the total interest expense the City will pay on a bond for 7.5 years, which is incurred for the money borrowed to purchase the Cundiff property. So, the City spent $1,355,730.60.
The lease provides for 30 annual equal payment of $46,667.00 of rent from the University to the City and after all 30 payments are made the City will sell the Cundiff property to the University for $1.00. The value of the future rent payments can be converted to the current value of money by calculating the present value of future rent payments. The phrase “present value” means the current value of future payments given a specified rate of return, or discount rate. I have used 4.0 percent as the discount rate and the present value of 30 annual rent payments is: $806,967.68. That is the value of the lease in today’s dollars. The difference between the money spent by the City and the present value of the rent payments is a gift of $548,763.28. If the discount rate is lower then the value of the gift will be less and if the discount rate is higher then the value of the gift will be higher. I realize that the present value calculation may not be something we think about daily. So, another way to understand present value is that $806,976.68 invested at 4.0 percent for 30 years will fund a series of 30 annual payments of $46,667.00, with no money left after 30 years.
The Mayor has a conflict of interest in this matter. The Mayor has been the Chairman of the Board of Directors of the University since December 1, 2019. I recall that the purchase of the Cundiff property was initially to be for a City park and the apartments located there were to be sold–not demolished. The City park was going to be named Veteran’s Park. Sometime, after the Mayor convinced the City Council to purchase the Cundiff property for $1,000,000 a decision was made to abandon the idea of using the Cundiff property for a City park. Thereafter, a decision was made to sell or lease the Cundiff property to the University and all of the buildings were demolished. It just makes you wonder if the Mayor was working for the City or for the University during early 2020. That is why we have rules against conflicts of interest. The Mayor’s conflict of interest is even more troubling with his brother, Michael Keck, and a City employee, Jeff Edwards, being on the Board of Directors of the University.
In my conversation with the Mayor at the City Council meeting on August 9, 2021 I raised my concern about the present value of the proposed lease payments to the City. The Mayor acknowledged that he clearly understands present value calculations. With that knowledge the Mayor allowed a lease to be prepared which does not make the City whole. In this situation, the Mayor was confronted with choosing a side to favor and he choose to favor the University over the City. The Mayor compromised his ethical duty to City in order to obtain a good deal for the University.
At the conclusion of the last City Council meeting the Mayor took time to discuss things that do not apply to the value of the lease. The Mayor wants to distract the public from what is going on by referencing potential future benefits from Occupation Dollars derived from future employment, future TIF district financing, Horse Soldier, and AppHarvest. Also, it appears that the Mayor blamed the City Council for the terms of the lease agreement at the last Council Meeting.
I am asking the Mayor to explain to the community why the City is making a gift to the University of $548,763.28 with he and his brother on the University’s Board of Directors.