Lemoore City Council debates wisdom of taxpayer loan to private developer

When it was all over, three councilmembers sided with the taxpayers.

The developer, Tom Vorhees, a Lemoore native now residing in San Diego, says costs have changed since he entered into an agreement with the city in 2014 to buy a parcel in the Lemoore Industrial Park and develop it into commercial and retail businesses. According to terms of a written agreement for the purchase and sale of the property, the city required Vorhees to build a road - Venture Place.

October 3 Lemoore City Council Agenda

He was required to complete the road within a year of the sale. Included in the initial agreement were stipulations that the city could “ask for its property back” if the developer failed to complete the road. Instead, Vorhees received extensions.

Councilmember Eddie Neal

In 2014, the city had a preliminary estimate of $187,000 to develop the road, which included other costs, like grading, road construction, sanitary sewer line, water, line, storm drainage, curb and gutters, the usual things that come with road development.

The city sold the property to Vorhees in exchange for the road’s development. However, in 2016, Vorhees delivered three estimates to the city that ranged from $565,000 to $795,000 to develop the road. The city countered that some of those costs were outside the original agreement.

Vorhees says the costs have since reached $1,000,000 and says the cost to develop a business park is cost prohibitive and is now requesting assistance from the city.

As of Tuesday night, councilmembers, past and present, had never met Vorhees. His appearance on Oct. 3 was his first visit to talk about his project. He told councilmembers that he didn’t realize the cost of building a road would be so expensive and is seeking financial assistance from the Lemoore City Council.

“The original intent in entering into this agreement was to get the road built, take that burden off the city, and then once that was done, develop the land,” said Vorhees. The delay revolved around getting the appropriate numbers back so that construction could begin. He didn’t realize building the road would be so expensive.

Lemoore’s city staff presented councilmembers with several possible alternatives in addition to a loan:

1. Provide a general fund loan to Mr. Vorhees in an amount up to $400,000. The repayment schedule of the loan would be calculated by the amount of building and permit fees Mr. Vorhees would pay that year. If the amount of waived building and permit fees were less than $100,000, Mr. Vorhees would pay the difference between the waived building and permit fees and the $100,000 each year for four years. This loan would be out of the General fund reserves.  A detailed contract will need to be developed in order to ensure appropriate loan repayment parameters and outcomes to protect the City if the borrower was to default.

1. Provide a loan utilizing impact fees to Mr. Vorhees in an amount up to $400,000. The use of impact fees as a loan source will require that the loan is structured as a reimbursable loan. Each source of impact fees has its own set of eligible uses, as such Mr. Vorhees would need to expend the funds, provide invoices and sales receipts to the City, and the Finance Director would determine the appropriate fund. At that time, funds would be released to Mr. Vorhees.  A detailed contract will need to be developed in order to ensure appropriate loan repayment parameters and outcomes to protect the City if the borrower was to default.
2. Waive building and impact fees up to $400,000 for this project and provide no loan option.
3. Take no action. Mr. Vorhees would have until January 13, 2018, the remainder of his second extension, to construct the road as shown on the Final Parcel Map.
4. Other options that may come up during the meeting.

Vorhees favored option No. 1, a loan from the city’s general fund which included a repayment period. “No. 1 would be the most preferable,” he said.  “I would agree to put in writing that we would start the process of starting the road.”

The prospect of shelling out $400,000 from a bare-bones city budget, irked some councilmembers. Councilman Neal wondered aloud if this was going to set a precedent. “Any business that comes here, are we going to do the same for them?” he asked.  “I don’t want this thrown back at us when some other business owner comes to us: You did it for this person, you can do this for us.”

Councilmember Holly Blair seemed to favor the loan option. “I don’t want to set a precedent to say no to people who want to invest in our community,” she said, adding that she’s very open to the first option. “Look, we don’t have a lot of investors knocking down our door here, and this is a potential to have some retail dollars coming to our city.”

Councilmember Dave Brown echoed concerns about taxpayers’ dollars. “My major concern is that this is taxpayers’ dollars. I just need to know our return on investment,” he warned. “We had a plan of action originally, and we didn’t get there.”

Vorhees told councilmembers he expects to spend upwards of $2 million on the project and will build 10-11 buildings on the site, which in turn he plans to lease to prospective businesses.

In referring to Option 1: “You’re loaning $400,000, but I am paying it back if I do this or not. I understand there’s a cost of money, a four-year period, whatever. But I feel that option one is something that is a win, win for everyone, because I’m (incentivized) to move forward with this, move past the road, get that piece of it done, and like I said at the beginning, I will put in writing that the shovel will go in the dirt the day that the contract is done.”

Lemoore’s financial director, Heather Corder, told councilmembers that a $400,000 loan would put the city’s general fund $300,000 in the red.

Councilmember Jeff Chedester expressed concern about the budget. “Four hundred thousand out of our general fund (is a big hit) to our budget,” he warned. “Maybe we’re taking too big of steps. Maybe we should look at waiving impact fees as you go per lot, and that would be your incentive, instead of us dishing out $400,000 from our general fund – from our taxpayers’ money. Let’s take some baby steps and start incentivizing you to continue to build.”

Chedester ended the hours-long debate and moved that the city choose Option 3 and merely waive permit and impact fees. Blair, Chedester and Mayor Ray Madrigal voted yes while Neal and Brown gave the proposal thumbs down. Included in the motion is a stipulation that Vorhees begin the road in 30 days and have it completed in six months.

During the meeting, Vorhees suggested that while he preferred Option 1 – the $400,000 loan – he could work with Option 3.