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Tuesday, October 19, 2010

AME To Buy MLK, Jr. Property

The district finally put the contract for the purchase of the MLK, Jr. Elementary property to First AME church. I'm no lawyer but maybe someone out there is because there are a few things that strike me.

One is on page 15 section N. It's for something called Exchange Cooperation which is in the U.S. tax code, Section 1031. I can't tell if it was put in as a general course of how you execute this kind of sale or as a prelude to something else coming. From the IRS webpage:

Whenever you sell business or investment property and you have a gain, you generally have to pay tax on the gain at the time of sale. IRC Section 1031 provides an exception and allows you to postpone paying tax on the gain if you reinvest the proceeds in similar property as part of a qualifying like-kind exchange. Gain deferred in a like-kind exchange under IRC Section 1031 is tax-deferred, but it is not tax-free.

Okay, so the district may be able to put off taxes on the sale. But then there's this:

To accomplish a Section 1031 exchange, there must be an exchange of properties. The simplest type of Section 1031 exchange is a simultaneous swap of one property for another. While a like-kind exchange does not have to be a simultaneous swap of properties, you must meet two time limits or the entire gain will be taxable. These limits cannot be extended for any circumstance or hardship except in the case of presidentially declared disasters. It is important to know that taking control of cash or other proceeds before the exchange is complete may disqualify the entire transaction from like-kind exchange treatment and make ALL gain immediately taxable. One way to avoid premature receipt of cash or other proceeds is to use a qualified intermediary or other exchange facilitator to hold those proceeds until the exchange is complete.

Is this pro forma or is there something else going on that made them put this in the Agreement?

Also, on the first page of the Covenant Agreement, they called the building "Martin Luther King Elementary School" but its real name is Martin Luther King, Jr (as that is the name of the man it honored). It is a legal document so I would think this would matter.

Interestingly, the district will still get rent out of this deal if First AME operates or develops the property contrary to an of the agreed-to conditions of the agreement. As well this agreement expires in 40 years.

In regard to a worry from a nearby Jewish resident that First AME's mission statement is Christian-based, there is a nondiscrimination clause stating:

The Purchaser agrees to comply with all local, state, and federal laws prohibiting discrimination with regard to race, creed, religious belief, color, national origin, sex, sexual orientation, marital status, age, or the presence of any sensory, mental, or physical handicap.

13 comments:

lendlees said...

Did anyone notice that KSB and HMM put forth new proposals for the site? What strikes me is the incredibly articulate proposal put forth by KSB (which is just to postpone the sale until...shock of shocks, the district finishes their capacity management planning), while HMM's is essentially two lines.

Why do I think that KSB's well thought out proposal will get no traction?

Melissa Westbrook said...

Ho, I didn't see that Lendless. Very interesting. Staff will NOT be happy. What they will say to KSB's idea is that the land area is too small to be of any real use (is that true? I don't know but that's what they'll say).

And good for Harium - First AME's proposal is very vague and that is troubling that the district/Board would accept it at face value.

Also, as I noted elsewhere, there is a little unseemliness to the former head of Facilities being a member of First AME.

Meg said...

Smith-Blum's amendment seems solid. She's saying: delay the sale, and consider the needs of the district and its students above all other issues (whether we need the building because of climbing enrollment or to raze it and have an additional field or two). I find that hard to argue with, despite the fact that this sale process has dragged on for quite some time.

Martin-Morris may be willing to support Smith-Blum's amendment simply because it also plays to giving the community center more time. Hard to know which way DeBell will vote, but Patu could well support Smith-Blum, and Carr has (albeit nervously) voiced some concerns about capacity issues. I don't know that I'd bet real money, but I wouldn't rule it out, either. But yes, staff will be ticked off.

I think there's a lot of unseemliness to upper level district management (and yes, now former) having any kind of connection with a bidder like this, particularly since it was in his department. And at this point, particularly after the Superintendent's NWEA debacle, the district should be being extra careful about any possible appearance of management connections influencing the use of public funds.

So tell me, does this sound unseemly? "First AME, the organization that the former head of facilities belongs to, has been selected as the best candidate for the sale of a district building, despite not offering the highest amount of money." I think it does, but if someone else doesn't, I would love to hear why.

AEIC said...

Melissa, you are wrong on the name of the building. It is officially just Martin Luther King, no Jr. Check out school board policy H04.00 to confirm, but I recall Mary Bass explaining the name error in the past. The contract has the right legal name.

AEIC said...

Also, I remember at some point Ron English announcing at a school board meeting that Fred Stephans had recused himself from anything related to this sale because of his connection to FAME, and that he was screened out of all of the discussions.

Patrick said...

Of course it's inappropriate. If it isn't illegal, it ought to be.

And how about having the MAP test contract looked at again by someone who is not MGJ and does not report to her?

Meg said...

Maybe it shouldn't, given that Mr. Stephens recused himself, but upper management being involved with an organization that didn't place the best bid but still got the nod from staff makes me really, really uncomfortable. It has a nasty whiff of influence to it.

Still, if it's true that Mr. Stephens recused himself from the get-go, he behaved professionally.

Melissa Westbrook said...

AEIC, thank you for that but it's still the district's error in never properly naming the building. It is MLK, Jr. that we are talking about and honoring, not his father.

If you have a date when Mr. English said Mr. Stephens recused himself,could you let us know?

StepJ said...

The Section 1031 inclusion is confusing to me -- but I admit I am not an expert at Real Estate law.

I have had family members do a 1031 exchange - as it was a tax advantage. However, it needed to be an exchange of properties - assessed to be of similar value and properties owned free and clear with no mortgage.

If this provision is in the contract what property is AME providing to SPS in exchange?

My understanding is this particular clause is one of those that make the IRS computers stand up and take notice.

It is really not a sorta, kinda, met the rule to pass kind of rule. Really do need to truly meet the obligation of the tax law to pass scrutiny.

I just hope this is not another million plus mistake because our District either disregards, or does not have the expertise...to follow the law.

I read on this Blog that PTA funds are being factored into the budget for next year.

Our PTA is funding nearly 3 fte for the coming year - and really it is not an amount or expectation that can be sustained.

Further depletion of school funding due to downtown attempts at slight of hand will lead to nothing but bad for our schools.

OMG - I really, truly hope that my understanding of this tax law is at fault vs. the District trying to play fast and loose.

Unknown said...

I also made a mental note during last year's testimonies that Mr. Stephens was sitting with the First AME group and nodding agreement at their testimony. So I was not at all surprised that this group got the recommendation.

AEIC said...

I don't remember the specific meeting, but I think it was either at the end of 2009 or the start of 2010. It was whenever he presented on the process that the district was going to use to consider bids for the MLK building. He said that the bids would go directly to Don Kennedy and Fred Stephans would have no role in the process.

As for the name, I agree it should have be named with the Jr., but the contract is legally correct on the name issue.

Meg said...

Wait a minute. Juana, he sat with First AME at a board meeting? Uh, no. No, that is not okay, no matter how carefully he recused himself. He may as well have said to his reports "I can't tell you how to work this, but wow, this group is FANTASTIC. But I can't tell you how to make a recommendation because I've recused myself... due to my connection with this AWESOME group." I take back anything I said about professionalism. And yes, it feels more than a little like I'm in 7th grade, saying "I take back..."

Jet City mom said...


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So the money is coming to the church ( in this economy?) from the state- will this be enough to fix it up considering it has been vacant for so long?