Joint bills filed in the state House and Senate Thursday could overturn a 75-year lease agreement between the City of Raleigh and the state that would have seen the 325-acre Dorothea Dix Property transformed into a city-run destination park.
The bills seek to invalidate the lease, signed in December by former Gov. Bev Perdue, by invoking the state’s right, as outlined in the original contract documents, to “take by condemnation all or any part of the leasehold interest.”
The state would then have the land re-appraised at what it refers to as a fair market value, and would direct any revenue generated by future sales or lease agreements into a special fund for mental health care. The bills explain that this would be more in line with the original intent of the land, which they say was granted to the state in 1848 to benefit North Carolinians with mental illness.
A Sudden Reversal
Officials with the city of Raleigh said the bills came as a complete surprise.
“I’m really floored, actually,” said Mayor Nancy McFarlane. “We have a signed and sealed contract with the state of North Carolina. I honor my contractual obligations, my business honors its contractual obligations, the city honors its obligations, and I would hope that the state does as well.”
Explained City Manager Russel Allen, “We entered into good faith negotiations, and included what we considered to be legal, binding agreements that were duly instituted by the governor, the Council of State; we believe those are valid agreements that should be upheld.”
Allen said city attorneys are currently reviewing the bills’ language to determine whether the state has the right to invalidate the lease agreement.
Undoing the Lease
Senate Bill 334 and House Bill 319 put forth two main arguments for why the lease should be undone.
First, they describe the agreement with the city as one that is “below fair market value,” indicating that a better deal could be made with the private sector.
Second, they state that the current lease makes no allowance for “the mental health purposes consistent with the purposes in the underlying deeds” to the land, which the new bills would do by setting aside all proceeds from the property for mental health care.
Fair Market Value
A study conducted for the architectural firm of O’Brien/Atkins Associates in May of 2011 by commercial real estate firm Worthy & Wachtel determined the present market value of the Dorothea Dix Property to be around $60 million to $85 million — if the real estate market returns to previous peak values.
Under the terms of the lease agreement, the city will make its first base rent payment in July of 2013 in the amount of $500,000. This rate will increase 1.5 percent each year, yielding the state a total of about $68.4 million during the course of the lease’s 75-year term.
If the lease were to continue under these same stipulations for an additional 24 years, an option outlined in the original contract documents, the state would receive a total of about $110 million for the lease.
Dallas Woodhouse, director of the North Carolina chapter of Americans for Prosperity, a group that has long opposed the lease agreement, argues that a true fair market evaluation has yet to be performed on the property.
“What we know is, what the city is paying is far below what it would go for on the open market,” he said. “Fair market value requires the land be put to its best use, the use that brings it the most value, and a park is not going to bring it the most value.”
This argument is line with a statement one of the sponsors of Senate Bill 334, State Sen. Ralph Hise, R-Mitchell, gave to WRAL on Thursday.
“The deal was done at well below market value,” he said.
In 2011, however, Hise, an employee of Mayland Community College, introduced Senate Bill 159, later passed into law without Gov. Perdue’s signature. The bill granted the sale of state-owned land — the former Blue Ridge Correctional Center — to Hise’s employer for the sum total of $1. The bill stated that the college needed the space for additional classroom, shop and laboratory buildings.
Hise was unavailable for comment.
The Origins of the Dix Acquisition
In 1850, a commission, created by an 1848 law that set aside $86,000 for the creation of a mental institution, purchased two tracts of land on what would later become known as Dix Hill.
The first tract of 125 acres cost the state $1,417, and the second of 53 acres $527. In 1907, the commission purchased an additional 1,155 acres, called the Spring Hill and Oregon Farms, for an additional $53,500.
Although the land was originally purchased using money set aside for mental health care, neither the state nor the city have any plans to open a new mental health facility on the property.
While the lease signed in December does not specify where the proceeds from the rent money would go, Perdue’s office at the time expressed the hope that it would be spent on mental health care. The new bills would codify into law the requirement that sale and lease proceeds from the land be set aside in a fund for mental health care, on which the state expends about $1 billion per year.
Both the December lease and the new bills would allow Healing Place, a drug and alcohol treatment center, and the Food Runners collaborative, a joint venture between Meals on Wheels and the Inter-Faith Food Shuttle, to remain on the property.
In addition, 2,500 employees of the Department of Health and Human Services currently work on the campus. The lease agreement gives the department 15 years to relocate. The new bills would allow the employees to remain on the property.
Condemning the Lease Agreement
In order to retake the land, the bills would invoke the state’s ability to condemn the property and take control over it, although how this would be accomplished is unclear. The original agreement states that the lease can be voided for a number of reasons, including abandonment and “creating an unreasonable annoyance.”
If the state were to condemn the property, it would have to take control by virtue of eminent domain or for “any public use or purpose.”
Allen said because the language of the lease was drawn up by the state, and not the city, he’s not sure how the state is going to be able to have it overturned.
Back to the Drawing Board
Should the state take control of the land, the bills would require that the state’s Department of Administration and Department of Health and Human Services evaluate the recommended uses of the Dorothea Dix Property as identified in the 2007 State Government Facilities Master Plan, and report their findings to the General Assembly by March 15, 2014.
The master plan includes a number of suggestions for the land, including open space and public use, mixed-use and an expansion of the farmers market.
Bill Padgett, president of Dix306, an organization that supports turning the land into a public park, said he finds it discouraging that the state would choose to undo the many years of work that led to the lease agreement.
“The potential is so outstanding. I think so many people were excited about these next steps,” he said.
“[There are] great expectations that some magnificent things could happen for the state that could actually evolve there over time. So it’s disappointing that we’re back into how big a shopping center and how many office complexes and condominiums can be built.”
Although it has been argued that the deal was rushed through without proper oversight because it was signed in the final days of Perdue’s administration, Padgett said this mindset fails to take into account all the prior years of work put in by the city, the governor’s office and local residents and business owners.
“Some good things happen on the last day of a governor being in office,” Padgett said. “Remember that Centennial Campus [North Carolina State University] came about on the last day of Governor Hunt’s first administration,” in 1984, he said.
Mayor McFarlane said another group advocating for the land to be used as a public park, Dix Visionaries, had already raised $3 million in private donations for the property.
Woodhouse explained he and others feel strongly that the lease never should have been signed in the first place.
“Previous Governor Bev Perdue, in a pathetic attempt to get some kind of legacy, literally gave an enormously valuable piece of property away for nothing,” he said. “That property belongs to state taxpayers.”
When it comes to undoing the lease, McFarlane said she feels just as strongly.
“Part of the message here,” she said, “is does this mean that the state can change its mind on any contract?”