In a response to a lawsuit filed by Warren County government and the Warren County Downtown Economic Development Authority, Mills Family Realty claims it was permitted to use bond money that financed the project to pay operating expenses of restaurants in the commercial wrap of the downtown parking garage.
The language allowing bond revenues to be used for operating expenses was included in a draft of the Operating Agreement for the wrap emailed to the Millses in August 2012 by Rick Kelley, former owner of Mariah’s restaurant, according to the response filed late Wednesday by Mills Family Realty, which manages the commercial wrap of Hitcents Park Plaza.
Kelley’s former restaurant became one of five opened in the wrap, and he acted as a consultant during construction, opening and operation of the now-closed restaurants. The restaurant and Kelley were facing financial troubles at the former Mariah’s location. Neither Kelley nor an attorney who represented him on previous financial issues could be reached for comment this morning.
“Put simply, to the extent bond proceeds were expended on operating expenses, those actions did not constitute a breach of MFR’s contractual obligations,” the document states.
MFR isn’t responsible for and didn’t request language that provides for such use of bond funds, the response said.
“Mr. Kelley did not represent either MFR or the Mills and his email did not indicate who was responsible for the revision,” the response states.
The response states that the revision appears to have been distributed to at least some of the financing participants, and lawyers for the county revised the lease agreement between MFR and the county in September 2012 to reflect other changes made in the same version of the operating agreement.
It also states that city officials were notified by the county’s lawyers in September 2012 that the operating agreement had been revised.
“Clearly, the City was on notice that revisions were being made to documents governing the use of bond proceeds, and those City officials had a responsibility to review and approve those revisions on behalf of the City,” the response states.
The original complaint from the county and authority asks for the court to declare invalid mechanic’s liens filed on the commercial wrap of the parking garage in Block 6 of the Tax Increment Financing district for money unpaid in the construction of the plaza in the downtown Bowling Green TIF district.
Hitcents Park Plaza has had financial problems for months. Liens were filed on the property for money allegedly owed to construction contractors beginning in late February.
The original complaint contended that Mills Family Realty misused $3.9 million in bond funds issued for the commercial wrap known as Hitcents Park Plaza. It claims that Mills Family Realty used that money “on restaurant equipment, consultants and operations on its own behalf or on behalf of a related corporation MR Group Inc.”
It names Alliance Corp., D&M Electric Inc., Gunter Construction Roofing Inc., Kentucky Mirror & Plate Glass Co. Plant No. 2 Inc., Woosley Bros. Painting Co. Inc. and Mills Family Realty Inc. as defendants.
County Attorney Amy Milliken said even if an agreement states that bond funds could be used for operating expenses, Kentucky law says that industrial revenue bond funds can’t be used in such a way.
“I think no one can agree to violate the law,” she said.
Milliken said she doesn’t believe such a use was intended by the city or the authority.
The response states that Mills Family Realty and Chris and Clinton Mills were not responsible for the planning, development and financing of the wrap.
Kelley contacted the Millses in March 2011 to ask if Hitcents would be interested in moving into a new mixed-use project downtown. Court documents said the request appeared to be at the behest of the city, county or authority. Kelley later asked if they would be willing to serve as the subdeveloper of the wrap, allowing them to own the wrap after bonds were repaid, according to the document.
Kelley, the authority and the county asked the Millses to open restaurants in the wrap after they failed to get a national restaurant chain to open there, the document states.
“Essentially, the Mills and MFR became the means for Mr. Kelley, the Authority, and the County to achieve their goal of putting together a plan that would allow the Wrap to be built,” the document states.
The response also states there are issues with liens recorded by Alliance Corp., and that requests for documentation for amounts claimed have not been fulfilled.
Issues with the liens include work performed by Alliance “in a substandard and unworkmanlike manner,” the document states.
Bowling Green City Commission and Warren County Fiscal Court more recently approved a conceptual agreement laying out terms for negotiations involving the wrap.
Under the conceptual agreement, the city would provide a general obligation lease commitment for up to $30 million in new bonds for the project – about $3 million more than has already been approved in financing for the development. Bonds would be issued by the county, which would provide the city with a “legally enforceable agreement ... to backstop or guarantee 100 percent of the city’s annual debt requirements for the term of the new bonds under its G.O. lease commitment.”
The city would make contributions from its general fund to the debt on the development by making changes to its TIF district base revenues.
The city also would give up all interest in state TIF revenues to the county to be used within Block 6 of the TIF district. It would give up interest in local TIF revenues to be used for debt payment on new bonds for the Block 6 development. It would also convey the title for Block 4 of the TIF district to the authority, though it would receive 50 percent of any proceeds if the property is sold.
The Warren County Downtown Economic Development Authority will have a special meeting Friday to consider terminating operating and subdeveloper agreements with Mills Family Realty “and to participate in any litigation initiated by Warren County.”
Members also will vote on authorization counsel for the authority to act as co-counsel along with the county attorney in any litigation and waive any conflict of interest between the authority and county.
Scott Bachert, the authority’s attorney, said if the authority decides to terminate the two agreements, it is unclear who would be managing the wrap.
That issue may be dealt with in court proceedings, but there is no agreement with any other entity to manage the property, he said.
Bachert said the need to resolve the issue helped prompt the authority to consider the move.
“We’ve just got to bring it to an end,” Bachert said.
The agenda items from the authority were a “curveball,” Chris Mills said this morning.
Chris and Clinton Mills said it’s unclear what it would mean for them legally if the authority votes to terminate the operating and subdeveloper agreements, but they will consult with lawyers later today.
However, Clinton Mills said he believes the move to be political because they have previously offered to transfer those documents out of their control at no cost.
“There’s no doubt it’s a political thing,” he said.
The two also said they have been in touch with the state Attorney General’s Office to try to get documents related to the project that are in possession of other entities and hope to bring in the state auditor to do a full audit of the Bowling Green TIF district.
Clinton Mills said he thinks citizens of Bowling Green would like to know what’s going on in the TIF district.
He said he feels like problems with the wrap project are being laid on the shoulders of the brothers.
“We’re the little guys and we’re getting run over,” he said.
However, the two said they still have some hope for a resolution to negotiations over the project and recently had a productive meeting with city officials on the topic.