(Mouse click on image to enlarge it.)
$6,720,029.87. That is my calculation of the amount of “rent” North Idaho College prepaid and overpaid to a private, non-profit corporation, the North Idaho College Foundation. That is the amount of “rent” the College paid after it already owned the property.
A regular reader of OpenCdA suggested I extract and consolidate some information from my report titled NIC’s 499-Day Lease of 17 Acres of Bare Land and focus on just the calculation of the rent the College overpaid and prepaid. The reader observed that the money came from property taxes levied on Kootenai County residents by North Idaho College.
Here is the calculation with a brief explanation of how the figures and dates were derived.
The Calculation
The amount of the prepaid and overpaid rent the College should seek to recover from the Foundation on behalf of Kootenai County property tax payers can be calculated from information in the “Lease Agreement.”
The “Lease Agreement” terms established that the “lease” could exist for a maximum of four years from July 23, 2009, through July 22, 2013. That is 1,461 days counting both the beginning and ending dates.
The “Lease Agreement” provided for the College to pay the Foundation a maximum of $10,444,804.12 up to the maximum lease term of 1,461 days. That amount included the $4 million the College paid at lease signing plus $6,444,804.12. The $6,444,804.12 is the exact amount the Foundation would have to pay Mountain West Bank in principal and interest if the “lease” had expired on July 22, 2013.
Dividing the amount the College would have paid the Foundation ($10,444,804.12) by the 1,461 days the “lease” could have existed, we determine that the daily rental contemplated for the 17 acres was $7,149.08. Again, this is calculated from the information in the “Lease Agreement.”
But the Foundation paid off its loan and then delivered the deed to the College on December 3, 2010. The College owned the property as of December 3, 2010. When the College became the owner, it had “rented” the 17 acres from July 23, 2009, through December 3, 2010, a total of 499 days. But by December 3, 2010, the College had prepaid “rent” in the amount of $10,287,420.19 to the Foundation.
The “Lease Agreement” allows us to calculate the “rent” amount paid by the College to the Foundation was $7,149.08 per day, so for the 499 days the College was actually the lessee but not the owner, it should have paid only $3,567,390.32 in “rent” owed to the Foundation, not the $10,287,420.19 “rent” it had actually prepaid.
The difference between $10,287,420.19 and $3,567,390.32 is $6,720,029.87, the amount of the refund I believe the College is obligated to seek and entitled to receive from the Foundation. This is “rent” that was prepaid and overpaid by the College to the Foundation.
I believe property tax payers in Kootenai County are entitled to demand that the North Idaho College Board of Trustees recover this $6.7 million. I also believe Idaho legislators should support that demand before considering allocating state funds to North Idaho College.
Explanation
The “Lease Agreement” between North Idaho College and the North Idaho College Foundation resulted in the College paying “rent” to the Foundation to “lease” 17 acres of land. The Foundation had agreed to buy the 17 acres for $10 million from the seller (The Mill Sites, LLC), then “lease” it to the College.
The “Lease Agreement” between the College and the Foundation was signed and went into effect on July 23, 2009. The “Lease Agreement” provided for a maximum of four one-year terms subject to approval of annual renewal by the College Trustees. The “Lease Agreement” provided for the College to pay the Foundation a total of $10,444,804.12 until the “lease” ended on July 22, 2013. That amount included $4 million in “prepaid rent” by the College when the “lease” was signed. It also included an additional six semi-annual “lease” payments of $1,074,134.02 each.
After receiving the College’s $4 million “prepaid rent” payment on July 23, 2009, the Foundation obtained a loan for $6 million from Mountain West Bank. The Foundation then made the $10 million purchase of the land.
Though the Foundation exists to help the College, it is a separate, private, non-profit corporation. The “Lease Agreement” did not require the Foundation to apply the College’s “rent” payments to repay its loan to Mountain West Bank. The Foundation could use the College’s “rent” payments for any lawful purpose.
The “Lease Agreement” did require that immediately after paying off its loan to the Bank, the Foundation had to deliver the deed of ownership to the College for no additional consideration. The College was required by that same “lease” term to accept the deed at that time. There were no amendments or additions to the “Lease Agreement,” so this “Lease Agreement” is the only agreement that resulted in ownership of the 17 acres going from the Foundation to the College.
For some reason the Foundation decided to pay off its loan on December 3, 2010. By that date, the College had already paid $10,287,420.19 in “prepaid rent” to the Foundation. This is only $157,383.93 less than the $10,444,804.12 the College would have paid had it continued to “lease” the 17 acres until July 22, 2013. As of December 3, 2010, the College owned the property.
The College represented that its (meaning, taxpayer’s) money was only rent on the “lease.” The “Lease Agreement” provided for the College to only make rent payments. If the College represented otherwise, it would have been admitting that the Foundation was a straw man through which the College was channeling taxpayer’s money to make unconstitutional installment purchase payments. The College would have been admitting that it and the Foundation had entered into an agreement and committed acts in furtherance of it which they knew or should have known violated the Idaho Constitution, Article VIII, Section 3.
Since all the money paid by the College to the Foundation was “rent” according to the Foundation and College, property taxpayers in Kootenai County are entitled to demand that the North Idaho College Trustees seek and obtain a refund of several million dollars of taxpayers’ money prepaid and overpaid by the College to the Foundation. The College should not have paid the Foundation “rent” to “lease” property the College already owned!
Okay, Bill, I will bite.
You state that $10,444,804.12 was due under the lease agreement. You state that “the “Lease Agreement” provided for the College to pay the Foundation a total of $10,444,804.12 until the “lease” ended on July 22, 2013. That amount included $4 million in “prepaid rent” by the College when the “lease” was signed. It also included an additional six semi-annual “lease” payments of $1,074,134.02 each.”
Upon reviewing the decision of Judge John T. Mitchell, dated February 15, 2011 and posted for public dissemination on the Kootenai County, Idaho District Court Opinions page on that same date, I see that Judge John T. Mitchell states at page 11 of his decision:
“[It is entirely unclear how plaintiffs reach their calculations, as the entire lease
amount, had the lease been renewed for all four terms would have amounted to the
annual lease amount of $1,074,134.02 for four years plus $4,000,000, for a total of
$8,296,536.08;…]”
I am confused. If it is “entirely unclear”, as stated by Judge John T. Mitchell in his decision, how plaintiffs reached a calculation other than the $8,296,536.08 that he determined to be correct in his decision…how can you possibly claim that the total amount due under the “lease agreement” was $10,444,804.12?
I guess, simply put, I am wondering which one of you, you or Judge John T. Mitchell, needs to clean your glasses off and go back and take remedial math…at North Idaho College?
Comment by Joe Six-Pack — June 23, 2011 @ 10:01 pm
The details in the accounting are not the issue. The issue is that a smoke-and-mirrors method was employed for NIC to buy this property whereby they could sidestep state law. The smoke-and mirrors is the lease agreement w/o any verbiage to buy the property. A lease is a term of time, not a purchase transaction exchanging funds for title. The cute trick here was that after the, wink-wink, lease period was completed that the Foundation would gratuitously give this land to NIC. Well NIC chose to prepay on its lease obligation. NIC had to prepay a huge chunk of rent in advance in order to, wink-wink, be allowed to get the, wink-wink, lease. Regardless all of the lease funds were paid earlier than the term of the lease. So technically and legally the land was not leased for the contracted term of the lease. And for some reason the Foundation handed the land over to NIC prematurely. Do we want to call that ‘convenient’ or a huge ‘ooops’? Call it convenient and the parties who wanted this sleazy deal to happen are pleased. Call it by the law (a term foreign to those same sleazy folks) and NIC is due a huge refund on rents paid to lease this land that were not actually used.
Of course if NIC got its refund The Foundation would be on the hook to come up with those funds. They could have like a, wink-wink, bake sale. There NIC could pay the Foundation $$$millions$$$ for let’s say a, wink-wink, really, wink-wink, exotic cupcake. This huge amount of income could then go back to NIC as a rent refund. Then the accounting books would be just fine and and NIC could have its cake and eat it too. (Sorry I could not resist).
Comment by Wallypog — June 24, 2011 @ 5:40 am
Joe Six-Pack,
You have correctly and accurately quoted Judge John T. Mitchell’s memorandum decision of February 15, 2011. Judge’ Mitchell’s math does not need remediation, but his reading comprehension does. In his decision Judge John T. Mitchell incorrectly stated that the $1,074,134.02 was an “annual lease amount.” The “Lease Agreement” between the College and the Foundation, on page 2, paragraph 3, clearly and unambiguously states that the $1,074,134.02 payments are “semiannual” payments. “Semiannual” means twice yearly, two payments per year, not one as Judge Mitchell concluded. That same paragraph goes on to spell out those semiannual payments will begin on February 1, 2010, and “…thereafter on February 1 and August 1 of each year of said appropriation.” So, if the term “semiannual” wasn’t clear to Judge Mitchell, I would have thought that identifying the two specific payment dates in each year might have helped clarify it.
There is more to Judge Mitchell’s comment that is revealing. After his arriving at an incorrect “total of $8,296,536.08,” Judge Mitchell goes on to observe, “… and NIC leased the property for the July 2009 to December 2010 time period before purchasing the Mill Site.” The one and only provision in the “Lease Agreement” that provides for NIC to “purchase” the Mill Site is in the event the Foundation defaulted on its loan with Mountain West Bank. The Foundation did not default on its loan, and there was no other provision in the only existing written agreement between NIC and the Foundation for NIC to purchase the Mill Site. I wonder if Judge Mitchell’s “purchasing the Mill Site” statement in his was a Freudian slip, revealing his knowledge or belief that in fact NIC and not the Foundation was really the buyer?
I was very disappointed to read Judge Mitchell’s comment that you cited. The “Lease Agreement” between the College and the Foundation was the pivotal document in our lawsuit. Indeed, attorneys for the College and Foundation often repeated in Judge Mitchell’s courtroom that they were “bound by the four corners of the agreement.” Given the importance of the language in the “Lease Agreement,” I wish Judge Mitchell had taken more time to read and understand it.
Comment by Bill — June 24, 2011 @ 7:01 am
Wallypog,
The details in the accounting are the issue now. Judge Mitchell also ruled that taxpayers (the plaintiffs Larry Spencer, Tom Macy, and I) do not have standing to sue NIC and the Foundation to have the prepaid and overpaid rent returned to the College. The College and the Foundation said that only the College could make that demand. Okay, so why hasn’t the College made it? Wouldn’t it be responsible for the North Idaho College Board of Trustees to seek and demand the return of the overpaid prepaid rent? After all, it’s over $6.7 million of the taxpayers’ money the College is cavalierly choosing to give to the Foundation. And on the possibility that the Foundation might just have been using the College’s (taxpayers’) money to make the principal and interest payments on the loan, Mountain West Bank should give Kootenai County taxpayers a big thank-you for the between $287,420.19 and $444,804.12 in tax-exempt interest Mountain West Bank received from the taxpayers via NIC and the Foundation.
Our standing to appeal is the issue now briefed to the Idaho Supreme Court. The College opposes our trying to get the $6.7 million in overpaid prepaid rent refunded to the College. But if the College could but won’t stand up for the taxpayers in court, shouldn’t the taxpayers be allowed to stand up for ourselves? Why isn’t the North Idaho College Board of Trustees trying to recover the $6.7 million it is entitled to recover?
And if Spencer, Macy, our attorney Starr Kelso, and I are so opposed to the “Education Corridor”, why are we the ones fighting to recover the $6.7 million for the College? Why isn’t the College fighting its own battle? Why doesn’t NIC want its overpaid $6.7 million returned by the Foundation? Couldn’t that $6.7 million be used for vocational training and educational programs to fulfill the College’s mission?
Finally, I think your analysis of the issue is correct, however, our appeal had to be based on Judge Mitchell’s ruling and on the Supreme Court’s ruling on some preliminary motions. Remember, based on his precise reading and comprehension of the “Lease Agreement” and his agreement with Wisconsin law, Judge Mitchell ruled that the “Lease Agreement” did not violate Article VIII, Section 3 of the Idaho Constitution. He also ruled that the “Lease Agreement” was a “lease”, not a prohibited installment purchase agreement.
Comment by Bill — June 24, 2011 @ 7:20 am
Wallypog,
I stand corrected on my question addition skills, given Bill’s reply. He is correct that Judge John T. Mitchell’s reading comprehension is really the question. Apparently I was giving Judge John T. Mitchell too much credit. Bill’s reading comprehension observation raises, in my mind, a far more fundamental concern about his judicial abilities. If he can’t read…and comprehend…a simple addition calculation, how in the world can he be expected to accurately read and comprehend the rest of the lease agreement, let alone the law. Following up on Bill’s further comment about WISCONSIN law, I checked the on-line opinions, that I referenced in my earlier post,further. Upon reading Judge John T. Mitchell’s 3-19-10 decision that granted the College/Foundation summary judgment I was puzzled. Why, in a case that questions whether a lease violates the IDAHO CONSTITUTION, did Judge John T. Mitchell extensively discuss the WISCONSIN constitution and its interpretation under the “majority” rule. My brief look at the WISCONSIN constitution’s provision applicable to the lease issue indicates to me that it’s wording is not the same as found in the Idaho Constitution. Following up on another question, because it is my impression that Idaho rarely follows the “majority” rule, it is my distinct impression that, on constitutional questions, Idaho actually follows the “minority” rule that calls for very conservative interpretation rather than the “majority” rule’s liberal interpretation.
All this begs the questions of 1. Whether Judge John T. Mitchell has basic reading comprehension skills, and 2. Whether he can perform basic (very basic if I can find this information in a short amount of time) legal research?
Comment by Joe Six-Pack — June 24, 2011 @ 8:16 am
Wallypog,
In his decision awarding summary judgment to the College and Foundation, Judge Mitchell opined that the intent of the parties to the “Lease Agreement” simply didn’t matter, even if that intent was to deliver ownership of the land to the College. I don’t fully understand his thinking, but of course, I’m not an attorney. Back in 1880 the US Supreme Court seemed to be saying the intent of the parties to a contract (I believe the “Lease Agreement” was a contract) does matter. In fact, delivering the majority opinion in that case (Heryford v. Davis), Justice Strong said:
I’ll freely acknowledge that Heryford may no longer be appropriate to cite, but the underlying premise was sound: You can call it a “Lease Agreement” if you want to, but if “the ruling intention of the parties, gathered from all the language they have used” was to have the College’s (taxpayer’s) money buy the property, then it was not a lease but an installment purchase prohibited by the Idaho Constitution without voter approval or judicial confirmation. In other words, the Foundation and College could have titled the document “Boeing 747 Aircraft”, but titling it that wouldn’t have made it a Boeing 747 any more than titling it “Lease Agreement” would make it a lease.
But that’s just my layman’s opinion.
Comment by Bill — June 24, 2011 @ 8:46 am
The gist of my comment is this: Given the poor character of the beasts involved no matter what happens they’re going to worm their way around any issue or culpability. You may wring your hands and burn rubber all day long but at the end of the day NIC will own the land, no penalties will have been assessed and no crimes charged. The best use of the obvious underhandedness of the circumstances will be in the upcoming elections. My suggestion would be to find a way to literally illustrate the discrepancy in a very simple way. People more easily understand pictures and all those numbers will send most folks into a dullard haze of confusion.
Comment by Wallypog — June 24, 2011 @ 9:01 am
Wallypog,
We had no objection to NIC owning the land. Idaho law allows NIC to acquire land — as long as it follows Idaho’s constitutional and statutory provisions. It was our belief NIC violated the Idaho Constitution in its method of acquisition.
You are probably correct. Even if the Constitution or laws were violated and there was criminal culpability, it will probably be neither charged nor prosecuted. You need look only at who were the plaintiffs in the lawsuit and who were the defendants and other interested parties to understand that.
You are also correct that the solution will be to elect officials (NIC Trustees, mayor, city council, judges) who are committed to achieving desired outcomes within the prescribed boundaries of the Constitution and the law.
Unfortunately, the essence of the issue is in the tedious details of numbers, dates, and document words. If you can suggest illustrations, I’d be thrilled to see them. I don’t have Adrian’s remarkable talent for putting complex issues into pictures.
Comment by Bill — June 24, 2011 @ 9:31 am
Joe Six-Pack,
I would have preferred that First District Court Judge John T. Mitchell’s error have been an arithmetic one. That he failed to read and understand a relatively simple yet critically important term in the “Lease Agreement” causes me to wonder what else of critical importance he failed to read and understand in the document before issuing his ruling. It seems to me that reading comprehension is an essential skill for a district court judge.
Comment by Bill — June 26, 2011 @ 10:34 am
Bill, I do not for one minute believe that it is a comprehension issue. I believe it si a “WHO’S WHO” issue.
Comment by concerned citizen — June 26, 2011 @ 10:59 am
Construct 2 histogram graphs, each consisting of 2 variables, cost and lease time. The 1st graph should show the total amount of the costs and lease time contracted for in the lease agreement. The 2nd graph should show the actual costs paid and the actual lease time used by NIC. The 2nd graph illustrates that all of the fees were collected but only a portion of lease period was used. So when do we get our rebate?
Comment by Wallypog — June 29, 2011 @ 7:02 am
Wallypog,
Isn’t it simpler to just say that using the figures in the “Lease Agreement to calculate the daily “rent” as $7,149.08,” NIC paid the Foundation $10,287,420.19 for 499 days “rent” when it should only have paid $3,567,390.32 for 499 days “rent?” The difference, overpaid prepaid “rent” of $6,720,029.87, should be refunded to NIC, not directly to the taxpayers. NIC lawfully collected property tax money from Kootenai County property tax payers.
If you want to do the histogram and send it to me as an Excel file, I’ll put it up.
Comment by Bill — June 29, 2011 @ 8:07 am
CORRECTION:
In comment #12, I inaccurately said “NIC lawfully collected property tax money from Kootenai County property tax payers.”
More accurately, it should have read, “The law allows NIC to collect property tax money from Kootenai County property tax payers.”
Comment by Bill — June 30, 2011 @ 7:02 am
WOW! It has been fascinating following the events of this issue and the detailed analysis Bill and others has provided. It’s very disheartening to see so much incompetence (or possibly dishonesty) you decide which that exists in our Governement and at ALL levels. At what point do the scales tip and the USA becomes the Roman Empire? A thing of the past! I do have one question that someone in this group may know….who stood to benefit from the sale of the land? In who’s pocket did the $$$ end up? Aren’t we in the midst of a real estate bust?
Keep up the GREAT work and effort.
Comment by steve4886 — July 2, 2011 @ 3:13 am
Steve,
Thank you. I tried to provide a little historical background at the beginning of my Long-Version report.
Our objection was not to NIC’s purchasing the land. Idaho Code allows community colleges to purchase land as long as they comply with the law and Constitution (Article VIII, Section 3) to do it.
Making the very charitable assumption that the Education Corridor was actually conceived to improve vocational training and education to residents of northern Idaho, we have to now conclude its mission changed to improving the marketability of downtown Coeur d’Alene. The Education Corridor project is driven not by NIC but by the City of Coeur d’Alene as a marketing tool. If (that’s a big “if”) there are any significant improvements to vocational training and education to the five counties of northern Idaho, it will be purely incidental to the fundamental purpose of the project.
That’s a fairly harsh allegation, but it is substantiated by NIC’s resistance to try and recover the $6.7 million it overpaid the Foundation in prepaid rent for the 499 days NIC supposedly “leased” the 17 acres from the Foundation. If the NIC Board of Trustees really was interested in improving vocational and educational programs for the residents of northern Idaho, the NIC Board of Trustees would be demanding that money be returned so it could be applied to those programs. That is about $6.7 million that would not have to be collected from Kootenai County property tax payers.
Where did the $$$ end up? Marshall Chesrown presumably received his $10 million. By the way, I don’t have any problem with Chesrown asking $10 million for the land. My gripe is with the NIC Board of Trustees which failed to do everything it could to get the best price possible on behalf of the taxpayers. The NIC Board of Trustees failed in their duty to the taxpayers.
It is reasonable to assume that the $4 million downpayment made by NIC to the Foundation was applied to that. It is reasonable to assume that the $6 million loan from Mountain West Bank to the Foundation was added to that $4 million to make the $10 million purchase price delivered to Chesrown. We know that $10,287,420.19 went in “rent” from NIC to the Foundation and that the Foundation paid off the loan plus interest to Mountain West Bank. Because the transaction between the Foundation (a private corporation) and Mountain West Bank (a private corporation) was not subject to public records requests, we have to speculate that between $287,420.19 and $444,804.12 was paid to Mountain West Bank in interest exempt from federal tax. It was tax-exempt because of the 63-20 corporation between the Foundation and Mountain West Bank.
So what did Kootenai County property tax payers get from all of this? The hope that maybe someday, somehow, when the moon is in the seventh house and Jupiter aligns with Mars, NIC’s Board of Trustees might actually focus on using tax dollars to improve the quality of vocational training and education at NIC rather than enriching its cronies. Until then, just keep paying those property taxes, and don’t ask too many questions.
Comment by Bill — July 2, 2011 @ 7:23 am
Well said, Bill. So we have to wait for the Age of Aquarius before our local officials act responsibly with the public’s money?
Comment by mary — July 2, 2011 @ 8:39 am
Mary,
No, but Kootenai County property tax payers have to care enough to elect and demand the appointment of honest and competent local officials who understand their duty is to diligently provide their honest services to all. We can’t wait for officials to act honestly on their own initiative. Some will, but as we’re seeing, many won’t. They need to be encouraged by citizens who not only listen but also speak up and speak out.
Comment by Bill — July 2, 2011 @ 8:54 am
So, our VOTE really does count and is Critical! Have you ever wondered if this type of waste and misuse of taxpayers money is happening in a neighborhood like yours, what’s the rest of the country experiencing? Or worse yet, what’s happening at the Federal level in Washington where millions quickly turn to billions or trillions? Frightening! Where do I send my taxes?
Comment by steve4886 — July 2, 2011 @ 12:32 pm
Not only is our vote critical, but it’s also important for voters to educate neighbors about candidates and issues. Our mayor, city council, and NIC count on an uninformed and blindly trusting electorate. Apathy and ignorance assure incumbent reelection and issues that look good superficially but corrode from within.
Without a credible and aggressive daily newspaper in our region and without credible and aggressive broadcast news media, the voters in the Spokane d’Alene area simply do not get enough unbiased information to assess candidates and issues. That makes public education even more difficult. People end up voting based on personalities and billboard pictures rather than on character and proven leadership traits.
Comment by Bill — July 2, 2011 @ 2:49 pm
I see that JohnA is venturing forth in this discussion. I never did receive a response to my earlier question. Perhaps he just failed to see it. Anyway, JohnA would you please respond to the question?
JohnA.
Thank you for your response. I realize you weren’t part of the negotiations, but negotiations only lead to a contract. It would seem to me that in any deed of trust the excess money from the sale of the property, after foreclosure by the bank, would be paid by the bank to the party that was purchasing the property. It doesn’t make sense to me, that if the Foundation was the party purchasing the property, the bank would pay the excess money to someone who was not a party to the loan agreement between the bank and the purchaser. In other words it doesn’t make sense, if the Foundation was purchasing the property and at risk on the loan, that the bank would pay the excess money from a foreclosure sale to someone that was merely leasing the property, on a one year renewable lease, from the purchaser. Would you agree that this provision reflects that the College was actually the party who was purchasing the property?
Comment by Joe Six-Pack — June 8, 2011 @ 3:35 pm
Comment by Joe Six-Pack — July 11, 2011 @ 1:46 pm