City Bond Boondoggle - Kerrville gets snookered

The Kerrville City Council is voting tonight to approve issuing bonds that will commit the taxpayers to $9,000,000 in debt, to buy 105 acres of raw land from Cailloux Foundation Properties, LLC, a Texas limited liability company, on which Cailloux will build soccer and baseball fields and associated improvements. This comes to $86,124 per acre, for land that Cailloux's own appraiser values at $16,561 per acre.

Below is an open letter that I have sent to Mayor Pratt and the council members:

 RICHARD L. ELLISON, P.C.

Attorney at Law

Broadway Bank Bldg.

500 Main St. Suite J

Kerrville, Texas 78028

Phone: (830) 792-5601

Facsimile: (830) 792-5602

Board Certified in Civil Trial Law                                          E-Mail: rellison@richellison.com and Personal Injury Trial Law,

and Criminal Law

Texas Board of Legal Specialization

June 9, 2015

Kerrville Mayor Jack Pratt

Councilman Stephen P. Fine

Councilwoman Bonnie White

Councilman Gary Stork

Councilman Gene Allen

701 Main St.

Kerrville, TX 78028

Re:       Contract of Sale Between Cailloux Foundation Properties, LLC and City of Kerrville, Texas (Youth Athletic Complex)

Dear Mayor Pratt and Council Members:

I have obtained Todd Parton’s letter asking Senator Fraser to request an opinion from the Attorney General on the legality of the no-bid land purchase/construction contract. I have also obtained the appraisal report by Valbridge Property Advisors dated April 29, 2015.

I have discovered a new problem with this whole deal. Local Government Code § 252.051 provides “A municipality may not purchase property wholly or partly with bond proceeds until the municipality obtains an independent appraisal of the property’s market value.” Has the City complied with this law? I will return to this issue in a moment.

Mr. Parton represents to Sen. Fraser and the OAG that the City’s contract is with the Cailloux Foundation, a “local nonprofit foundation.” This is not accurate. The contract is with “Cailloux Foundation Properties, LLC, a Texas limited liability company.”

Furthermore, Mr. Parton’s letter confirms what we already knew – this is a construction contract, not a contract to purchase land. There is an attempted sleight of hand, to compare this to a contract to buy land with an existing building on it. However, the letter admits that the contract is for “both the acquisition of land and the building of the complex.” The letter is replete with references to “newly constructed improvements,” “construction work,” and so on.

Mayor Jack Pratt et al.

June 9, 2015

Page 2

To return to the issue of the lack of an independent appraisal, which is required by Govt. Code § 252.051, it appears that the City is relying on an appraisal paid for by the seller. I also question whether any of you have even seen the appraisal report, and if so, how you concluded this was a good deal for the city. The appraisal was made for “Mr. Ben Modisett, Cailloux Foundation.” It states “The Cailloux Foundation is the client in this assignment. The Foundation and any assigns are the sole intended user of the appraisal and report. The intended use is for charitable contributions.” In other words, the appraiser disclaims that anyone except its client can rely on its report. Further, how is this a charitable contribution when the City is paying $9,000,000?

Even more troubling, using the seller’s own appraisal values, it is obvious that the City is grossly overpaying. Valbridge appraised the land in two sections, as follows:

304.12 ac. - $4,410,000          $14,502 per acre

70.65 ac. - $1,170,000             $16,561   per acre

The Contract of Sale requires the City to pay $9,000,000 for 104.5 acres, which comes to $86,124 per acre. ($9,000,000/ 105 ac). If it paid the appraisal value of $16,561 per acre, that would come to $1,738,905. The City is paying $7,610,095 more than the appraised value. Why? Is this difference the cost of the construction?

Mr. Parton told Zeke MacCormack at the San Antonio Express that he would recommend the council members approve the $9,000,000 certificate of obligation at tonight’s meeting, without waiting for the Attorney General’s opinion. What is the rush? Why has there been no due diligence? Would you spend your own money without getting an independent appraisal? Would you pay five times market value for land? 

Sincerely yours,

                                                                                    /S/ Richard L. Ellison

Cc:       Brenda Craig, City Secretary

            Mark Armstrong, KDT

            Zeke MacCormack