May 27, 2003 – The Senate in a bittersweet special session on Tuesday approved a bill submitted over the Memorial Day weekend by the governor that ratifies an agreement between the government and IN-USVI, LLC to lease submerged and filled lands in Long Bay to be developed as a marina for mega-yachts, a hotel, and retail and entertainment facilities.
Despite concerns about the Coastal Zone Management statute and the far-reaching 90-year term of the lease, all senators present but one — Ronald Russell — voted for the measure. No one on either side of the Senate floor expressed anything but full support for the Yacht Haven redevelopment project. But several people, both senators and witnesses, lamented the way the approval process was handled by the administration.
Even with two "notwithstanding the provisions" of the V.I. Code references in the lease agreement, senators were pressured on all sides to act quickly to move the project along by approving the lease, for two reasons:
– First, because Insignia Financial Group, the corporate owner of IN-USVI, is in the middle of a merger.
– Second, because of the abysmal fiscal state of the Virgin Islands government. And so 13 senators, with one nay and one absent, voted to approve the lease — not on the basis of law, but on the basis of precedent and pressure.
In his transmittal letter to Senate President David Jones, Gov. Charles W. Turnbull had said: "If I understand the situation, if this development is to move forward and this investment is to be made for the people of the Virgin Islands, the time to act is now. This is the 12th hour and the cock is crowing."
It is likely the governor was referring to the pending $418 million cash merger of Insignia Financial Group, a publicly held company, and CB Richard Ellis, also a public company.
24-hour deadline cited
Insignia is under deadline to implement a "proxy filing" within the next 24 hours, according to Andrew Farkas, chief executive officer of Insignia. If the Yacht Haven deal is not included in the proxy disclosure, Farkas said, it wouldn't affect the merger, but IN-USVI, a wholly owned subsidiary of Insignia, wouldn't necessarily be part of the deal.
Invoking Security and Exchange Commission privacy rules, Farkas declined to provide details of the high-finance dealings of the two companies. He would say only that the project would still go forward if the lease were not approved on Tuesday, just not necessarily with the same players.
Those players were what Sen. Celestino White wanted to know about. Taking up his recent crusade for exacting "the truth," he said: "We want to know that what we are approving does not involve" what he called "fronting" for some other business or deal.
White said he wanted assurance that "You is who we see," referring to Farkas, and that "after you win our confidence," Farkas wouldn't bring some "Johnny come lately" to the table.
White pressed Farkas to state on the record that it was not his "intent to assign" the lease to someone else. However, the lease allows for reassignment or transfer. Farkas said this is necessary to secure financing. He introduced a theme that continued throughout the proceedings by saying "There's not a financial institution in the world that would lend" the developers money without such rights of transfer within the lease.
However, Farkas told White, "To the extent that this remains in my control," he would be the person sitting in the Virgin Islands moving the project along to what he hoped would be a finished product in three to four years, "please God."
Things that "nobody" would do
Commenting on White's proposed amendment to make the lease null and void if Insignia or IN-USVI should attempt to transfer the property to another entity, Farkas gave a similar response: "No lender on the planet would agree to such a thing."
Helen Gjessing, president of the Save Long Bay Coalition, used even stronger words than White in her indictment of the way the deal had been handled. She accused "development-giddy senators" of urging the government to buy into the demands of "a huge outside real estate conglomerate" that "sees our plight and tells the government that it can solve our economic woes."
Darlin Brin, Port Authority executive director, cautioned against making the lease for 90 years. It was explained that the period was so it would be "co-terminus" with a lease already executed between The West Indian Co. and Insignia for the landfill part of the development.
And there were more cautions from Edward E. Thomas Sr., WICO president, who told the Source after the meeting ended that "no financial institution" would lend money for the project if there were two landlords holding two leases of different terms.
Asked why WICO had executed a 90-year lease for the landfill, Thomas said: "We got a good deal," adding that the financial gains would be felt by "the people," too. He didn't explain further.
However, Brin, who was asked to testify by Sen. Louis P. Hill, chair of the Planning and Environmental Protection Committee, said lending institutions usually require 30-year terms at most.
Brin was the program manager when the Coastal Zone Management program was developed and as such, he said, he was very familiar with the CZM statute. He said the law does not allow for the leasing of submerged lands, and that it allows only for permitting for up to 20 years.
These same points had been made by legislative legal counsel Yvonne Tharpes in her report submitted to Hill at the start of Friday's Planning and Environmental Protection Committee hearing on the IN-USVI lease and CZM development permit. It was Tharpes' 31-page opinion that led Hill as committee chair to call an abrupt halt to the hearing — prompting the governor on Sunday to call Tuesday's special session of the full Senate.
Amending the law vs. breaking it
Brin said that overlooking the statute by approving the governor's bill could set a bad precedent. Instead, he said, the Legislature should seek to amend the statute by "carefully crafting" an amendment. He said the amendment should be patterned after the idea of "minor" and "major" CZM permits, thereby differentiating preferential treatment for large projects versus small ones. Otherwise, he warned, all the small marinas on the island currently operating under permits would start looking for lease agreements instead.
The submerged lands, Brin said, were given to the V.I. government by the federal government in 1974 and are "public trust" lands given to the government to safeguard for the people.
Dean Plaskett, Planning and Natural Resources commissioner, said precedent for the Insignia lease had been set in at least two instances — the Banco Popular development in Altona and the Crown Bay landfill. Banco Popular has a 90-year lease and VIPA has five 20-year renewable Crown Bay leases, he said.
Brin said the two projects were not the same at the Yacht Haven redevelopment, in part because they weren't about submerged lands. "Submerged land is not like up-land," he said, again cautioning: "We've got to be very careful. Even if you have the right to lease, we don't know what's going to happen 70 years from now."
During a recess, Brin said that "a lease that provides for 90 years is tantamount to a sale." He added, "We don't have the right to sell public trust land."
Under the permitting process, permits expire periodically and then can be renewed. The same usually applies to a lease. But when asked what would happen at the end of a 30-year lease, Plaskett said he guessed the property would revert to the government.
One thing that would revert, it was revealed, is all of the leased property in the e
vent of a default by the lessee. All of the property — not just the property originally leased to Insignia — would go to WICO.
Default would occur if the developer failed to pay the rent or meet any of the terms of the lease. Rent for the period of development – the first five years — is $75,000 a year. Thereafter, the rent, which Farkas said increases every year, is based on the "fair rental value of the premises as unimproved real property."
Sen. Luther Reneé also expressed a need for caution. "We must be careful that while we are in a financial crises that we don't do something that will … deprive future generations of these natural resources," he said.
At least one senator wasn't concerned about the natural resources. Sen. Adlah "Foncie" Donastorg said the harbor was "dead" and that it had been "dead for a long, long time."
Donastorg has been a vocal opponent of several development deals. As chair of the Planning and Environmental Protection Committee in the 24th Legislature, he adamantly opposed development of Botany Bay on St. Thomas's western end.
What the people want to know
But on Tuesday Donastorg made it clear he didn't see Yacht Haven in the same light. "I find most people saying "When are they going to develop that derelict piece of property?'" he said.
Sen. Raymond "Usie" Richards objected to the limited time given the Senate to address the development issues.
Sen. Ronald Russell, the only Senator to vote against the governor's bill, said his concern was that if the law weren't followed, the development could be slowed down by lawsuits.
"When you don't follow the procedures, you open the doors to the people who are against the project"– which he is not — Russell said. "They won't fight it based on the value of the project, but on the basis of the law," he said.
The administration was roundly criticized for waiting until the last minute to let the Legislature have the documents and information necessary to begin the hearing process.
White said he was not happy with the "strategy of placing the Legislature in a bad light."
He said, "They hold, hold, hold until the Legislature is forced to act."
Sen. Lorraine Berry told Farkas: "You have done your homework. No one's questioning that." She then asked Plaskett and Thomas if they had known about the impending merger and attendant need for haste; both said they hadn't.
But when she asked Farkas if someone in the administration had known about it, he replied, "Yes, someone knew."
Farkas said Insignia had been waiting six weeks for the permitting issue to be placed on the Legislature's agenda.
Although the process of getting it to the Legislature might have been sluggish, the atmosphere in the chamber on Tuesday was charged with the need for expediency.
Twice Sen. Shawn-Michael Malone expressed a need to push on and deal with the matter immediately. "I believe the time to address this eyesore is here," Malone said, referring to the derelict Yacht Haven hotel, which is to be replaced. "We risk losing this project if we don't approve it today," he said.
Sen. Carlton Dowe turned the tables, however, calling on the governor also to move "post haste" on several capital projects that have been languishing for years. He also called for "dialogue before hearings," adding: "I have never seen a permit come from DPNR without a problem."
Dowe told the story of Tom Qualey, a white man who Dowe said used to go into the housing communities picking up young men to work on his construction projects. Qualey was rewarded, Dowe said, by "never being touched" by any "robbers." The residents in the housing communities would never have allowed him to be harmed, Dowe said, making the point to Farkas that he expected IN-USVI to employ "the youth" of the housing communities both during the construction phase and after.
500 jobs projected for construction phase
At a time when the economy is in a downturn, the government is broke and tourism, the territory's major product, is at an all-time low, Farkas offered in his prepared statement a promise of jobs, tax and rent revenues, and general goodwill when the project begins. He said 500 jobs will be created when construction begins, "drawn largely from local labor and sub-contractors during the first 18 months of demolition and building."
Once the complex of hotel, marina, restaurants, bars and boutiques opens, 600 jobs with an annual payroll of $1.8 million are expected to be generated, he said, along with $7.6 million in taxes in the first year of "base operations," $5.4 million per year from gross receipts, income taxes, and excise taxes, and $8.4 million in rent over 34 years under the terms of the submerged lands lease, and an additional $14. 4 million to be paid to WICO.
Farkas said it is anybody's guess what the return of the charter and luxury yacht business would mean for revenues. Estimates have ranged from $80 million to $150 million a year. Little of the taxes will be paid by IN-USVI, however, if it qualifies for Economic Development Commission benefits, as it hopes to do.
Farkas said the company has yet to apply for the EDC benefits. We can't apply until we have the permits" and other documentation in place, he said.
Legal counsel's opinion unchallenged
In the end, no one accused Tharpes of being wrong in her opinion. Sen. Emmett Hansen II asked why, if she were wrong, the governor's bill included the "notwithstanding the provisions" clauses. Obviously, he said, the governor's bill sought to circumvent the very legal issues that Tharpes had raised.
Hansen was one of several senators who admonished Farkas for the animosity displayed toward Tharpes in a letter Farkas sent to Senate President David Jones on Sunday regarding Tharpes' last-minute legal opinion that caused Friday's hearing to be adjourned.
Farkas then apologized to Tharpes for his tone, stating that he was frustrated because he had been forced to cancel weekend plans with this wife and six of her college friends and their husbands.
Later, when asked if he had actually written the letter to Jones, Farkas admitted he hadn't. James Casner, local legal counsel for Insignia, said the letter had been drafted by several people, including himself; he did not name the others.
Donastorg asked the Insignia executives what would happen if the land and lease should be transferred at some point. "Can you assure the people to whom you transferred it would keep these commitments?
Elie Finegold, Insignia chief innovative officer, said, "There is no way to guarantee or control what could happen."
Grave concerns were set aside after the vote was taken and elation filled the room, with the hope that soon "Rat Haven," "Hotel Beirut" or simply "the eyesore" on Long Bay Road and in the harbor will begin a transformation into the "cornerstone of economic development," as Malone put it, for St. Thomas. The work should begin within six to eight weeks, according to John Stadler, point person on Insignia's development group.
Sen. Douglas Canton was absent from the special session, having been excused due to a previously planned off-island trip.
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