City mum on action against Oread Inn, waiting on last deadline to comply with demands

The Oread Hotel, 1200 Oread Ave.

One week after Oread Inn, L.C. sent almost $500,000 to the city with a letter protesting the payment and other demands, city officials have not signaled any further action against the development group.

Interim City Manager Diane Stoddard said Wednesday the city is waiting to see if — and how — Oread Inn responds when another deadline to comply with one of the demands passes Jan. 18.

“Right now there are some outstanding items from our demand letter that the city had sent and some deadlines that have been approaching but have not yet passed,” Stoddard said. “We want to see if there will be any response to those remaining items.”

Beyond that, Stoddard said, it’s “premature to comment.”

Stoddard said she could not comment on whether the city’s agreement with Oread Inn would be revoked if the group does not meet demands. The agreement has generated more than $3 million for Oread Inn and has the potential to bring the group up to $8 million more.

The city has had “preliminary discussions” with law enforcement about the issue, Stoddard said last week.

Some city commissioners reached Wednesday were reluctant to say how they thought Oread Inn should be penalized.

The city sent a demand letter to Oread Inn on Dec. 16, the day a city-ordered audit report was released. The report accused developers of creating a wholesale company to boost sales in a special taxing district at The Oread hotel in order to increase the amount that would be reimbursed by the city back to themselves. The special tax district was created through a redevelopment agreement with the city in 2008.

Incorrect sales tax returns filed by Oread Wholesale — the focus of the audit report — were used by Oread Inn to improperly receive $429,914.85 in rebates, according to the report.

The city demanded repayment of that amount, along with $63,320.11 in interest by Dec. 31.

Oread Inn met the deadline, but, through a letter signed by attorney Roger Walter, the group said it sent the money “under protest” and refused to comply with other demands. The letter stated Oread Inn was not obligated to meet the demands under the agreement.

Those demands are for Oread Inn to:

• Pay for the city’s cost of hiring Wichita-based auditing firm Allen, Gibbs and Houlik within 30 days of receiving an invoice from the city.

• Agree by Dec. 31, in writing, to amend the group’s agreement with the city to include a clause allowing the city to audit any sales tax records of Oread Inn, its tenants or anyone doing business with The Oread hotel.

• Give written assurance to the city that it will fully cooperate in any future audits or review.

• Obtain all of Oread Wholesale’s sales tax records and documents the business used to prepare its sales tax returns and provide them to auditors by Jan. 18.

With regard to the last demand — to which the city is waiting on a response by Jan. 18 — the development group said in its letter that obtaining the records from Oread Wholesale is not among Oread Inn’s obligations in the redevelopment agreement.

Oread Wholesale has retained its own experts to review the city-ordered audit. According to Oread Inn’s letter, the development group will comment further about the report after the review is complete sometime this month.

When asked Wednesday whether Oread Inn meeting the demands would be enough of a penalty, commissioners were hesitant to answer specifically, saying they’d leave those decisions to the city’s legal staff.

Commissioner Lisa Larsen said only that the City Commission was “keeping all options open.”

Commissioner Matthew Herbert, when asked whether he thought the agreement with Oread Inn should be revoked or whether there should be further penalties, said, “elements like that, I think, we leave up to the legal team for the city.”

“They understand what the contract says and what it does not say,” he said. “They understand really what powers we have in terms of going forward.”

Vice Mayor Leslie Soden also said she’d look to the city attorneys about what should happen with Oread Inn, but both she and Herbert spoke generally to how city agreements with private entities should be handled in the future.

Soden suggested certain types of businesses, including wholesale companies and nightclubs — such as The Cave at The Oread hotel — be restricted from special tax districts.

“Whether [Oread Wholesale] was created for fraudulent purposes or not…. it’s still not in the spirit of the public good,” Soden said. “These public tax dollars are supposed to be for a public benefit.”

In future agreements with businesses, the city should demand access to financial records and any other information to ensure the agreement is upheld, Herbert said.

“It’s definitely in the best interest of the City Commission to make very clear that when we make agreements with developers that our expectation is those agreements get met,” he said. “We need to do whatever is necessary to make sure that’s understood — that we’re not going to be taken advantage of.”