Oread group again contests city’s demands, accuses city of violating state law

The Oread Hotel, 1200 Oread Ave.

Another deadline has passed in the dispute over how developers have used a special taxing district at The Oread hotel, and city officials again saw their demands for more information from the development group go unmet.

Oread Inn, the development group behind The Oread hotel, responded in writing to the city Monday, again contesting the city’s demand that the group hand over financial documents from one of its tenants, Oread Wholesale L.C.

The dispute centers on whether the development group for The Oread inflated sales tax totals at the property in an effort to receive larger sales tax rebates from the city as part of a special taxing district that encompasses The Oread development.

An attorney for the development group also lashed out at the findings of a city-hired auditor, calling the audit “one-sided,” “inflammatory” and “inaccurate.” Interim City Manager Diane Stoddard said only that the city “is reviewing the letters in order to determine its next steps.” There have been questions about whether the city will seek to void the special taxing district, which is scheduled to provide another $8 million in tax rebates to The Oread’s development group through 2029.

Attorneys representing Oread Inn and Oread Wholesale sent two letters, both stating the city does not have any legal authority to demand Oread Inn gather sales tax records from Oread Wholesale and then give them to the city.

The letter from Oread Inn, written by attorney Roger Walter, further contends the city violated Kansas law by using money from a tax increment financing fund to pay for the city’s audit of Oread Wholesale.

Monday was the deadline the city placed on Oread Inn to hand over Oread Wholesale’s sales tax records and documents that the business used to prepare its original sales tax returns. The city has sought the documents in an effort to verify numbers related to the special taxing district.

The city received the letters Tuesday because city offices were closed Monday in observance of Martin Luther King Jr. Day.

The letters were posted to the city’s website.

Oread Inn’s letter was its second response to the city since Stoddard sent a demand letter Dec. 16.

Oread Inn first responded Dec. 31, denying it had to comply with the demand for financial documents and other demands made by the city after auditors deduced the group created Oread Wholesale in order to “improperly” receive approximately $430,000 in reimbursements from the city.

Lawrence businessman Thomas Fritzel is listed by the state as the owner of Oread Wholesale. He is also part of the group that developed The Oread hotel.

Oread Inn did send the approximately $500,000 that the city ordered it pay back by Dec. 31, but it said it did so “under protest.”

The city made the reimbursements in accordance with a redevelopment agreement between the city and Oread Inn that requires the city to rebate a large percentage of all local sales tax collected at the hotel, 1200 Oread Ave.

In the newest letters, Oread Inn is arguing Oread Wholesale’s sales tax records do not belong to the development group, and the group can’t take them. Oread Wholesale contends that as a tenant, the redevelopment agreement between Oread Inn and the city requires the company only to provide monthly sales tax returns and no other financial information.

Oread Wholesale’s letter, sent from Kansas City attorney Edward Frizell, says the company has already provided to the city more documents than is required under the redevelopment agreement or state law.

The city is seeking the extra financial documents in order to continue its audit of Oread Wholesale.

It was made known in the letter from Oread Inn that the city used money from the tax increment financing fund — the fund used to reimburse the developers — to pay Allen, Gibbs & Houlik L.C., the company that audited Oread Wholesale.

Stoddard sent a notice to the development group Jan. 14 saying the city would be using the money, the letter states. As of Dec. 5, the amount the city owed to Allen, Gibbs and Houlik had reached approximately $27,500.

In Oread Inn’s response letter, Walter said the action was a “direct violation of the redevelopment agreement and Kansas law.” The city does not have the power to use the money in the fund for its own purposes, he wrote.

He described the auditors’ findings as “one-sided,” “inflammatory” and “inaccurate.”

Stoddard has previously said the city has not been reimbursing Oread Inn from the tax increment financing fund since June, after the audit began.

Paying for the auditing fees was one of the city’s demands listed in its Dec. 16 letter to Oread Inn.

The $500,000 payment is the only demand made by the city to which Oread Inn has complied.

Besides the $500,000, the auditing fees and Oread Wholesale’s financial records, the city also demanded developers give written assurance that they will “fully cooperate” with the city in any future audits.

Developers have been told to agree, in writing, to include a clause in their arrangement with the city that would allow the city to audit any sales tax records of Oread Inn, its tenants or anyone doing business with The Oread hotel without advance notice.

Oread Inn is currently working on a “more comprehensive response” to the city’s full list of demands, according to the group’s letter from Monday.

The response should be ready by the end of the month, the letter says. It goes on to say that once the city receives that response, Oread Inn “requests and welcomes” the opportunity to discuss the issues with the city.

The development group has previously said that Oread Wholesale retained its own experts to review the city-ordered audit.