Editorial: Oread case an opportunity

Commissioners should approve a proposed settlement between the city and The Oread hotel.

A proposed settlement in the city of Lawrence’s lawsuit against The Oread hotel is an appropriate resolution of the issue, and city commissioners should approve the settlement Tuesday night.

The lawsuit accuses hotel developer Thomas Fritzel of fraud and racketeering. According to the settlement, The Oread would have to reimburse the city $650,000 and agree to significant reductions in the hotel’s multimillion-dollar incentives agreement. Fritzel would have to resign as a manager of The Oread for the remainder of the hotel’s 20-year incentives agreement. The appointment of hotel managers would be subject to city approval.

Lastly, Fritzel or any entity that Fritzel or his wife are affiliated with must agree to a five-year ban on seeking incentives from the city that involve sales tax reimbursements.

The 20-year incentives agreement between the city and the hotel was intended to partially pay the developer back for infrastructure improvements made to the area as part of the hotel’s construction in 2008. The agreement created a special taxing district at 1200 Oread Ave. that requires the city to rebate the development group a large percentage of local sales tax collected in the district.

But last November, the city filed a civil lawsuit alleging Fritzel used other companies he controlled to improperly attribute retail sales at the hotel so that he could collect inflated tax rebates. An audit indicated that hundreds of purchases — such as landscaping for Fritzel’s personal residence, new furniture, rental of a party tent, as well as construction materials for unrelated projects — were all reported as retail sales that occurred at the hotel.

As part of the proposed settlement, the value of the incentives agreement would be reduced by millions of dollars. The threshold for when the city would begin receiving a share of tax proceeds from the hotel’s taxing district would be reduced from $7.1 million to $5.75 million. In addition, the amount the city is required to reimburse the developer for infrastructure would be reduced from $11 million to $8.5 million.

The penalties proposed in the settlement are significant and should serve as a meaningful deterrent to attempts at similar abuse in the future. “I think this sends a pretty loud message to the development community that we’re not going to tolerate diversion from the agreements we enter into,” said City Manager Tom Markus, who supports the settlement.

Ultimately, commissioners will decide on the agreement Tuesday. It would be risky to continue the lawsuit in hopes of producing a more favorable result than the settlement offers. Commissioners should approve the agreement.