photo by: Nick Krug

Lawrence developer Thomas Fritzel watches a video presentation of a Rock Chalk Park proposal during the city commission meeting on Tuesday, Feb. 19, 2013, at City Hall.

It has become a routine at Lawrence City Hall. Every few months, the city finds itself embroiled in a controversy with Lawrence businessman Thomas Fritzel at the center of the storm. This most recent one — an alleged $500,000 worth of sales tax misdeeds at The Oread hotel site — is one of the more interesting ones yet. But, it could get a lot more interesting before it is over because this controversy has at least $10 million at stake for the city and Fritzel’s development group.

As our reporting over the last few days has explained, The Oread hotel site is in a special taxing district. What is special about it is that Fritzel’s development group gets a large percentage of all local sales taxes generated at the site rebated back to it. The city has been sending rebate checks to the development group since 2009, when the hotel opened. But what is important to note is that the city is scheduled to send rebate checks to Fritzel’s development group until about 2029, or until the development group receives a total of $11 million in rebates, plus the interest costs the development group has paid on loans used to build the private parking garage and other pieces of infrastructure. The project has received about $3 million in rebates thus far, and when you factor in the interest costs, there’s probably at least another $10 million it is eligible to receive in coming years.

photo by: Nick Krug

Lawrence developer Thomas Fritzel watches a video presentation of a Rock Chalk Park proposal during the city commission meeting on Tuesday, Feb. 19, 2013, at City Hall.

As those numbers show, taxpayers are a major partner in this project. I predict this latest controversy will cause taxpayers to soon ask an important question: Should they continue to be partners?

If the allegations in the auditor’s report prove to be true, it seems likely that the city would have legal grounds to terminate the entire incentive package being provided to the Oread project. At that point, this becomes about more than just a $500,000 repayment. The development group would be at risk of losing $10 million it presumably is counting on to repay loans it has undertaken on the project.

If the allegations are proved to be true — and the city seems to be convinced the allegations are true because the city is seeking the money by the end of the month — the situation essentially would be this: The development group was trying to deceive the public into providing larger than required tax rebates. That’s the sort of thing that causes trust to erode in a partnership. And, partnerships without trust have made divorce attorneys a lot of money.

Whether the city will go so far as to cancel the entire incentive package of the Oread project is unclear. I asked both interim City Manager Diane Stoddard and Mayor Mike Amyx that question yesterday. Stoddard said all options are on the table, but the city wants to first focus on getting paid the approximately $500,000 it has demanded. Amyx said much the same.

It will be interesting to hear what the public has to say about this. I would think one factor the public will weigh is the long list of controversies that Fritzel has been involved in. Here’s a reminder of a few, in no particular order:

photo by: Nick Krug

Artificial turf is pictured at the Tuckaway at Frontier Apartments on Thursday, May 5, 2011.

• Fake Grass. Fritzel in 2012 became embroiled in a controversy over whether he improperly installed artificial turf at one of his west Lawrence apartment complexes. The city staff said he did and told Fritzel while his crews were installing it that it was impermissible under city code. Fritzel disagreed and continued to install it anyway. Commissioners eventually agreed that the fake grass wasn’t allowed under city code, but the commission allowed Fritzel to keep the fake grass anyway.

photo by: Mike Yoder

The reconstructed Varsity House is pictured at the northwest corner of 11th and Indiana streets.

• Varsity House. In 2012, a Fritzel group agreed to a $50,000 settlement to end a dispute over whether the old Varsity House was improperly dismantled and removed from its site in the Oread neighborhood. The city and historic preservationists thought Fritzel was going to move the old house to a different part of the lot to make room for a new apartment project. But what happened instead is that Fritzel’s crews completely dismantled the house and stored its parts offsite until it was reassembled onsite. Historic preservationists were angry because they said the dismantling ruined the integrity of the old home. Fritzel disagreed, but ultimately agreed to pay a $50,000 settlement in order to get the needed occupancy permit for his apartment project.

photo by: Mike Yoder

The exterior Indiana Street entrance to the Cave nightclub is shown in this photo from 2014.

• The Cave. Fritzel is part of the ownership group of the student-oriented nightclub The Cave, which is located in the basement of The Oread. In February, the operators of The Cave pleaded guilty to four counts of violating the state law prohibiting establishments from giving away free liquor or advertising free liquor. In addition, Lawrence police department officials previously have expressed concerns about some of the large melees they have to respond to at The Cave or just outside of The Cave’s premises.

• Drywall contractor. Early this year, a Fritzel attorney — when questioned by the Journal-World — acknowledged that one of Fritzel’s firms had used a drywall contractor that is at the center of an alleged multimillion dollar scheme involving money laundering and undocumented workers. The contractor was used for portions of the Rock Chalk Park stadium construction. Fritzel has denied knowing anything about the alleged money laundering and undocumented worker scheme. When I last checked with the U.S. attorney’s office a few weeks ago, I was told the matter is still under investigation.

photo by: Mike Yoder

Sports Pavilion Lawrence at Rock Chalk Park

• Rock Chalk Park. A Fritzel-led group was the key private partner in the public-private partnership that built the city recreation center and KU sports facilities at Rock Chalk Park. Fritzel faced significant criticism from the public over his demand that he would only partner with the city, if the city agreed to waive its bidding practices for large portions of the project. An auditor eventually had to be hired to review questions surrounding payments the city was required to make to Fritzel’s group.

It would be unfair, however, if I didn’t note that Fritzel has been credited with several positive developments in the community too. The Eldridge Hotel, a jewel of the community, is in better shape than it was before his group purchased it. He has been part of successfully redeveloping portions of the 600 block of Massachusetts Street. He was a key partner in landing the Berry Plastics distribution center in rural Douglas County. He has been involved in philanthropy in the community.

Let me be clear: I don’t know whether the city should revoke the incentive package for The Oread project. Doing so very well could put The Oread in financial distress. The city could lose some transient guest tax revenues as a result. The development community may shudder, believing this is a sign the city will revoke other incentive packages in the future.

On the other hand, I have said several times that I believe the biggest issue facing the City Commission currently is low levels of trust with some community residents. (A quick note: The city staff deserves some credit for bringing this Oread tax issue to light. In February, I told a city staff member I had received a tip about a company called Oread Wholesale that was operating at The Oread. It seemed odd. The city staff, which I have found over the years to be a hard-working and professional group, took that information and got the ball rolling on this audit. State laws were stymying my efforts to get the necessary information to get to the bottom of this, so, absent this audit, I’m not sure the public would have found out about this.)

If the city believes that these allegations are true and that Fritzel was seeking to deceive the city, it is hard to see how the city can simply ask for its money back and move on. That would create a new round of trust concerns with the public.

As I look at this, I don’t see where the city has proposed any penalty for these alleged actions at Oread. The city is basically asking to be made whole. The payment of interest is not a penalty because the development group earned interest on the money while it had it. Paying $27,000 for the audit the city had to conduct hardly seems like a penalty.

Imagine if the IRS handled situations in this manner. How many people would not pay their taxes if they thought the end result of getting caught was simply they would have to pay what they owed?

Again, I don’t know what the City Commission should do. It has some tough decisions to make. This much seems clear: The City Commission will be sending a message by what it does or by what it does not do. That’s been the case every time the city has had to deal with a Fritzel controversy.

Now, the question seems to be whether the City Commission will send a message that causes this list of Fritzel controversies to stop growing.

UPDATE: The Douglas County District Attorney’s Office on Thursday said it had received a high volume of calls regarding the city’s investigation into the 12th and Oread Tax Increment Financing District Redevelopment Agreement. The DA’s office noted it is not an investigative agency. Criminal investigations are commenced by law enforcement agencies, and the results are forwarded to the DA’s office for review and consideration for prosecution. The DA’s office said it had been contacted by the City of Lawrence and informed of the general nature of this matter.