A list of past Thomas Fritzel controversies and the $10 million question that comes with the latest allegations
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.
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:
• 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.
• 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.
• 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.
• 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.
Questions emerge about how much Fritzel and his foundation will control operations of KU facilities at proposed Rock Chalk Park
It is becoming a bit clearer that Lawrence may be getting more than just a publicly owned sports complex with the proposed Rock Chalk Park.
Saying it is getting a bit clearer, however, is kind of like saying the Kansas River is clearer than a tar pit. But in recent days the public has started to hear rumblings that Thomas Fritzel’s Bliss Foundation is set to play a major role in the operation of the KU facilities at Rock Chalk Park.
Tuesday night, Mayor Bob Schumm confirmed to me that it is his “understanding” that the Bliss Foundation will have a master lease over all the KU facilities at the proposed Rock Chalk Park, which would be just north of the northeast intersection of Sixth Street and the South Lawrence Trafficway.
Schumm said he hadn’t yet seen any documents related to Bliss Foundation’s operational role in the facility, but his understanding is that the Kansas University Endowment Association will own the land, but Fritzel’s foundation will be offered a land lease on the property. Kansas University Athletics then will have an agreement with the foundation spelling out KU Athletics’ use of the facilities, which will include a 10,000-seat track and field stadium, a soccer field, softball stadium and nearly 40,000 square feet of indoor training space and an indoor softball field.
It also will include acres and acres of ground. The first phase of the Rock Chalk Park is listed at 90 acres, although 20 of those acres are scheduled to be owned by the city and won’t be subject to any lease agreement with Fritzel’s foundation.
The whole situation has at least one neighbor to the property — landowner Jack Graham — questioning how the public should expect this sports complex to be used. Specifically, will the agreements between Fritzel’s foundation and KU give Fritzel the right to host multiple events that have nothing to do with KU athletics or even athletics in general?
As we reported Tuesday, city planning staff members are highlighting that the project’s special use permit will allow for non-athletic events to be held at the complex. The report indicates the city hasn’t yet seen specific plans for what that might entail. But the report lists some examples, including music concerts, festivals, BBQ cookoffs, car shows, and BMX or Motocross events. Or think about all those runs and street dances that currently happen downtown.
The staff report even mentioned tractor pulls, but that probably isn’t the most likely of happenings. Music concerts, however, may be a different deal. We noted with interest when plans showed a 4,000-seat amphitheater for the complex. The amphitheater is no longer shown in phase one of the development, but a site on the property is still set aside for an amphitheater.
When I asked Schumm Tuesday night whether he understand the role that the Bliss Foundation would have in operating the KU facilities and potentially booking them for events, Schumm said: “I’m not certain at this time that I do.”
But city commissioners went ahead and gave round one approval for the zoning of the property on Tuesday. The city, however, still must approve the zoning ordinance on second reading, and there was some talk about delaying that vote until a bit more information emerges.
I’ll attempt to get more information today from KU Endowment and from Fritzel.
But in the meantime, think about this: The Rock Chalk Park already is designed to be a basketball magnet, with the city’s mega recreation center scheduled to have eight full court gyms. If music concerts become part of the plan, watch out. It is difficult to think of two things that Lawrence loves more than basketball and music. (There are a couple of other things I can think of, but I’m not sure they’re legal.)
This complex has been sold so far with economic development in mind, and using this as a concert venue would boost that potential. But loud outdoor music concerts come with their own set of challenges.
It will be interesting to watch, but if basketball and music become the new strategy, I’ve already got the marketing tag line: Rock Chalk and Rock ’n’ Roll.