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110-D StateCapitol

The State Senate
Atlanta, Georgia  30334

November 20, 2008

A State Senator writing articles about the practices of an Authority entrusted with stewardship of public property may seem a bit unusual, however, in the case of Jekyll Island State Park, there are issues involved which demand the attention of elected officials who have been given the honor to serve the public good. Transparency and accountability in government, responsible management of publicly-owned assets, and respect for the public trust are all wrapped within the Jekyll issue, as is the principle of eminent domain, not in the traditional form but in an upside down way with the taking of publicly-owned land and using it for private profit—a kind of eminent domain in reverse. 

The following article is the first in a three-part series prompted by my concern for the issues stated above. The focus will be on the terms of the contractual agreements worked out between the Jekyll Island Authority (JIA) and companies involved with the State Park.  The message is a clear one – when the facts and figures are considered, JIA’s fiscal practices are in need of official review.

State Subsidies for Oceanfront Development:
Who Let That Happen?

  Last year, when the Jekyll Island Authority (JIA) granted a rent reduction of some $10 million to hotel developer Trammell Crow (TC) to replace the Buccaneer Resort, there were many who saw it as a sweetheart deal. Now the authority is spreading the love.
  On October 20, 2008, JIA approved a hotel-condo contract for the Oceanfront Resort located on the north end of the State Park. Unfortunately, like the TC deal, it also contains a 10-year rent reduction.
  With even bigger contracts poised for signature, the time has come to question the practice of doling out fat incentives for private development on prime oceanfront land owned by the people of Georgia.
  To begin with, the facts show that the TC rent reduction was unnecessary. Six months prior to the TC deal, JIA had negotiated a contract with Jekyll Ocean Oaks—the operators of the Jekyll Club Hotel—to replace the Holiday Inn in which annual rent was reduced by a modest 2 percent of gross receipts for just  the first 3 years and set at 4.5 percent thereafter.
Jekyll Ocean Oaks—a company with twenty years of experience in the Jekyll hotel market—obviously thought the deal was a good one or else it wouldn’t have agreed to it.  
  The board too was enthused about the deal, having drafted the agreement with the intention of establishing a model for all future hotel development contracts.
  Yet, in June of 2006, JIA, under new leadership, approved an agreement with TC which obligates the developer to pay nothing to the Authority for the first year, only 1 percent of gross receipts after 4 years, and 4 percent after the rent abatement expires—so much for a model agreement.
  Furthermore, unlike the arrangement with Jekyll Ocean Oaks, TC’s deal exempts food, beverages and banquet sales from gross receipts—a huge sum of money and a further giveaway of publicly-generated revenue.
  Why would the JIA board cut such a deal after having set a precedent with the Jekyll Ocean Oaks agreement? JIA has offered a couple of answers to this question.
  1) JIA says that TC's rent reduction was needed to offset the risk of investing in Jekyll.  Fact - a marketing study done for TC in December of 2006 concluded that the new hotel was ideally situated and would be highly profitable, showing that the element of risk involved with the project was exceptionally small. JIA, having received a copy of the marketing report, knew the project was a low risk venture yet gave TC a massive incentive anyway. Why?
  Furthermore, if investment in Jekyll is so risky, why had TC already purchased a second Jekyll hotel—the Oceanside Inn and Suites? Why did TC attempt to become JIA’s private partner in the long-term redevelopment of the park? Why did a TC partner recently pay a rival developer $800,000 for the right to redevelop a third Jekyll oceanfront property?
  2) JIA claims that the cost of the TC project justifies a larger rent reduction.  Fact - the Oceanfront Resort project, which is just one-third the cost of TC’s and less than the cost of the Jekyll Ocean Oaks project, recently received a similar deal, proving that project cost has nothing to do with rent reduction.
  JIA’s excuses, by failing to pass muster, make clear what the TC deal really is – a lease of the public’s oceanfront property to a private company at an inexplicable discount; an agreement that I believe violates the public trust and requires investigation. 
Therefore, I have requested that the State Department of Audits and Accounts initiate a Performance & Compliance audit of all JIA activities during the previous 3 years related to contracts with Jekyll Ocean Oaks, Trammell Crow, Leslie Lurkin and Linger Longer Communities, with the recommendation to halt further JIA contract signings until the investigation is completed.

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