On January 29, 2009, Senator Jeff Chapman issued the following proposal for funding Jekyll Island State Park’s renovation. The proposal, which was prompted by the $2.3 billion budget deficit that the State of Georgia is currently facing, calls for a profit-sharing arrangement between the JIA and its private partner, Linger Longer Communities, that would allow Linger Longer a 50 percent return on its investment in the Jekyll time-share project and generate $100 million for the JIA, making the State’s issuance of $50 million in bonds for Jekyll’s redevelopment unnecessary. According to Senator Chapman, the profit-sharing proposal, if acted upon, would give the JIA twice as much money for Jekyll’s rebuilding, allow Linger Longer a profit that is twice the size of the industry standard, and save the State $50 million in bond indebtedness.
P. O. Box 3119
Brunswick, Georgia 31521
Tel: (912) 399-8683
110-D State Capitol
Atlanta, Georgia 30334
The State Senate
Atlanta, Georgia 30334
29 January 2009
In response to the request that members of the General Assembly make suggestions that can save money, or alternatively, enhance state revenues in the current state revenue shortfall, I respectfully suggest the following savings and revenue enhancements.
The Georgia State Financing and Investment Commission’s list of projected Total Debt Authorized by the General Assembly through June 30, 2009 includes $50 million in general obligation bonds authorized for the Jekyll Island State Park Authority for the purpose of a renovated convention center and park improvements.
Repayment of these bonds will cost taxpayers roughly $100 million, or $4.5 million per year. This is a particularly substantial sum of money when considering the task we face in trying to balance Georgia’s budget while maintaining vital services and programs.
There is, however, a way to accomplish the State Park’s renovation without the state taking on the debt cited above.
The Jekyll Island Authority (JIA) has contracted with its private partner, Linger Longer Communities, to build an oceanfront time-share complex, which, according to the JIA’s own figures, is expected to produce gross sales of $163 million and yield a profit of roughly $117 million (more than 300 percent) for Linger Longer. The financial arrangement accepted by the JIA has Linger Longer receiving 99 percent of the profits and the Authority receiving just 1 percent of the project’s gross sales, or $1.63 million.
If a balanced profit-sharing arrangement, reflective of the value of the state property and in the best interests of the citizen owners of the park, were to be worked out, the $50 million in state bonds would not be necessary.
Specifically, if Linger Longer were to make a 50 percent profit on its $46 million investment in the time-share project, Linger Longer would still receive a substantial, $23 million net gain, a profit margin that is well in excess of industry standards. The JIA’s $97 million share of the profits would allow the Authority to fully accomplish the Park’s much needed renovation without the state taking on any additional debt.
The JIA’s current arrangement with Linger Longer for the time-share project is contractual, but the contract is contingent upon the state’s issuance of a $25 million general obligation bond to fund the infrastructure required by the project. If the state—for budgetary reasons—were to decline to issue the bond, the door would be open to negotiate a balanced profit-sharing between the two partners.
The contract, referred to as the Revitalization Partnering Agreement, may also require negotiation because it violates two Code Sections.
1) OCGA § 12-3-271 states that all income and revenues arising out of the operation of Jekyll Island State Park, and all bond proceeds made specifically for the Park, shall be used by the JIA for, among other purposes, developing the Park at the “lowest rates reasonable and possible for the benefit of the people of the State of Georgia.” The Revitalization Partnering Agreement, by failing to exercise any oversight on pricing, allows a private contractor to ignore OCGA § 12-3-271 and reap an extraordinary profit from revenues generated by the visiting public, meaning the people of Georgia, for whose benefit § 12-3-271 was enacted.
2) OCGA § 12-3-235(6) states that the JIA shall not undertake a project having a cost of over $1 million “unless it has first evaluated the feasibility of involving private persons or entities” in the project. The feasibility of involving private enterprise in a given project goes beyond a simple determination of private interest in developing public land. “Feasibility” must also take into account the fact that Jekyll Island’s public purpose presents challenges for private enterprises that not every developer would necessarily be willing or able to meet.
Accordingly, the JIA is obligated to inform potential private partners of those challenges and evaluate the feasibility of engaging them based on their willingness and ability to serve Jekyll Island’s public mission. This is not only a reasonable approach to securing the public interest in a cost-effective way but is also consistent with § 12-3-271, as cited above, and with OCGA § 12-3-235, which requires that the Park’s “facilities be made available to people of average income.”
The JIA failed to conduct the required feasibility analysis prior to engaging a private partner for the revitalization of Jekyll Island State Park. By failing to make clear to Linger Longer the legal constraints which private development within Jekyll Island State Park is subject to, the JIA abused public trust and encouraged, even empowered, Linger Longer to mark up its prices far beyond its costs. This error of omission on the JIA’s part not only works to the public’s disadvantage, it means that the Authority apparently awarded an illegal contract to Linger Longer and, in so doing, violated O.C.G.A. § 45-10-1(2) as well, which requires persons in government service to “Uphold the Constitution, laws, and legal regulations of the United States and the State of Georgia and of all governments therein and never be a party to their evasion.”
The code of ethics for persons in government services [O.C.G.A. § 45-10-1(4)] states that, “Any person in government service should seek to find and employ more efficient and economical ways of getting tasks accomplished.” The proposal that I have made regarding the financing of Jekyll Island State Park’s renovation upholds this code section, whereas the current financial approach to accomplishing this task does not.
In sum, we have before us the means to reduce the state’s bond indebtedness, improve the JIA’s financial ability to renovate Jekyll Island State Park, provide the Authority’s private partner with a reasonable return on his investment, and move forward with Jekyll’s revitalization while upholding Georgia law.