Lake City vs. HAECO: Cooler Heads Prevail, City Council Extends HAECO's Lease One Year
Council Orders True Airport Appraisel For the Protection of All Parties
December 30, 2022 5:55 pm
Part I:
Introduction
Part II:
The Public Speaks
Part III
Lake City’s Expert
Aviation Expert Ed Booth of Marks Gray, P.A.
Part IV:
The City Council & City Manager Paul Dyal
LAKE CITY, FL – Walking into Lake City City Hall on Wednesday night was like walking into a crap shoot. On the special meeting agenda was one item: the 12th-hour contract of Columbia County’s third largest employer, Hong Kong Aircraft Engineering Company (HAECO), which is located in Lake City’s municipal airport (LCQ).
According to its current lease, HAECO occupies approximately 745,000 square feet of hangar and office space. HAECO's 30-year lease was set to expire this Saturday, December 31, 2022. Up for discussion was a rushed 12th-hour 20-year agreement between Lake City and HAECO.
The City Council played to a packed house on
Wednesday.
Part I: Introduction
In Attendance for Lake City
In attendance for Lake City were the Lake City City Council, City Manager Paul Dyal, Todd Kennon, newly contracted lead City Attorney, City staff members, and outside attorney Ed Booth, subject matter expert and one of approximately 48 aviation certified attorneys out of Florida’s 77,223 attorneys (total FL attorneys via ABA 2021).
In Attendance for HAECO
Approximately 100 HAECO employees filled City Hall along with HAECO general manager Mark Easton. Retired Judge Vernon Douglas, revealed at the last Council meeting as HAECO's attorney, was rumored to attend but did not. HAECO did not have legal representation at the meeting.
Lobbyists (unregistered) in Attendance
Driving in from Tallahassee were Florida State University’s (FSU) Institute of Government’s Jeff Hendry and Jerry Parish.
Part II: The Public Speaks
The Meeting
With standing room only, Mayor Witt gaveled the meeting to order.
Rolland
Luster, former airport manager, addresses the
City Council.
First to the microphone was former LC Airport (LCQ) manager Roland Luster. Mr. Luster came to Lake City after a 20-year career with the Florida Department of Transportation (FDOT) as an airport planner, airport project manager, and aviation specialist and administrator. Mr. Luster is a qualified expert in FDOT and Federal Aviation Authority (FAA) rules and regulations.
Mr. Luster explained that the City was operating the airport under a 1947 Land Grant Deed between the federal government and Lake City. Mr. Luster explained that certain federal assurances must be met for the City to comply with the deed's requirements. He asked if either the City Attorney or City Manager had read the deed.
They had not.
Mr. Luster told the Council that to comply with the deed, the City would need to lease the airport at fair market value. Mr. Luster explained that each lease "must be sent to the FAA for review, comments, and approval."
Mr. Luster told the Council that the City had been out of compliance in the 80s and lost FAA funding because of that.
Mr. Luster recommended that the HAECO lease be at fair market value.
FSU: Was It Lobbying for HAECO?
Jeff Hendry, long time head of FSU's institute
of government, drove to Lake City to speak for
HAECO.
The next speaker was Jeff Hendry, the director of the John Scott Dailey Florida Institute of Government at Florida State University.
Mr. Hendry said, “I'm not here to debate fair market value leases…. I thought when I came here I'd be talking about expansion. But it seems like this has kind of turned into more of a retention talk.”
Mr. Hendry had received the agenda from the City Clerk. There was one item on the evening’s agenda: the HAECO lease.
Mr. Hendry spoke about the importance of HAECO in the community, the number of people it employs, and that HAECO generates "wealth for this community."
Mr. Hendry encouraged the parties to be fair. "Let's do it fairly; let's get this job done because, at the end of the day, you will not make a bigger decision at this Council than you will on this particular topic," he said.
FSU's Dr. Jerry Parrish came to Lake City with
Jeff Hendry.
The next guest to the microphone was FSU's, Dr. Jerry Parrish. He introduced himself. "Mr. Mayor, and commission members, I'm Jerry Parrish. I'm the chief economist and director of state and local policy analysis at the Institute of Government at Florida State University."
Dr. Parrish had initially reported on the HAECO/Lake City situation at the September 9, 2022, meeting of the North Florida Economic Development Partnership (NFEDP) in Taylor County. At that meeting, he spread misinformation about how Lake City was making outrageous rent demands on HAECO; then, he gave his analysis on the impact of HAECO jobs in Lake City and the surrounding areas.
Dr. Parrish gave relatively the same presentation in Lake City.
Dr. Parrish concluded his remarks with, “Nobody's paying me to be here. I just thought you guys should understand what the impacts are and what you're talking about -- any questions?”
There were none. Dr. Parrish is on FSU’s payroll.
Part III:
Lake City’s Expert
Aviation Expert Ed Booth of Marks Gray, P.A.
Noted aviation expert Ed Booth addresses the
City Council. He had been hired by Lake City to
represent the City in its negotiations with
HAECO.
Mr. Booth introduced himself.
He said, “I was retained in September of 2021, as an aviation attorney, as an aviation expert, to assist Lake City in negotiating a fair and equitable contract with HAECO and coming up with a plan to utilize the extensive leasehold they now occupy… I have been involved in aviation my entire life… [I] served as a board member of the Jacksonville Aviation Authority, ultimately its secretary. We had responsibility for four airports: Jax International, Craig, Herlong, and Cecil [Field]. In that capacity, I became familiar with what is charged in this area for aeronautical activities; what is fair market value. I'm here tonight to talk about that.”
Mr. Booth added, “I grew up in this area. I know Lake City well. I would hope that HAECO would have the respect for Lake City to offer them fair market value. At the same time, I would hope that the citizens of Lake City would have enough civic pride to insist on fair market value for an incredibly valuable asset… My only objective when I started this assignment was to see that fair market value was obtained for this community.”
Mr. Booth explained, “You are part of a world market... And you probably don't realize what a booming industry this is and what a major player HAECO is in this market.”
Mr. Booth reminded the Council of the value of the airport’s runway, a runway paid for by the federal government and refurbished with grants. “It is an 8,000 by 150-foot runway, capable of accommodating any airplane flying in the world today. They can be brought here and worked on in the large complex that HAECO currently leases.”
Mr. Booth continued, “The future is bright. It's an extremely profitable market. And it only makes sense that Lake City receives fair market value. What has been proposed, eight cents per square foot does not come close to approaching that.”
Mr. Booth reiterated the penalty for failing to comply with grant assurances: “denial of future grants and, in extreme cases, requiring Lake City to repay grants that had previously been issued to them.”
“I haven't received a reasonable explanation of how eight cents a square foot is reasonable or fair market value. The leasehold is 115 acres, with 700,000 square feet of hangar space. Another consideration that needs to be discussed is HAECO blocks access to 137 acres of otherwise rentable usable aviation property. There's absolutely no accommodation made to Lake City for that other than the need to mow the grass on that 137 acres, and we take care of that."
The Sublease
Avaition expert Booth reads from the HAECO
sublease.
Mr. Booth held up a 2017 sublease that HAECO had made with International Aerospace Coatings. He said the 30-year contract HAECO was operating under allowed them the freedom of subleasing property. Hanger number nine was leased to International Aerospace Coatings (IAC) for about $4.71 a square foot.
That was five years ago. Today's rate would be $5.75 sq. ft., although an appraisal would determine fair market value. – Ed
Mr. Booth continued, “What struck me when I first obtained a copy of this lease was that HAECO was receiving substantially more rent for subletting one of their eight hangars than they were paying for the entire lease… We're in reset mode right now, and it's time that Lake City received its due. And this airport can be a ticket to your prosperity. It really can.”
Mr. Booth said that based on HAECO's rent to IAC, present-day rent would be "around $5 million a year, "which is commensurate with other businesses around the world who do MRO work (maintenance, repair, and overhaul) on air carrier jets… If this very valuable resource is managed properly, there is plenty of wealth to go around here. The workers can keep their jobs; they can be paid well; HAECO can pay fair rent, and everybody can move forward.”
“I would close with this recommendation. I think it would be wise to extend HAECO’s lease on a month-to-month basis. In the meantime, obtain a fair and honest appraisal of what this property is worth in terms of fair rental rates. And once we have that number, either renegotiate with HAECO or issue a request for proposals to a world aviation market. There is a pent-up demand for facilities like this. To duplicate this facility, in my opinion, would cost about a billion dollars.”
“That is how I would accommodate everyone's interest here. Allow HAECO to remain in the hunt for this but insist that Lake City receive its fair share. Everybody can be prosperous.”
Part IV:
The City Council & City Manager Paul Dyal
City Councilwoman Chevella Young
For thirty minutes, the City Council discussed the proposed HAECO lease without the benefit of hearing from HAECO’s local attorney, Vernon Douglas, or anyone from HAECO.
Newly elected Councilwoman Chevella Young said she cared about the workers and the City should approve the lease as presented that evening.
Newly elected Councilman Ricky Jernigan said the proposed lease payment of $300,000 [8 cents a foot] could be moved back to $150,000.
Councilman Todd Sampson made a motion based on Attorney Booth's advice, calling for a one-year extension on HAECO's lease, getting a fair market appraisal, and putting out a request for proposals based on the appraisal. Only Councilman Hill was in favor, and the motion failed.
City Councilman Ricky Jernigan
There was more discussion. Councilwoman Young made a motion to accept the contract as written. The motion failed.
There was more discussion.
Councilman Hill motioned to extend HAECO’s lease one year and get a fair market appraisal.
Councilman Sampson seconded the motion.
City Manager Dyal asked if he could comment and was granted permission.
Mr. Dyal said, "I'd like to make a comment to the language of the FFA [FAA]." "All through our negotiations, I kept hearing fair market value. Fair market value is, to me is, what the area can substain [sic]. And who's willin’ to pay, and who's willin’ to accept it.”
Had Mr. Dyal listened to its previous airport manager, Florence Straugh, and its expert counsel, Ed Booth, he would know that an aviation appraiser can only determine a legitimate fair market value for the Lake City airport property.
City Manager Paul Dyal listens to Councilman
Sampson.
Mr. Dyal continued with “his expert" opinion, "We can set here, and we can hash over the numbers and everything else, and from my understanding, this lease goes back, what, 30 years? And in 30 years, with them payin' what they have, the airport hasn't been bankrupt yet."
Mr. Dyal did not explain how he did not obtain a copy of the current lease after installing himself as the City's chief negotiator.
Mr. Dyal continued, “So they’re offerin’ to double the thing and get us up to the 500,000 which was mentioned.”
While $500,000 a year (after 10 years) for the 745,000 sq ft of hanger space and the over 100 acres of airport property is not fair market value in today's world, neither Mr. Dyal nor the City Attorney nor HAECO has ever explained why the $500,000 is a magic number.
Mr. Dyal continued with his remarks. It is not clear what he was saying. “They’re a non-profit. [Mr. Dyal appeared to be referencing HAECO]. We’re not at the airport to make money. The airport’s there to substain [sic] itself. If we make tens of millions of dollars a year, we are going to have to invest $10 million a year. You makin' that much money, FFA (FAA] is not gonna give you your grant money because you're makin' too much money.”
Earlier in the meeting, Attorney Booth gave an example of why charging fair market value and having cash reserves is essential. He explained, "A sewer pipe broke a few years ago under one of HAECO’s hangers. It cost the City $360,000 to repair that; that was two years and three months’ rent, and you can't operate like that. It has to be self-sustaining. And it needs to be commensurate with decency and fair play.”
Mr. Dyal continued, “I don't think the airport is going to go bankrupt anytime soon. Especially if we quit payin' airport attorneys big salaries for their input that makes us go over our budget.”
Your reporter fact-checked Mr. Dyal’s “over budget” remark with the former City finance director. The City Airport did not go over budget.
Mr. Dyal recommended looking at the overall picture "holistically… " "We have language in there now, for where we have the ability to go out inspect and hold HAECO responsible for the maintenance that wasn't done in the past.”
Had Mr. Dyal reviewed the present lease, he would have discovered that over the past 30 years, Lake City always had "the ability" to go to the airport and make sure HAECO, or the previous leaseholders, were holding up the requirements that they maintain the hangers."
Councilman Todd Sampson
Councilman Sampson said he did not understand how HAECO had gone from offering $1.5 million for the lease down to $300,000.
Mr. Dyal retorted, “I would might be like to jog the Councilman's memory settin’ in the assistant manager's office on several occasions, settin’ across from me, when he came in after the original debacle and asked that one, the airport manager not be involved in the negotiations, which I guess you failed to mention that. And that you had mentioned that was way too much, and you thought 500,000 was a more realistic number.
Councilman Sampson responded, "That is incorrect and a lie, Mr. Dyal. And I can call Mark Esper right now because he and I talked directly about $1.5 million, which is the exact number that you and I talked about as being the beginning point.”
Mr. Dyal and Councilman Sampson over-talked each other. Mr. Sampson said, “You attacked our attorney we are paying a fee to.”
Mr. Dyal responded, “Whatever.”
Finally: A vote and back to the “card table”
Finally, one hour and 15 minutes into the meeting, Councilman Hill motioned to extend HAECO's lease for a year and to seek an appraisal for fair market value for the lease agreement.
Mayor Steve Witt
Before the vote, Councilman Hill said, "My thing is HAECO leased out a hanger a few years ago for X amount of dollars. Now they are going to come before us and make a lease for them for eight cents a square foot… Come on. There is somethin' wrong with that picture."
Councilman Sampson seconded the motion, which passed 4 to 1, with Councilman Young voting against.
Epilogue
Mayor Witt had the last word: "Right, we're back to the card table again."
