EAGLE — Earlier this year, the Eagle City Council agreed to go into a four-year debt for $767,000 to purchase property for the Eagle Museum from a Nevada-based company, according to a June promissory note.
According to the Idaho Constitution, though, municipalities are not permitted to go into debt beyond the current fiscal year without a two-thirds majority vote from residents, except under specific circumstances.
Members of the city government, and its attorney, have argued if the decision is legal, even without a vote. Both point to a 2015 Idaho Supreme Court case as their justification.
The land in question is on the 100 block of East Mission Drive, known as The Landing, and owned by Patrius LLC, a Nevada-based company, according to the Ada County Assessor’s website. Currently, it contains an office building, a recreation center, and St. Matthews Catholic Church.
On May 28, the Eagle City Council voted to allow Eagle Mayor Stan Ridgeway to agree to buy the land from Patrius for $1.15 million, according to meeting minutes. It will be the Eagle Museum’s new location. The Eagle Urban Renewal Agency, meanwhile, purchased the museum's current location and plans to build two multistory buildings there, including retail, restaurants and office space.
According to the May 28 purchase and sale agreement obtained by the Idaho Press through a public records request, Ridgeway agreed to the purchase of two parcels from Patrius. Per that agreement, the city would pay a down payment of $358,000, in addition to the $767,000 it agreed to pay in the coming years, for a total of $1.15 million. According to the promissory note, dated to June 16 — also obtained by the Idaho Press via a records request — the city would pay that money at a 7% interest rate over the course of four years.
The two parcels' assessed value is $864,000, according to the assessor's office.
There is a discrepancy in how long the city would have to pay the debt. According to the purchase and sale agreement from May, the city will have five years to repay the debt. According to the promissory note signed in June, the city will repay the debt by Aug. 1, 2023 — or only four years. Ridgeway said if there is a conflict, it would be resolved by the city's attorneys.
Those incongruities aside, the city may not have had the authority to enter into the agreement in the first place. According to Article 8, Section 3 of the Idaho Constitution, no city can go into debt that exceeds its income and revenue for that fiscal year without two-thirds' approval from voters.
Brian Webb, an attorney who specializes in real estate and business litigation and corporate governance said that law is intended to require governments to “live within their means.”
There are exceptions if the debt or expenditure is legally defined as “ordinary and necessary,” he wrote in an email to the Idaho Press.
“Generally, a debt qualifies as ordinary and necessary if it relates to an expense that is incurred in the ordinary course of business and is a truly urgent expense that can be paid in full within one year,” Webb wrote.
He wrote there are four ways he is aware of in which a city can “incur liabilities when an expense is ordinary and necessary.” They are:
- Seek voter approval as outlined in the Constitution
- Engage qualified legal bond counsel to issue an unqualified legal opinion
- Obtain a judge’s confirming ruling
- Properly appropriate public funds and use them to pay for year-to-year renewable leases
“Anything else outside of that, I don’t know how you get there,” Webb said in an interview with the Idaho Press.
2015 IDAHO SUPREME COURT RULING
Ridgeway and City Councilman Stan Bastian told the Idaho Press the purchase was legal because of case law from a 2015 case, Greater Boise Auditorium District v. David Frazier. Ridgeway said that case made it legal for cities to finance a purchase if they have the money saved to do it.
"If the public institution has the ability to make a payment over a period of time, then they can go ahead and do it without having to renew it each year," Bastian said Tuesday.
He added, "There are specific requirements for it. You have to have the necessary income in order to make the payments, but that's it."
Victor Villegas, of Borton-Lakey Law Offices, the city's legal counsel, said the city had enough money when it entered into the agreement to simply buy the property outright. That made it legal, he said, because the city had the "cash on-hand."
"The litmus test is, 'When you entered into this thing, did you have the money?'" Villegas said. "… There is a fund that has the money."
Much of the 2015 ruling had to do with the long-term lease agreement the Greater Boise Auditorium District — an extension of the city government — has with the Capital City Development Corporation, which is a different arrangement from the one Eagle entered. That was a series of year-to-year renewable leases, and the district did not have to renew the lease each year. The promissory note in Eagle's case makes no mention of renewal of a lease on a year-to-year basis. It is a purchase, requiring payment every year on Aug. 1.
In the process of getting to that agreement with CCDC, however, GBAD entered into another agreement directly with the construction firm doing the work. Under that agreement, the city GBAD agreed to purchase the new building once construction had been completed — thus binding it to a later purchase beyond the current fiscal year. That binding agreement, however, could be considered "contingent liability" Webb said — meaning it was contingent upon the construction's completion. Thus, if construction was never completed, the city had no obligation to buy the building; it had not committed to anything outside of the current fiscal year. That is also different from Eagle's situation.
Ridgeway said Eagle had been building a reserve account during his time as mayor, and said it had almost $6 million saved.
"The city council could decide tomorrow to pay the note off," he said.
However, the court in the GBAD case also mentioned a 1914 Idaho Supreme Court case, Boise Dev. Co. v. Boise, in which a government entity agreed to pay the cost of certain tort claims filed against the city.
"While the municipal corporation may have been able to pay the obligations due in the year in which it entered the contract, there was nothing guaranteeing it could continue to make the payments to which it was obligated in future years," according to the 2015 decision's quotation of that case. "The obligation in future years constituted a liability that the municipal corporation required a super-majority vote to incur under the constitution. Because it had not done so, the agreement was invalid and the contract was void."
Villegas said the city had money in a fund for the project, although he said he didn't know what the fund was called, and suggested the Idaho Press file a public records request for the information. The Idaho Press did so, and had not received a response by Wednesday afternoon.
"There's money on hand from the time they started the transaction until today," Villegas said.
He added, "You would need approval to even touch this fund."
Villegas did not return follow-up calls or an email seeking more information over the next 24 hours.
That fund is not mentioned in either the promissory note or the purchase and sale agreement.
Asked if there was money put aside specifically to pay off the debt to Patrius, Ridgeway said the money was in the city's reserves.
Asked why the city didn’t enter into a long-term lease agreement with the Eagle Urban Renewal Agency to obtain the property — as other cities commonly do — Ridgeway said, “The urban renewal agency doesn’t have anything to do with the property.”
“This was between the city and the seller,” he said.
He said it was no different than financing a home, an analogy Bastian also drew, and said the city has already made the first yearly payment to Patrius. The decision to finance the project was "sound financial planning," he said.
He also said the decision was legal because Patrius understood a future city council could decide to stop making the payments — although it would probably not be wise to do so, Ridgeway said.
According to the note, that would place the city in default, which would then mean the Patrius "may declare the entire unpaid principal balance on this Note due and all accrued unpaid interest immediately due, without notice and then Borrower will pay that amount."
The difference, Ridgeway said, between the agreement with Patrius and a long-term lease agreement, is that the city will own the property eventually — it is not leasing the property.
“We have nothing to hide,” Ridgeway said. “It’s a legal process. Everything was done in an open meeting.”
In January, months before the city agreed to the arrangement with Patrius, the law firm that had represented the city for more than 30 years ended that partnership, KTVB reported earlier this month. While the firm's leadership did not tell KTVB why — citing attorney-client privilege — one of the company's shareholders told the station "it wasn't one single thing, but rather a culmination of many things that caused the working relationship to come to an end."
The station obtained a letter from the law firm, MSBT, to the city, in which the company wrote "continuing to represent them could break the professional conduct rules or other laws," according to KTVB. That letter also cites another rule, in which the firm was allowed to leave the city if it "wants to take action the firm finds to be 'repugnant' or they have a fundamental disagreement with," KTVB reports.
KTVB also reported the city issued a written statement, which reads, in part, "Changes in policy, priorities and personnel happen over the years as any city grows. Such change includes lawyers changing clients and clients changing lawyers. The City was not provided a specific reason for the change nor does the contract with the city attorney require either party to do so. The change with the previous attorney is a staffing matter that occurred almost ten months ago."