Leases approved under deadline pressure

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Expiring appraisal, slow process, state regulations all played a part

By Roger Snodgrass

The Los Alamos School Board had a tough decision to make Tuesday and not much time in which to make it.

An urgent issue had to do with the leases of school property to Los Alamos National Security (LANS), LLC, the partnership that manages Los Alamos National Laboratory. The income is an important source of revenue for the county’s educational system and particularly for the school board, because it serves as a kind of rainy-day account for emergencies and special projects.

The schools have in hand, what they consider a favorable appraisal of the four properties leased to LANS from a review conducted in November 2008, just after the sudden economic downturn and the credit crisis, but before local values had fallen.

To deal with a looming deadline, a special meeting was called for noon on Tuesday. Several members of the board arrived and expressed reluctance to make a quick decision without a careful review of the documents.

As explained by the school’s attorney Charlotte Hetherington, there was no time to lose.

“We need approval at this meeting,” she said.

A previous approval of the lease arrangements by the state board of finance had been contingent upon the understanding that the lease language did not meet the board’s approval and needed to be changed.

A new lease template had been developed, incorporating the required language. It had been worked out and approved by LANS and their supervisors at the Department of Energy. But that approval had already required a lengthy process that pushed the school board to the limit of the time available.

“But if we begin to tinker with it, does it have to go back to Washington, D.C.?” Superintendent Gene Schmidt asked.

The answer was yes, and the approval cycle was estimated to be six to eight months.

Now, the school board was asked to decide whether to approve the new lease language and deliver the documents to the board of finance without delay — tomorrow, said Hetherington — in order to get on the January agenda for state approval. Only within that schedule would the board of finance accept the November 2008 appraisal, which was only valid under state regulations for 13 months. Any delay would require the board to conduct a new appraisal. If the board could not approve the documents at Tuesday’s meeting, it would risk a new appraisal that could erase the prospect of additional revenues from the leases and might easily result in a reduction.

“We want to use those figures because we believe they are more advantageous to the school board than if we had them reappraised today,” Hetherington said.

The leases are for five years, good to 2015, but they have a renewal option for five more years.

This led to another problem. Language the school board had wanted in the lease, enabling them to recover office space, if needed in the future, was not there.

“Nowhere does it say that we can cancel,” said school board president Joan Ahlers.

Less revenue from the leases would be difficult to accept at a time that state budget cuts had already caused pain, but endorsing the leases without a cancellation clause would limit flexibility.

“My concern is narrowing our options by having no out whatsoever,” Ahlers said.

Hetherington summarized the dilemma.

“We can go back and re-do these leases,” she said. “We will then have to get a new appraisal that could result in reduced income.”

She added, “There are two things to weigh — a certain amount of income in a certain time with uncertainty about space needs.”

Hetherington also identified language in the leases that allowed the school board to propose amendments.

“It would require the lab’s willingness to cooperate,” she said.

While wanting to have control over the space, the board members agreed that there were no critical needs for additional space in view and that they could propose an amendment as a possible solution in the future.

Board member Thelma Hahn offered a motion to approve the leases with a provision to request such an amendment at an appropriate time.

Board Vice President Ken Williams had to leave before the vote, but he and Board Secretary Jody Benson were required to abstain because they are LANL employees.

The motion passed 3-0, with Ahlers, Hahn and board member Melanie McKinley voting in favor.