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Conference Center: How did we get here?

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Coffee County Conference Center

Coffee County Conference Center

[Editor’s Note: In response to recent questions from the press and the public about the financial status of the Manchester Coffee County Conference Center, Coffee County Attorney Bob Huskey provided The Times with the following timeline of the facility’s history and potential options for its future. Huskey’s letter appears below, edited for length. The full letter is available online at www.coffeecountytn.gov.]

 

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Robert Huskey

Robert Huskey

There have been a number of questions raised about the financial losses occurring at the Public Building Authority (PBA) and why the county and/or city has not sold or terminated the conference center and the PBA. Likewise, residents at the June 26 Coffee County Commission meeting raised legitimate concerns about the center’s ongoing losses. In regard to the questions, I, as county attorney, attempted to address the legal aspects. Those questions were concerns of not just those present, but others in the county as well and due to the fact that a small part of the populace would have seen or heard those responses, I am writing newspapers to provide that information.

I apologize in advance for the length of this response, but since this is a matter of broad public concern and concerns a significant amount of financial loss, it warrants the time to address it thoroughly.

 

The beginning

 

The PBA, which is a legal entity established in 2000 by charter from the State of Tennessee, is the operating entity of the Manchester-Coffee County Conference Center. The agreement which obligates the county and Manchester to equally support the center was likewise executed in 2000. The opening paragraphs of the agreement provides as follows:

“Whereas, the County and City have determined that it is in the public interest that a conference center be built to further business, industry and growth within Coffee County, Tennessee and Manchester, Tennessee; and whereas, the parties are in agreement to fund, on equal basis, the construction, equipping, and operation of said Conference Center.”

That instrument was executed by the then-executive of Coffee County and the then-sitting mayor of Manchester, following the approval of the county commission and Manchester Board of Mayor and Alderman. The only logical interpretation of the agreement reflects that the two entities fully recognized that a conference center could be a benefit to both, but that it would take some time to get it financially on its feet and would need the support of the two governmental entities to do so. Since each entity felt it would be good for the community, but didn’t want to bear the expense alone, they entered into the venture, assuming equal responsibility. I’m satisfied that each entity entered into the agreement believing what they were doing was going to be in the best interest of this community. Regrettably, sometimes things don’t work out as we hoped they would.

 

Why not just close it?

 

Paragraph 5 of the agreement provides “It is contemplated by the parties that the Public Building Authority shall operate the Conference Center following acquisition. Net profits and losses attributable to the operation of the Conference Center, both in acquisition and operation thereafter, shall be borne equally by the parties hereto.”

Thus raises the question that since it’s been in existence for a number of years and it’s still losing money, why can’t the county just close it, sell it or otherwise get rid of it? The answer is state law prohibits it. The PBA was established under the charter pursuant to Tennessee Code Annotated § 12-9-101 et seq., which provide authority for a governmental entity to establish a building authority for such improvements and developments. But in authorizing the establishment of a building authority, the law sets provisions under which it must operate and that is under a board of directors, which are appointed by the governmental entity; however, those directors or that board must be independent of the governmental entity that established it. Furthermore, statute prohibits a county commissioner or a member of the Manchester Board of Mayor and Aldermen from being appointed to the board. When issues arose about the financial operation a couple of years ago, both Manchester and the county looked about having members of the county commission and the city board included on the PBA Board to have some control of its operation, but upon researching the matter, it was determined that the state law prohibited it.

Well, why not just close it? The reason the city, county or both just can’t close it is that, by law, it’s under the control and operation of the PBA under which it was created. That board has authority to decide whether to secure a private operator or to continue its direct operation. It is the PBA’s decision whether to terminate the PBA, but even it can do so only if all of its debts were resolved and the purpose of its existence had been satisfied.

 

Differing legal opinions

 

In numerous articles, Elena Cawley (Tullahoma News’s county reporter) points out that Gerald Ewell, the Manchester City Attorney, had advised her that, in his opinion, the county and the city could by mutual consent terminate the agreement after one year. First of all, Ewell is a very thorough, competent and very technical attorney. When I saw the articles in the paper about a year ago in regard to that contention, I thought great, Ewell has found something that will help us solve this matter and I need to find out what it is. So I called him and he advised me of the statute upon which he was relying for the one-year termination. He advised it was T.C.A. § 12-10-108. I read that statute and it does, like was reported in the paper, address authority to make contracts for up to a year and certain other limitations. When examined more closely, that section does not appear, in my opinion, to apply to our situation. The section that deals with the limitation of one year was not addressing the powers and authority of the PBA Board, but rather the powers and authorities that could be given to an executive committee appointed by the PBA Board. It did not in any way limit the power to the PBA, but only limited the authority they could delegate to an executive committee, if they had one, and the Coffee County PBA doesn’t even have an executive committee. So with all due respect, I don’t think that code section provides an out.

There is a section in the code that could have been a protection or an out for the city or the county, specifically T.C.A. § 12-10-114 – Non-Liability of Municipality. Sub-section (a) of that code section provides that the entity establishing the PBA shall not be liable for the payment of obligations of the created entity and that PBA’s actions cannot bind the governmental entity. Why then is the city and county liable? Because subsection (b) of that code section provides notwithstanding the first part, a municipality, city or county, may by contract agree to indemnify costs, claims and losses, etc.; and if they did so, the contract would be enforceable against the municipality in accordance with its terms. In other words, if you enter into a contract to be responsible for all or a portion of the expenses, your obligation is set by the terms of the contract. General case law in most all states generally provides that it’s “the intent of the parties in making the contract” that will control and you look to the language of the contract to see if you can discern the intent of the parties.

It is my opinion that the city and county can cease obligation for the expenses of the conference center once the underlying bonds are paid off – which will be in about three years. The basis for my advice is found in the wording of the contract itself; in Paragraph 6 of the contract:

“It is contemplated by the parties that this venture shall continue for an initial term of years necessary to liquidate and pay the bonding indebtedness incurred by the Public Building Authority for the acquisition of the Conference Center and personal property used in conjunction therewith, and that it may be continued thereafter under such terms as the parties may agree upon.”

That language, in my opinion, sets out the intent of the parties. That the city and county are agreeing to pay the underlying support – pay the bonds and shortfall on operating expense equally – until we get those bonds paid off. After those bonds are paid off, the only obligation will be what agreements we make at that time, if any.

There is another issue. The law of Tennessee generally is that only a party can sue on a contract to enforce it, and in this case, the two parties to the actual contract are the City of Manchester and Coffee County. The PBA is not a signatory to that agreement, but there is an exception in the law whereby a non-party can sue to enforce the terms of the contract, specifically if the non-party is a beneficiary of the contract. Such an entity or person is called a third-party beneficiary. The requisites necessary to establish a third-party beneficiary relationship are (1) a valid contract made with sufficient consideration between the promisor and promisee and (2) the clear intent to have the contract benefit a third party. Since every contract a governmental entity enters is made for the benefit of all citizens, in order for there to be a third-party beneficiary entitled to sue on a government contract, there must be language in the contract that indicates the parties intend to confer a direct benefit to certain citizens or entities to make them third-party beneficiaries.

Ewell has expressed his reservations to me about the conference center or PBA qualifying as a third-party beneficiary. I respect his opinion, but from my reading of this contract, its whole purpose was to finance a conference center to be controlled by the PBA and to guarantee its financial solvency until it could stand on its own or at least until the bonds were paid. That’s how we got to where we are and that’s why I have advised the county that I believe we are bound until these bonds are satisfied.

Where I do have a question is, what if either the city or the county wanted to get out of obligation and were willing and able to pay off their half of the bonds, would they then be relieved if the other governmental entity had not paid off its portion? That is the part that to me is an uncertainty. I could see a ruling either way on that issue.

 

Where do we go from here?

 

What are the potential solutions? The PBA is the entity in charge of the operation of the center. That board could decide to secure private operations. They could even terminate the existence of the PBA once its obligations were satisfied and there were no outstanding debts on the property and if that occurred, the properties it owned would revert to the ownership of the entities that created it, which would be Manchester and the county. So the one in control of what happens at the conference center at this time is the PBA Board. Another option is that the city and the county, if they could each come up with the money, could pay off the bonds and be free to be released from the transaction. Clearly that would be the case if both did it; there is uncertainty if only one of them did it.

There is one other option. State law allows a party to a contract with questions of interpretation or uncertainty as to the language to file what is known as a declaratory judgment suit to ask the court to interpret the contract and advise the parties of their rights and obligations. Any party involved could file the suit, which just asks the court to interpret the contract without taking a chance of being in breach of the contract by just stopping financial support. I think that is a potential alternative, based on the fact that two of the lawyers involved in advising the parties have differing opinions on what the obligations are. I believe both entities would like to see the conference center continue to exist and to thrive. It has been a benefit to the community, but it has been costly and it needs to become self-supporting. The frustration of most concerned is that by now it should be and it hasn’t, so what is the best course to take next?

Both the city and the county have been struggling with this situation for years and it is not a situation of their making. Both this and the prior administration inherited it. There are good people with a lot of talent giving their time and service on that board. We know that having the center is a plus to the community, but we realize it must be self-sustaining; it cannot continually be a drain on the city’s and the county’s budget. But before we take any other action, on behalf of the county, I would request the PBA Board as the first step in the process, come up with a plan by which the conference center will become self-sustaining, in regard to its operation expenses, and submit that to the city and county officials. The entities worked together to create the conference center, we need to now work together to get its financial situation solved.