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County Council, March 13

Fiscal burden of Naval Hospital purchase will be heavy in FY2020
Sale of 995 Morrison Drive could make a large difference
Warwick Jones

The forced acquisition of the old Naval Hospital (3600 Rivers Avenue) was a sad, expensive and unplanned event for the County. The specter loomed large in discussions in Committee meetings on Tuesday evening and will be shaping Council’s actions.

Staff gave an update on the course of the 2018 budget, an early preview of that for F2019, and an early look at FY2020. In simple terms, 2018 is looking good, 2019 reasonable and perhaps no need for a property tax increase, but FY2020, not so good. The burden on Facility Maintenance will rise, presumably with the full expense of the Rivers Avenue property acquisition and maintenance. The short and long term impact on the acquisition is still being assessed but staff expects to make a fuller report by May, presumably for the FY2019 budget discussion.

If it were not for the Naval Hospital specter, the staff presentation on the budgets would have been a happy event. For FY2018, General Fund revenues are running $2-3 million over budget and costs about $6 million under budget suggesting an increased surplus of $8-9 million. For FY2019, staff indicated a likely $5 million increase in revenues, largely from property taxes but made no projection of costs. It simply said that the request for cost increases amounted to $19 million, suggesting a challenging difference of about $14 million. It did not suggest a millage increase so presumably staff expects Council to whittle down the requests. For FY2020, it simply concluded there would be a need for additional revenue reflecting the need to cover the higher cost of Facility Maintenance.

There was some discussion about the need to maintain high reserves in Fund Balances, and the Rainy Day Fund. Staff indicated that the County had generally the equivalent of 2.5 months of expenditure as reserves in the respective Funds and $10 million in the Rainy Day Fund. These totaled $50 million presently. The staff expected the budget surplus this year would go to maintaining the Fund Balance ratios, and meeting some spending in FY2019.

Council members Pryor and Johnson questioned the need for the high fund balances, noting that 2 months expenses were the recommended minimum by rating agencies. Staff insisted that maintaining the present high ratio was necessary to keep the County’s AAA bond rating.

There was no mention of the Naval Hospital in the discussion of the sale of 995 Morrison Drive. But we thought we saw the specter, haunting the County to quickly find the funds to plug the fiscal hole created by the Naval Hospital purchase.

The 7 acre property on Morrison Drive is undoubtedly very valuable. Considering the surrounding development, we can believe Council member Qualey when he said there were some 20 or 30 parties interested in purchasing. Presumably all would have plans to develop the property for commercial and residential space. But there is one developer who would have these plans, and more. It, or its affiliate owns the 150 acre Laurel Island to the east. It presently cannot be developed because there is no access. To create access, a road needs to be built over Morrison Drive. To meet code, the access road needs to meet certain conditions, particularly as it passes over Morrison Drive and the rail line. These conditions can only be met if there is a road within the 7 acre parcel and joining with Cool Blow Street. The County is now about to begin negotiations for a sale with an associate of the owner.

It would seem that the City of Charleston supports the development of the island and will support a rezoning only if the 7 acre parcel is split into two lots with a right of way (ROW) between. The existence of the ROW almost guarantees the developer the ability to create the road to access the island.

The County tasked staff over a year ago to create a Planned Unit Development plan in preparation for a sale of the property and for maximum proceeds. This plan was presented to the Economic Development Committee and later to Council for consideration. The parcel would comprise two lots, 3.3 and 3.7 acres respectively separated by a 70’ Right of Way. The building height would be a maximum 160’ and there would be no maximum housing density. The City of Charleston has also requested that 15% of housing units be workforce housing.

Council tasked the Chair of the Economic Development Committee and his appointees to negotiate a contract with I.R.A. North Promenade and bring it back to Council in 60 days. The finalization of the sale would require the approval of Council. Only Council members Qualey and Darby voted against proceeding. Council member Qualey stated that the sale should be effected by a bidding process and not simply by negotiation with one potential buyer.

The development of 995 Morrison Drive would be a big project. But that of Laurel Island, much bigger. How many homes sites could be developed on the island? How many with water front? Wetland and other considerations may whittle down the numbers. Whatever is left however should have a huge value. In our view, the County has a hostage that should pay big. But the County is hostage to its obligation to the Rivers Avenue property. Understandably, it may be thankful for a generous sale price on the Morrison Drive property immediately, rather than extracting one more generous over time.