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State Corrections headquarters: Smart lease or taxpayer boondoggle?

By   /   December 14, 2015  /   News  /   No Comments

MADISON, Wisconsin — A last-minute lease deal between former Gov. Jim Doyle’s administration and a Madison real estate firm was a bad deal for taxpayers and potentially driven by political payback, the state’s treasurer asserts.

The president of the commercial real estate company says the agreement gives the state Department of Corrections a unified home at an ultimate cost savings to taxpayers.

A Wisconsin Watchdog special investigation takes a closer look at the cost and the value of one of the state’s largest lease agreements.

The lease on the DOC headquarters at 3099 East Washington Ave., will cost taxpayers more than $51 million over a decade, between fiscal 2012 and fiscal 2021, according to a copy of the lease obtained by Wisconsin Watchdog.

That’s more than three times the $14.38 million assessed value of the 14-acre property.

The state will pay nearly $1.1 million more in escalating lease payments over the period, with annual payments rising from $4.6 million in fiscal 2012 — July 1, 2011 to June 30, 2012 — to $5.697 million in fiscal 2021 — July 1, 2020 to June 30, 2021.

Photo by state Department of Corrections

LEASED CORRECTIONS: The state headquarters of the Wisconsin Department of Corrections is located on a 14-acre site on Madison’s East Washington Ave. Gov. Jim Doyle’s administration extended the multi-million dollar lease on the property twice, including a deal just days before Doyle’s term ended.

Taxpayers are on the hook for monthly payments of $423,243.26, or nearly $5.08 million this year. Because the property is leased, the city of Madison, Madison public schools, Dane County and the technical college in 2014 divvied up more than $350,000 in taxes generated from the property — money covered by taxpayer-funded lease payments.

MIG Commercial Real Estate, formerly known as Mortenson Investment Group, brokered the five-year extension Dec. 22, 2010, just days before Doyle’s second term ended and his successor, Republican Gov. Scott Walker, took office.

The deal, extending the lease to fiscal 2021, was signed by then- state Department of Administration Secretary Daniel Schooff, a former Democrat state representative and longtime Doyle loyalist. Schooff managed Doyle’s 2006 re-election campaign.

As the ink dried on the lease extension, Wisconsin was looking at a $3.6 billion budget deficit, a hole filled in large part by budget cuts and reforms to the state’s public employee collective bargaining law.

Why did the Doyle administration commit the state to $5 million annual lease payments by extending the contract a decade after the governor left office?

State Treasurer Matt Adamczyk wonders whether the last-minute deal had anything to do with rewarding a longtime loyal Doyle benefactor.

Bradley L. Hutter, president of MIG, frequently gave to Doyle during his gubernatorial tenure. So did Loren Mortensen, namesake of the company and Hutter’s father-in-law who — from his Madison-based commercial insurance agency he founded in 1968— launched what would become MIG.

From 2004 to the 2006 election cycle that saw Doyle re-elected to a second term, Hutter and Mortenson contributed a combined $14,650 to the Democrat’s campaign, according to a Wisconsin Democracy Campaign database. Records show Hutter contributed $6,050 over that period, including a check for $3,500.

A June 2006 piece in Madison’s liberal Capital Times asserts MIG didn’t get much in return for its contributions to Doyle’s campaign. At the time, the company announced it planned to abandon a $22 million office and retail project because of a law Doyle signed sharply limiting the government’s eminent domain power to condemn property for private economic development projects.

But Hutter didn’t stop contributing to Doyle. Campaign finance records show Hutter contributed at least $3,350 to Doyle’s campaign between mid-2006 and June 2009. Morteson contributed at least $1,750 between December 2007 and June 2008.

Photo by Inquisitr.com

TERMS AND CONDITIONS APPLY: State Treasurer Matt Adamczyk questions leases like the one on the state Department of Corrections headquarters that will cost taxpayers more than $50 million over a 10-year period.

“If these leases are given to max donors, that raises questions whether it’s pay for play,” Adamczyk said. “With one signature, one man committed us to 10 years at millions of dollars, and there is no oversight and little or no review of these officials, these bureaucrats at the Department of Administration.”

Hutter, who describes himself as a fiscal conservative, said the charge of pay-to-play is ridiculous. He said he has contributed to other governors, including a $1,000 contribution to Walker in late October 2014, just days before the general election.

“That’s outrageous,” the developer said. “My perspective is we were doing a refinancing at the time and we were giving the state an opportunity to save money.”

While the lease extension was signed just days before Doyle’s departure, Hutter said the agreement took months to negotiate.

Schooff said he couldn’t remember the lease — one of the larger leases in the state. He said he would need to see the accompanying Justification Statement, the DOA’s position on the lease extension, before commenting. The DOA couldn’t provide the document as of this story’s publication.

The Doyle administration previously extended the lease five years — through June 30, 2016 — on Sept. 14, 2005.

Taxpayers paid more than $26 million in lease payments on the property between Oct. 1, 2005, and July 1, 2010, with total monthly payments rising from $352,000 to $403,427.71 over the life of that extension.

MIG’s lease with the state began Dec. 4, 2000, at the tail end of Gov. Tommy Thompson’s tenure in office.

In an email, DOA spokesman Cullen Werwie told Wisconsin Watchdog the renewal “is not a good deal for taxpayers.”

“The previous administration’s approach to meeting the space needs for State operations has been the complete opposite of what is taking place under Governor Walker,” said Werwie, a long-time member of the Walker administration.

He said the department is in the process of formulating “comprehensive space usage” policies and plans focused on saving taxpayer resources, reducing the state’s overall office space footprint and consolidating agencies to fully utilize shared spaces.

Werwie says the administration can’t provide additional answers regarding the lease extension because it wasn’t executed during Walker’s term.

“With that said, it is worth noting that we are actively reviewing the State’s space needs,” he said. “As we finalize plans to cut back on overpriced office space, we will be happy to provide you with additional details.”

Hutter agreed the extended lease was a sweetheart deal — for taxpayers.

The deal did provide the state with hundreds of thousands of dollars in allowances, including carpet and lighting upgrades.

But the bigger savings came from the ability of a far-flung Department of Corrections to consolidate and put all of its administrative operations under one roof, the developer said.

“I’m really proud of the building and the transaction we put together with Gov. (Tommy) Thompson in the (late) 1990s,” Hutter said. “I am proud of saving the state a lot of dough by corrections being able to consolidate its offices around the state. …  In the electronic age it allowed them to centralize all of their electronic needs. And it is an incredibly secure building.”

The building was constructed in 1951, at a cost of $1.36 million, for what would become the American Family Insurance Co., according to the Wisconsin Historical Society.

American Family added on to the building several times until the insurer’s growth forced a move to a new headquarters on Madison’s Far East Side in the 1990s.

“When we pay $5 million a year on a lease for a building that’s worth $14 million, it doesn’t make sense,” Adamczyk said.

The treasurer said, Why should taxpayers be on the hook for an automatic increase every year — north of $10,000 a month — on a facility that “nobody else would probably want or need in Madison?”

“We are a state competing against ourselves, and we are artificially raising the costs on these facilities,” he said.

Photo by loopnet.com

BATTERY OFFICE PARK: The 238,000 square-foot former world headquarters of battery maker Spectrum Brands/Rayovac, located on Madison’s West Side, is listed at just under $13 million.

Hutter takes issue with the claim.

He sent Wisconsin Watchdog a breakdown of the costs to taxpayers. The state’s net lease rate on the property in the first year was about $5 per square foot, lower than warehouse rates, Hutter boasted.

“And even now, after many years of inflationary and other typical expense increases, the base net rate on this lease is approximately $10,” he wrote. That is less than the listed office rate of the old Spectrum Building, before any repairs, he added.

The Battery Office Park property was the former world headquarters of battery maker Spectrum Brands/Rayovac. The most recent asking price for the 238,000-square-foot commercial property was listed at just less than $13 million.

Hutter said the Washington Avenue property is more affordable per square foot, even before what promises to be an expensive renovation project on the Spectrum property.

A spokeswoman for the state Department of Corrections was unavailable Friday to talk about the property the DOC has long called home and whether it meets agency’s needs. The DOC is the largest state agency and operates 36 adult institutions and facilities with 10,000 employees statewide, according to the department’s website.

Adamczyk said buying the Spectrum property would free up $5 million a year in lease payments to pay down debt.

“I’m sure the DOC would love to have an additional $5 million a year to put to GPS tracking or something, which would be a much better use of our tax dollars,” the treasurer said.

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M.D. Kittle is bureau chief of Wisconsin Watchdog and First Amendment Reporter for Watchdog.org. Kittle is a 25-year veteran of print, broadcast and online media. He is the recipient of several awards for journalism excellence from The Associated Press, Inland Press, the Wisconsin Broadcasters Association, and others. He is also a member of Investigative Reporters & Editors. Kittle's extensive series on Wisconsin's unconstitutional John Doe investigations was the basis of a 2014 documentary on Glenn Beck's TheBlaze. His work has been featured in Town Hall, Fox News, NewsMax, and other national publications, and his reporting has been cited by news outlets nationwide. Kittle is a fill-in talk show host on the Jay Weber Show and the Vicki McKenna Show in Milwaukee and Madison.