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Commerce City fight: Editor takes on town over strange deal involving city manager's house

Categories: News

Kathy McIntyre believes she's found some muck -- and she's determined to rake it. The editor of Gateway News, she has devoted considerable resources to an investigation of a housing deal given to Jerry Flannery, city manager for Commerce City. As McIntyre writes in her summary of the story, entitled "Deal Breaker 101," the city council voted to loan Flannery $450,000 to purchase a house within town limits circa 2007. Today, McIntyre alleges, Flannery continues to live there on Commerce City's dime.

As McIntyre acknowledges, this is a complicated story with many twists and turns. Consider her take by clicking here, and look below to read city attorney Robert Gehler's e-mail to McIntyre outlining the Commerce City government's point of view.

Kathy:

I have received your request for a description of the basis for payment of $72,000 to the City Manager payable one-half on October 1, 2009 and one-half on January 20, 2010. Since I was present when the City Council decision was made, I can provide the information to you and you can then circulate the information as you deem appropriate. As City Attorney, I do not provide press releases on behalf of the City but I am glad to explain the process the City Council followed in reaching its decision.

Initially, it is important to provide the background for the circumstances surrounding the council decision. The intention of the loan was to provide short-term support to an outstanding candidate for city manager at a time when the city was in need of strong executive leadership. Neither the City nor Mr. Flannery expected the real estate market to fail the way it did in 2007. Every extension and addendum to the contract was executed with the singular purpose of protecting the interests of the city while providing Mr. Flannery with compensation that is consistent with industry standards.

In 2006, Jerry Flannery was targeted for consideration as the city manager for Commerce City after an extensive search. As part of the offer to recruit him, the City agreed to loan $450,000 to him for purchase of a home within the city boundaries since obtaining a residence in Commerce City was a requirement of the City Charter. A mortgage in that amount on the home of his choosing was required by Commerce City in order to secure the loan which would become payable in six months.

Shortly thereafter, the real estate market failed. The Arizona house could not be sold and both the Arizona house and the Commerce City house decreased in value by 20 to 30 percent. An appraisal of the Commerce City house showed a market value of $365,000 and a loan value of $292,000, leaving a deficit of $164,525 between the mortgage amount and the loan value. After much consideration, it was determined that the only solution was to allow Mr. Flannery to remain in the house and to continue the mortgage on the house which had then increased to $456,525.00 as a result of accrued interest.

With those figures in mind, the City Council offered a discount of $72,000 and payment of real estate taxes and insurance for two years. That amount was derived by subtracting from the amount of the loan the loan value of the Commerce City house ($456,525 minus $292,000) resulting in a difference of $164,525. The City proposed to take a loss of one-half that amount and Mr. Flannery would be left to absorb the balance of the loss. The City's share of the loss totaled approximately $82,000 and consequently a $72,000 proposal plus payment of real estate taxes and insurance for two years was agreed upon.

Because no relocation benefits had been paid other than travel expenses at the time Mr. Flannery made his move to Commerce City, it was felt that absorbing one-half of the loss resulting from the depressed real estate market would be a fair solution to the problem. A review of relocation benefits across the country confirmed that $72,000 in payment for relocation benefits was a reasonable justification for discounting the loan.

Mr. Flannery continues to hold a mortgage with the city in the amount of $456,525. Mr. Flannery was given until September 1, 2011 to fully satisfy that obligation. This arrangement protects the interests of the City by transferring all risk as to the future value of the property and how he will get the funds to make the September 1, 2011 payment to Mr. Flannery. Commerce City will not be involved with the loan any further except to receive full payment plus interest by September 1, 2011.

Feel free to contact me if you have any further questions regarding this matter.

Bob

Robert R. Gehler
City Attorney
City of Commerce City
7887 E. 60th Avenue
Commerce City, CO 80022

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