Blunt plans to back out of lease on building

Monday, April 3, 2006 | 12:00 a.m. CDT; updated 1:40 a.m. CDT, Saturday, July 5, 2008

JEFFERSON CITY — When a resident or business breaks a lease on a building, it usually comes at a cost — such as the loss of a deposit, or the continued payment of rent until a new tenant is found.

So what happens if the state backs out of a lease? Gov. Matt Blunt’s administration is poised to find out.

Blunt’s Office of Administration intends to terminate its lease on a St. Louis office building at the end of June — a move that already has prompted a lawsuit, accusations of political retribution by the Republican governor and claims of political coziness against his Democratic predecessor who awarded the contract.

Blunt officials concede the building’s owner has done nothing to breach his 15-year lease. But they contend the rent under the 2001 contract is too high. And negotiations have failed to persuade owner Charles Hennemeyer to lower the rent or sell the building at a price the state finds acceptable.

So Blunt’s administration is taking advantage of a constitutional provision that makes all state expenditures — even for long-term leases — subject to annual appropriations by the legislature.

Blunt’s budget liaisons have asked legislators not to fund the annual $1.3 million lease payment for the 65,000-square-foot building at 3101 Chouteau in St. Louis. The budget passed by the House followed those wishes. Now a Senate committee is considering it. And Office of Administration Commissioner Michael Keathley already has written Hennemeyer saying the legislature will not appropriate the money.

Because the building in question is not backed by government bonds (and the rigorous risk assessment that comes with that), breaking the lease is not likely to affect Missouri’s good credit rating on future bond issues, said Bob Kurtter, who manages the state ratings team for Moody’s Investors Service.

But “other things being equal, now the market would perceive a greater risk to leasing to the state of Missouri under a standard lease,” Kurtter said. “I presume the market will react to it somewhat negatively.”

Blunt’s facilities director, David Mosby, acknowledges that breaking the lease “could put some ripples” into the financial markets. But he expects those ripples to be small because the building is one of just 450 the state leases.

“If we started doing this routinely, it would destroy our ability to get money, but we are still a valued lease,” he said.

David Mandy, chairman of the Economics Department at MU, said the effect of the lease-breaking would depend on how other potential lessors perceive the circumstances.

Blunt’s administration asserts the cost is good reason to break the lease — $19.75 per square foot in rent, plus an additional $2.65 a foot in state expenses for janitorial service and other items. He says that’s more than the state pays for any other building in the city of St. Louis.

Hennemeyer counters that he charges rents similar to other buildings in the St. Louis area and that his building was constructed specifically to meet the state’s needs — including such things as stainless steel restrooms, urinalysis rooms and panic buttons because of the visitors who are on probation or parole.

“Under their guise of saving money, they in effect are just twisting my arm,” Hennemeyer said.

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