Why is Dallas paying $300,000 in interest and legal fees to settle a lawsuit? Good luck finding out
It would have been easy to miss on the Dallas City Council’s meeting agenda. And council members quietly agreed to pay about $300,000 to settle a lawsuit filed several years ago by a developer and a nonprofit the city has worked closely with to develop housing for low-income residents.
The city already had written a multimillion dollar check to the developer and the nonprofit not long after the lawsuit was filed. But the litigation continued. And that leaves some unanswered questions.
Why wasn’t the lawsuit settled earlier? And why did council members decide to spend taxpayer dollars to settle it at Wednesday’s meeting?
KERA asked the city for answers this week — and got none.
Striking a deal
The disagreement started with a development deal between the city and Hamilton Atmos LP.
In 2011, the Dallas city council approved a deal to have Hamilton Properties redevelop the vacant Atmos Energy complex and build some affordable housing in downtown Dallas. The group of buildings was donated to the city in 2005 and was then sold to the development firm in 2008.
After a failed attempt to get bank funding to build mostly luxury apartments, Hamilton brought on CitySquare Housing to help get federal investment to help subsidize the lower-than-market-rate units. CitySquare Housing is an independent nonprofit that functions as the real estate arm of the antipoverty group CitySquare.
The project would turn four vacant buildings into retail shopping and about 230 residential apartments, most of which would be affordable housing units rented below market rate.
The city council-approved agreement with a limited partnership formed by the developer — Hamilton Atmos LP — pledged to pay up to $23 million after the buildings were renovated and leased.
The funds would come from the Downtown Connection Tax Increment Financing District, one of several TIF districts designed to spur targeted development in neighborhoods throughout the city with the promise of future city payouts.
The deals are structured with the idea that new development in TIF districts will drive up tax revenues by increasing property values and commercial activity. To get those revenue-increasing projects built, the city pledges a cut of the expected increase in tax revenues to developers at a future date, which helps them get loans to finance the construction in the present.
A missed payment
Hamilton and CitySquare Housing expected their payout from the TIF funds in 2018, years after the Atmos Complex was renovated and rechristened as the Lone Star Gas Lofts, said John Greenan, who headed CitySquare Housing at the time.
“When our turn came up to get paid, the city didn’t pay us,” Greenan said.
After multiple questions into the developer's payment, city officials sent “three letters on the same day” that detailed the reasons that money was delayed — which Hamilton and CitySquare lawyers called “bogus defaults.”
After more than a year of trying to get its money from the city, Hamilton Properties decided to sue.
CitySquare Housing joined the lawsuit. Greenan said it was a bit uncomfortable since CitySquare Housing and its sister nonprofit CitySquare work a lot with the city helping poor people.
But questions remain as to why the city delayed payment to the developers. City officials contacted by KERA this week about the lawsuit declined to comment, as did two council members.
Hamilton also declined to discuss the lawsuit.
John Greenan, who retired last year from CitySquare Housing, said he is still confused about exactly how City Hall came to the decision not to pay them. He said the city quibbled with the formula being used to determine utility bills for some residents, he said, but that it seemed like an arbitrary and inadequate explanation.
“It was just not entirely clear to us what we were supposed to do. I mean, the amount they said was incorrect on the utility bills was so small we offered just to pay it to the city or pay it to the residents,” Greenan said.
In a court filing, attorneys for the city sought to get out from under the lawsuit by citing a law that can exempt or limit governments from damages in a lawsuit. That's known as "governmental immunity."
The city also argued that Hamilton "breached the agreement and has not yet cured the breach." But it did not explain how Hamilton purportedly had failed to live up to their side of the agreement.
Whatever the city’s rationale, it seemed the developers had a strong case. The city paid the developers nearly $8.6 million in early 2020, just months after the lawsuit was filed, according to court documents.
But that payment didn’t end the lawsuit. The city approved another $300,000 payment during Wednesday’s council meeting — this time for additional interest because the original payment was delayed plus the developer’s legal fees.
It was effectively a late fee — approved without comment by the council members.
As a result of the pending litigation however, both developers were cut out from working with the city specifically on projects using federal low-income housing tax credits, which Greenan says limited CitySquare Housing’s opportunity to develop affordable housing projects.
KERA tried unsuccessfully to reach the current head of CitySquare Housing for comment. A spokesperson from CitySquare, which is legally separate from CitySquare Housing, said that the organization values its relationship with the city.
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