Negotiations, sometimes contentious, continue over potential Dix sale

Raleigh and state leaders have been negotiating in earnest for seven months over the potential sale of the Dorothea Dix campus. Public records show frustrations amid continued efforts to replace a disputed lease arrangement.

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Dorothea Dix sign
Mark Binker
RALEIGH, N.C. — City and state leaders say they are confident they will be able to come to an agreement over the fate of the Dorothea Dix property despite seven months of negotiations that have yet to produce a deal.

A trove of 1,000 emails released by Raleigh this week in response to a public records request details the four months of efforts to reach a deal from March 1 and the first week in July. Those emails show the city's efforts to directly engage Gov. Pat McCrory in the negotiations, vet a potential conflict of interest with a key city negotiator and display flashes of frustration as efforts to reach a deal proceed more slowly than hoped. 

"We all understand how important this is, and we really want to find a way to make it work," Raleigh Mayor Nancy McFarlane said during an interview this week.

In late August, McFarlane said that a deal was "close" following a closed session of the City Council. In response to several requests made in August and September for documents exchanged by the city and state, both city and state leaders have said there have been no formal offers. However, documents provided Thursday morning show that at least one offer sheet and an additional letter has been exchanged. 

WRAL News has made multiple requests to speak with either McCrory or his general counsel, Bob Stephens, regarding the status of the Dix negotiations and the content of emails provided by the city. Spokesmen for the governor said neither McCrory nor Stephens was available to speak Tuesday or Wednesday. This story has been updated to reflect the input of Josh Ellis, a spokesman for the governor and one other state official who responded to questions on Thursday morning. 

"We're still awaiting a response to the state’s latest offer. However, we continue to be hopeful we can reach a deal that accommodates the city’s needs while protecting the taxpayers of North Carolina," Ellis said.

The Dorothea Dix campus encompasses more than 300 bucolic acres on the south edge of Raleigh's downtown. It was the home to the state's central mental hospital. The last patients left the hospital in August 2012, but the campus is still dotted with buildings used by the state Department of Health and Human Services.

Former Gov. Bev Perdue and McFarlane agreed before Perdue left office to a deal in which the city would lease all 306 acres from the state on a 99-year term. That deal raised objections from mental health advocates, who said some part of the campus should still benefit those with mental illness, and state lawmakers, who objected to the costs involved in relocating DHHS and said the lease didn't fully compensate the state for the land.

In 2013, state lawmakers threatened to undo the lease through legislation but instead allowed the city and McCrory to negotiate a new deal. Negotiations didn't begin in earnest until March after appraisals and environmental assessments of the property were conducted over the course of 2013 and early 2014.

Although they cleared the way for talks to begin, the appraisals provided one of the first flash points in the negotiations.

Disagreement on appraisals

Appraisals conducted on behalf of the city and the state varied by $28 million on the property's value. The state's appraiser, Worthy and Wachtel, fixed the price at $66 million. A separate estimate of the property's value completed for the city in February fixed the value closer to $38 million.

That difference over price has persisted throughout the public offers to buy and sell the property.

Early on, negotiators for the city and the state appeared to have agreed on hiring a "review appraiser" that would look at both of the initial reports and work toward reconciling the two documents. In an email sent March 11, Benjamin Mount, an associate city attorney, sent notes of a meeting between negotiators for both parties, including Stephens and City Attorney Tom McCormick.

"The State and the City tentatively agree on the need to hire a review appraiser to review the reports from Worthy & Wachtel and from Don Johnson," Mount wrote. "Bill Peaslee will follow up with Worthy & Wachtel and Ben Mount will follow up with Don Johnson to see if the appraisers would be willing to agree on a review appraiser or at least provide the names of potential candidates for reviewing the appraisal reports."

Peaslee is general counsel to the Department of Administration and Secretary Bill Daughtridge, one of the state's lead negotiators.

Calling in a review appraiser is not unusual when two parties are negotiating a large transaction where the price is in dispute. However, that never happened in this case.

"My understanding is that the state did not want to have a third appraisal to come in," McFarlane said, adding that she did not know why.

The third-party appraisal is not mentioned again until an April 28 offer to buy the Dix property by the city, noting the state had "declined to the 2014 reports reviewed by a disinterested third-party appraiser," and goes on to note that, given the variance, "the City continues to believe that a disinterested review appraisal could help the parties bridge their different valuation opinions."

Peaslee said that, while the city's notes on the meeting were inaccurate, the state had not agreed to the third-party appraisal.

"Appraisals are opinions of value. The City and State have exchanged their respective appraisals and both have been given close examination. The State is content with the methodology and approach of Worthy & Wachtel," Peaslee said via email Thursday morning. "Further, the fair market value is not the only consideration. The costs to the State in relocation and construction must also be considered in the sale price. After thoughtful deliberation the State did not see the utility of having an opinion of the opinions of value already provided for its deliberation of the sale price of the Dix campus."

One negotiator, two roles

Of course, the fee for the property has not been the only difference between the state and the city. There are disagreements over who would carry the costs associated with environmental cleanup on the site and a desire by the state to retain part of the property for DHHS.

One of the city negotiators trying to find a way to bridge these differences was Charles Neely Jr., a former legislator and attorney with Williams Mullen. In a March 18 email, for example, he suggested that the city buy another property the state had for sale near Interstate 440 and offer it as the site of a new DHHS complex.

Neely also serves in another capacity with regard to the Dix deal. He is treasurer and a member of the board of Dix Visionaries, a group of civic leaders who have been advocating for turning the entire Dix campus into a park. Other board members include Jim Goodmon, the president and chief executive of Capitol Broadcasting Co., the parent company of WRAL-TV and WRAL.com.

The emails obtained from the city also show that WRAL worked with the city to produce a public service announcement boosting the park concept.

Although Dix Visionaries is one of the most vocal groups advocating for the future use of the property, it is not the only one.

The Wake County chapter of NAMI, the National Alliance on Mental Illness, has pushed city and state leaders to consider a plan that would preserve some part of the property for mental health treatment. Gerry Akland, NAMI Wake County's president, said he did not know about Neely's dual roles in the negotiations.

"It almost seems like a conflict of interest," Akland said of Neely. "I applaud them (the Dix Visionaries) for having a vision for the city. Their thoughts are well-intended. but they don't speak for the people we speak for. We're trying to speak for those who don't have a voice."

The mental health community, he said, does not appear to have a "seat at the table" as the future of the property is being decided.

Neely detailed his work for the Dix Visionaries in a March 4 work agreement with the city.

"I do not anticipate that that service will conflict with the City's interest in the preservation of the Dix property for park purposes, but wanted to memorialize the existence of a potential conflict," Neely wrote. "I have discussed our proposed representation of the City with the leadership of the Dix Visionaries and have agreed with them that in the event such a conflict arose, my duty to the City as its lawyer would take priority and that I would recuse myself from any vote of the directors on an issue which might present a conflict."

This week, Neely referred questions about the Dix negotiations to McFarlane and McCormick. Asked whether there was a conflict between his role on the Dix Visionaries board and working for the city, he noted that he had disclosed it before the city hired him.

"While I certainly have personal views on the benefits to the City and State of the conversion of the Dix property to a destination park owned by the City, my focus has been on obtaining the best deal for the City and to assist it in obtaining its objectives in the negotiations," Neely said by email.

McFarlane said she had no problem with the Neely serving both roles.

"He's incredibly professional," she said. "He has clearly drawn a line. He brings a good perspective because of his involvement with them (the Dix Visionaries)."

She added, "During any of the meetings we've had with the Visionaries, we have not discussed anything that's not already public."

Asked if Neely's role was a conflict, Ellis said, "That's a question for the City of Raleigh." 

Trying to engage the governor

McCrory has said publicly many times that he wants to see a permanent deal over the future of the Dix property, although it's unclear how closely the governor has been involved in negotiations.

City negotiators, including Neely, appear to have been ready to press the point that the governor's personal prestige was on the line as part of the Dix deal.

"The Governor will lose credibility for not being able to deliver on his word that he and the Mayor would strike a deal and the City and State will lose a wonderful opportunity for our citizens," Neely wrote in a set of talking points prepared in May for a planned meeting.

That same document went on to say it would be "important for the Governor to lead his administration to make a deal quickly and not let the bureaucrats stifle the deal."

Asked whether he still believed McCrory's credibility was at stake over the Dix deal, Neely said it was a good question but declined to answer.

Similar sentiments were included in drafts of letters prepared for McFarlane to send to McCrory.

"Some State officials involved in these negotiations were apparently unwilling to support your goal of reaching a deal that is based on the property's fair market value," read one version of the letter.

That language was stricken from later drafts, and Josh Ellis, a spokesman for McCrory, said there is no record of the governor receiving such a letter from the mayor.

Asked about the language this week, McFarlane said she was loathe to discuss anything that might upset the ongoing negotiations between the two sides.

Earlier this summer, the McCrory administration raised objections to comments McFarlane made in the media regarding the slow pace of negotiations.

"I really don't want to say anything to jeopardize this," she said.

Pressed for an explanation of the line, she said it was based on "feedback that I got from my staff. That was the general feeling I was getting."

She would not specify whom the letter might have been talking about. But asked directly whether it was meant to indicate Art Pope, a retail executive and financier of conservative causes who until August served as McCrory's budget director, McFarlane said, "It was not Art Pope."

Many of the emails turned over by the city involved an attempt to get McCrory to attend a meeting at North Carolina State University with students in the College of Design, who had mocked up what a destination park might look like. Again, in a draft of the letter, McFarlane noted, "The students worked hard to develop these renderings and have been fully prepared to present them to you, along with depictions of other destination parks from around the country. The City has made several attempts to schedule a time for you to review this information but with no success."

McFarlane confirmed this week that the meeting never happened.

Uncertainties linger

"Everybody is still working. Everybody is still trying," McFarlane said of the effort to negotiate a deal, again emphasizing she wanted to avoid criticizing the state's efforts. "I don't want some comment from a draft from a few months ago to harm where we're trying to go with this."

However, the way forward appears uncertain.

When the city and state first entered the new round of negotiations, both parties signed a "standstill agreement" that formally agreed to keep any disputes over the lease out of court. That agreement was twice extended but has now expired.

While both parties continue to negotiate, technically the lease deal struck by Perdue appears to be in effect, even if the state has not turned over control of the property.

In fact, in a June 12 memo, city staff members recommended paying $515,113 to the state that would be due for the lease this year. Although emails in the documents provided by the city indicate that provisions were made to make this payment, McCormick said that it was not executed.

"All I can respond is that no decision has been made regarding making a lease payment," McCormick said.

McFarlane said she did not know that there was the potential to make a payment. 

Among the questions WRAL News wished to put to Stephens or McCrory is whether the state expected payment.

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