by Don Moniak
January 8, 2024
As reported in One-Year Lease After One-Year Lease, the U.S. Department of Energy’s Savannah River Site (DOE/SRS) has only authorized its Savannah River National Laboratory’s (SRNL) management and operating contractor to negotiate one-year, renewable leases for space in the proposed $20 million, publicly-funded “Mixed-Use” office building in downtown Aiken now under development by the Aiken Corporation.
A more suitable option for the $20 million effort is to have the City of Aiken complete the project, and then gift the building to the the State of South Carolina’s University system—which is a party in the management and operating contract. This option would satisfy the state’s contractual commitment for its major Universities to invest in the SRNL contract, which was the primary justification for the $20 million allocation from the state’s plutonium settlement allocation to pay for the project.
The Rent-Free Alternative
Monday evening’s regular Aiken City Council meeting agenda includes a Public Hearing of the “First Reading of an Ordinance to Amend the 2023-24 Budget to Include $20 Million from the Plutonium Funds for the Mixed-Use Building in the Downtown.”
The supporting memorandum for the ordinance states, in part:
“The Department of Energy [DOE] gave the Savannah River National Lab (SRNL) conditional approval to begin discussion with Aiken Corporation on a lease to occupy a portion of a mixed-use building in Aiken to be built on a currently vacant lot on the 100 block of Newberry Street NW.”
The Newberry Steet, NW, property is currently owned (1) by the Aiken Corporation (ACorp), which hopes to develop and own the “mixed-use” office building that will require at least $20 million of public funds obtained by the City of Aiken (COA) from the State of South Carolina’s plutonium settlement.
The current managing and operating contractor for the DOE-owned SRNL, the Battelle Savannah River Alliance (Battelle), has a five-year, multibillion dollar contract with DOE/SRS; with an option for a five-year extension. The Alliance includes the state’s major Universities: Clemson, South Carolina State, and the University of South Carolina.
As reported in 45,000 Square Feet Without a Tenant, the future of the $20 million plus “mixed-use” facility is entirely dependent upon ACorp reaching an agreement with Battelle for a long-term lease for use of a “portion of the building;” with subsequent approval by the Department of Energy’s Savannah River Site (DOE/SRS).
In fact, the COA’s Economic Development department warned twice in its most recent monthly reports that the ACorp Board “has made it clear that no further steps can or will take place until DOE/SRNL has offered an unambiguous, albeit contingent, commitment to lease the proposed facility….At this point, an MOU, LOI, draft lease, or some other instrument, even one with significant contingencies and hard outs for each party, is essential. Without one by year’s end, the chances of the project moving forward become less likely.”
Yet, ACorp is moving forward on a Request for Proposals for architectural design services with an estimated cost of up to $2 million; all without any contract with Aiken City Council to do so.
In actuality, the $20 million allocated by the South Carolina legislature was not for a “Mixed-Use Building in the Downtown” that would be owned by a private organization. The state legislature in 2023 specifically allocated $20 million for “Off-site infrastructure improvements for SRS/National Lab, including the Aiken Technology/Innovation Corridor.” This line item in the plutonium settlement disbursement contained no provision for rent payments from the federal budget to any public body or private organization.
The allocation, if implemented as written, actually satisfies the state’s required investment commitment for the Universities to participate in the SRNL management and operating contract. As reported in Offsite Infrastructure, the Universities are contractually obligated to invest in the contract and the only specified deliverable in that contract provision is a “workforce development” facility. (2)
The City of Aiken’s “Savannah River Litigation Settlement Fund Request Form” (Figure 1), submitted one year ago, contained no mention of a “Mixed-Use Facility.” The proposal was for a building devoted to a “Workforce Development facility” for SRNL; to be built on city-owned property. The funding request, which also contained no mention of the Aiken Corporation, defined the purpose as:
“Construction of workforce development center, shared event/exhibition space and office space for the Savannah River National Lab to be located within the incorporated limits of the City of Aiken on property under the control of the City of Aiken.”
The City of Aiken does not control Aiken Corporation property.
The allocation granted by the SC legislature in response to this funding request was for off-site infrastructure, with no strings attached in terms of future leases or revenues. The funding did not specifically allow for a commercial building to be constructed on behalf of any private organization that would subsequently earn rental revenues from a federal government contractor. Given these facts, could the City of Aiken be involved in a misappropriation of state funds by allowing Aiken Corporation to own the building on its own property?
There is an alternative to avoiding any real or perceived appearance of a misappropriation, and the current pathway that has already involved arduous and costly long-term lease negotiations between Battelle and ACorp—which so far have yielded only a commitment to negotiate for a series of one-year leases. Should such an agreement ever emerge between the two, it would still have to be approved by the DOE/SRS contract administrator.
The alternative, which has been presented to State Senators Tom Young and Shane Massey (3), is as follows:
1. Since the justification for the $20 million in state funding resulted from South Carolina’s commitment for the Universities’ participation in the Battelle contract, the facility should be built for the Universities; not for any private, rent-seeking organization. Since the City of Aiken controls the funds, its procurement department could be tasked with the design and construction process.
2. After completion of the facility, the property and/or building could be donated to a state Universities member, such as the University of South Carolina at Aiken (USCA); which would then provide the office space to the current SRNL contractor at no cost—as originally intended. The contractor would only be responsible for the utility and maintenance costs.
If a new contractor emerges in five to ten years that chooses to forego its use, the office facility could remain in the hands of the Universities and continue to provide the long-sought connectivity between USCA and downtown Aiken. Or it could revert back to the City for its use or sale.
One caveat would have to be that any Battelle-led consortium could not claim the workforce development facility as an asset in future contract bids; the option to continue to occupy the building on a rent-free basis would have to be made available to any future bidder.
This option not only removes the costly and difficult process of DOE and SRNL representatives negotiating a long-term lease with a publicly funded, private entity, it also removes the necessity of relying upon annual federal funding to pay the lease. The building would still be occupied by some SRNL employees and the intended “rotating group of university faculty, students and researchers.” There would just be no rent expected from a federal contractor whose budget is subject to the whims of Congress and DOE.
As for the Aiken Corporation’s Newberry Street, NW, property, part of the $20 million could be used by COA to buy that property. The City could still select another property, such as a portion of the nine acres of the County-owned “old hospital” property (Figure 3) currently under contract to the Turner Development company. After all, City Council has yet to approve the ACorp’s Newberry Street location as the location for the $20 million project.
(Note: For further background on the plutonium settlement disbursement process and the rent-free alternative, see Footnote 2)
A Project Gone Awry.
The SRNL/“Mixed-Use” project to date has mimicked the practices that ultimately contributed strongly to the failure of Project Pascalis: secret proceedings leading to a decision, with public input of any kind allowed only after the decisions were made. The project also evolved into an unrecognizable version from the original publicly presented proposal, during which Aiken City Council oversight was lacking.
As described in Three Missing Pages, following the cancellation of Project Pascalis, city staff surreptitiously recruited the Aiken Corporation to pursue the project by using property owned by the Aiken Municipal Development Commission (AMDC). On December 9, 2022, ACorp President Buzz Rich signed a city staff-approved contract with the architectural firm of McMillan Pazdan and Smith (MPS) to begin work on the project. The AMDC had no involvement in the decision to utilize its properties in this manner.
Aiken City Council then met in two closed-door Executive Sessions to discuss the project, and subsequently withheld its very existence and its proposed location on disputed Project Pascalis properties during two public meetings in January 2023. Council finally choose to inform the public of their decisions at then-Mayor Rick Osbon’s January 23, 2023 “State of the City” address. The SRNL downtown project announcement came one week after Council made promises to pursue a “reset” and fresh start on a path forward for the Pascalis project properties during a special-called meeting.
The role of the Aiken Corporation was not even hinted at during the “State of the City” address (Figure 2) despite its existing contract with MPS. Its role as the probable developer and building owner was not revealed until March 13, 2023–four full months after being silently recruited to tackle the task.
Aiken City Council’s unofficial delegation of the project to the third-party Aiken Corporation was made months before deliberation and approval of the $250,000, no-bid contract. Council’s decisions caused a one-year delay in pursuing a final path for the Hotel Aiken and other Pascalis properties.
In the end, the contract eventually led to a recommendation by Aiken Corporation to use state-obtained funds legislatively allocated to Aiken County and passed on to the COA to locate the project on ACorp property for the benefit of ACorp. Aiken City Council has yet to officially validate this self-serving recommendation beyond unofficially failing to object to it.
Summary
The original purpose of the $20 million was not to build a private “mixed-use” office building. It was not to further subsidize the City of Aiken nor its private partner the Aiken Corporation with an annual flow of federal financing that could be better put to other purposes.
The legislative intent was to construct “off-site infrastructure” for an institution whose operating contractor includes the state’s university system. The only justification for awarding plutonium settlement funds for use by one of the Defendant’s institutions, SRNL, was that the state had committed to an investment in the Battelle-led alliance with state Universities. That commitment specifically included a workforce development facility from the Universities and for the alliance.
The Universities, in their role as alliance members, should be the ultimate recipient of this funding
Aiken City Council should recognize that its decisions, coupled with a lack of adequate oversight, in downtown redevelopment efforts have only caused delays in the redevelopment of the Hotel Aiken as well as an updated Aiken County judicial system infrastructure, divided the Aiken area community, and disrupted the lives of numerous small downtown business owners.
Council could take an entirely different path of in-house management of any developments on city property by ceasing to farm out vital tasks to third-party intermediaries. It could also do the right thing by eventually gifting the $20 million workforce development office building to its intended owner, the state’s University System, and stop describing it as a generic “mixed-use” building.
Twenty million dollars of federal treasury funds is at stake in this process. Beyond maybe selling property for project use, should any private organization whose by-laws fail to identify the COA or Aiken County as “shareholders” be allowed to profit from this publicly-funded project? Should $20 million be spent without any future restrictions on the use of the building should SRNL stop renting space? Or should the money be spent for the common good, in support of higher education?
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The County legislative delegation and the City of Aiken still has time to reverse their support for the current private, rent-seeking alternative and choose to make the facility a true public asset.
Footnotes:
(1) Details of the Aiken Corporation’s purchase of its Newberry Street, NW property is contained in Aiken’s Cousin Problem.
Not reported in that story was the probable collateral for the Newberry Street property; a 25-acre parcel of land between North York Street and Kershaw Street, NE, that is now owned by Aiken Corporation. According to Aiken Corporation meeting minutes from November 2021, the original owner of that property wished to donate it to the City of Aiken, but instead city staff opted to allow Aiken Corporation to accept the land donation.
According to a City of Aiken Economic Development Department monthly reports, at the time of the Aiken Corporation’s $650,000 Newberry Street property purchase, the 25-acre parcel was under contract for $625,000; enough to pay off the entire loan.
By the end of 2022, that contract with the Auben Company was cancelled. In June of 2023, the ACorp Board voted to accept an offer of $437,500, which closely corresponded to the appraisal conducted to quantify the size of the donation for IRS reporting purposes.
The property is currently proposed for single family housing and commercial use by High Brass Development, LLC. The Aiken Corporation sale will be executed after City Council approval of the High Brass concept plan. ACorp would then be able to pay off two-thirds of its $650,000 loan.
(2) The following is an updated summary of information first reported in Offsite Infastructure.
Further Background on the Plutonium Settlement Disbursement Process and the Rent-Free SRNL Project Alternative.
On August 30, 2020, the State of South Carolina reached its landmark, $600 million settlement with the U.S. Department of Justice.
Now commonly referred to as “The Plutonium Settlement,” the action was the result of the Department of Energy (DOE) failing to meet the terms of Amendments made to Defense Authorization Acts that mandated the removal of one ton of plutonium per year from SRS if a planned Plutonium/Mixed Oxide Fuel Fabrication Facility (MFFF) was not operational by 2016. Failure to remove the plutonium triggered upwards of $160 million per year in fines to be paid by the federal government to the State of South Carolina.
DOE now has until 2037 to remove surplus plutonium brought to SRS from other nuclear weapons complex sites, a process that complied with DOE’s 1997 legal decision to consolidate all “non-pit” surplus plutonium at SRS.
Following the settlement, SC Attorney General Alan Wilson immediately granted $75 million of the funds to three law firms (later reduced to two) managing the litigation leading up to the settlement. A legal challenge to that decision currently remains in state courts, but the first decision was favorable to the AG’s office.
As described in Off-Site Infrastructure, intense competition for the remaining $525 million in funds followed the settlement, with a final ldecision not reached until the end of the 2023 legislative session.
The competition included one of the Defendant’s institutions, the Savannah River National Laboratory (SRNL), lobbying for a lion’s share of the funds. The justification for that lobbying effort was the SRNL operating contract between DOE and Battelle Savannah River Alliance (Battelle).
On December 20, 2020, DOE awarded the Battelle-led alliance the $1.9 billion, five year contract to manage and operate SRNL, with an option to extend the contract to ten years. The alliance is comprised of the Battelle corporation, which operates, or assists in operations at, numerous other national laboratories; and five regional universities: the University of South Carolina, Clemson University, South Carolina State University, Georgia Institute of Technology, and the University of Georgia.
One contract provision involved investments by the various BSRA partners. The State of South Carolina, on behalf of its University system, committed to making “a substantial investment to support DOE and SRNL,” that included a “possible infrastructure investment colocated with SRNL to support workforce development.” (Section J-14 of the contract).
One year later, Governor Henry McMaster was happy to oblige that wish. In a December 9, 2021, letter, to House speaker Jay Lucas and Senate President Thomas Alexander, Governor McMaster presented his proposal for ensuring “the communities surrounding SRS be the prime beneficiaries of these settlement funds.”
Governor McMaster proposed spending twenty percent of the total plutonium settlement on SRNL, writing:
“The one-time investment of $120 million will be used over the next five years by the alliance to hire scientists, grant scholarships, and upgrade equipment at SRNL, as well as for the construction of a new facility to house the alliance at SRNL.”
The state legislature was clearly reluctant to invest one-fifth of the settlement on the Defendant, but eventually settled on an allocation of $20 million for “SRS/National Laboratory Off-Site Infrastructure and Innovation District.” This allocation more than met the state’s commitment in the BSRA contract.
The allocation was for off-site infrastructure, with no strings attached in terms of future leases or revenues. The funding did not specifically allow for a commercial building constructed on behalf of any private organization that required a lease arrangement with a federal government contractor. The only justification for the allocation was to meet obligations made by the state on behalf of its major universities.
(3) On September 15, 2023, I emailed a letter to Senators Tom Young and Shane Massey, asking them, in part, the following:
“It is increasingly evident that the $20 million allocation from SRS/plutonium settlement funds that was awarded to the City of Aiken is no longer specifically for an SRNL facility. How is this not a misappropriation of funds?”
There was no formal response to the letter.
A subsequent, October 3, 2023 letter outlined a case against the Aiken Corporation being tasked with the project, arguing, in part, that an organization mostly involved in six-figure projects should not be suddenly tasked with an eight-figure project.
These letters are available on this page.