Commission Approves TVA Deal

Knox County Mayor Glenn Jacobs

Commission Approves TVA Deal

After months of persuasion, County Mayor Glenn Jacobs wins a unanimous vote to lease the empty East Tower and buy the Summer Place garage.

by jesse fox mayshark • january 28, 2020


County Mayor Glenn Jacobs talks to reporters after commission's vote Monday night.

It’s still not clear exactly who will move into the Tennessee Valley Authority’s vacant East Tower, but after a unanimous vote by Knox County Commission on Monday night, it is clear that someone will.

The school board hasn't decided whether to move its Central Office into the tower.

Commission voted to approve a complex agreement to lease the tower and purchase the Summer Place parking garage and office building. It was a win for County Mayor Glenn Jacobs, who has been promoting the deal since September.

“In my opinion this is a great deal for the people of Knox County, the taxpayers,” Jacobs said in a news conference after the vote. “And I’m very glad Commission saw it the same way.”

The vote is a major step forward for the deal, but there are still legal details to work out and questions about which county functions will move into the bottom six floors of the 12-story tower. Jacobs still hopes the Knox County school board elects to relocate its Central Office administration there from the historic Andrew Johnson (A.J.) Building on Gay Street, but that depends on some legal clarifications.

The top six floors are expected to be subleased from the county by the University of Tennessee, which wants to move its systemwide administration there. Interim UT President Randy Boyd and several UT administrators attended Monday’s meeting to show support for the proposal.

Both Jacobs and Commissioner Brad Anders also referred Monday to the possibility of Oak Ridge National Laboratory sharing some of the UT space. In an email after the meeting, UT spokeswoman Tiffany Carpenter confirmed, “It hasn’t been determined yet, but there have been discussions about ORNL having space in the tower.”

Also pleased with the outcome of Monday’s vote was TVA, which has been seeking tenants for the East Tower for several years. In an email, TVA spokesman Jim Hopson said, “We are obviously pleased that the commissioners’ vote clears the way for us to finalize the necessary closing documents to officially welcome Knox County and potentially others as new neighbors in the heart of downtown Knoxville.”

The Money

The county will lease the tower, via an easement agreement with TVA, for a starting rate of 37.5 cents per square foot. UT has already agreed in principle to sublease the top six floors from the county for $1 per square foot, which means UT will effectively subsidize the county’s costs. 

Both rates are considerably cheaper than going commercial rents downtown — a reflection of TVA’s eagerness to make a deal, and of its difficulty in repurposing a building with utility systems interconnected with the West Tower, which the federal power company still occupies. County officials have said TVA realizes other government agencies are its best candidates for tenants.

County Finance Director Chris Caldwell told commissioners Monday that between the UT sublease and expected revenues from employees parking in the Summer Place garage, the county would save $400,000 a year compared to the current cost of occupying the A.J. Building.

Caldwell estimated the total cost of moving into the East Tower and building out six floors of offices at just under $10 million. Separately, the Summer Place garage and offices will cost $1.6 million to purchase and about $2 million to renovate, for a total upfront cost of about $13.6 million.

A portion of that can be offset by a proposed sale of the A.J. Building, if the school system moves out. Nashville developers BNA have offered the county $6 million for the 1929 building. They plan to return it to its original function as a hotel, with residences on the upper floors.

A few commissioners continued to express reservations. 

“I can’t see using this money just to move one office from another office,” said Commissioner Charles Busler, who has questioned the county giving up a building it owns to move into one it will be renting. “The deal may sound good, but it sure doesn’t look good.”

But Commissioner Richie Beeler, who had not previously made his views on the deal public, said that after weighing all the factors he thought it made sense. “I have come to believe this is a fiscal savings for the taxpayers of Knox County,” Beeler said. “I believe that’s been well documented.”

All 11 commissioners ended up voting for the deal — including Commissioner Justin Biggs, who was sick and came in wearing a medical face mask just to cast the vote. (He left immediately afterward.)

Legal Questions

County Law Director Bud Armstrong, who has raised concerns about the deal ever since discussions with TVA began under former County Mayor Tim Burchett, reiterated his uncertainty about the legality of structuring the deal as easement agreements rather than straightforward lease and purchase transactions.

Mark Mamantov, an outside attorney hired by Jacobs to work on the deal, said he appreciated Armstrong’s concerns but noted they aren’t shared by any other lawyers who have reviewed the documents.

“It’s just a lease by another name,” Mamantov said.

Still to be resolved is another question raised by Armstrong: whether the school system can legally move into a federal building that it does not have control over. TVA will have ultimate control over building security and access.

Jacobs’ office has sent a letter to state Attorney General Herbert Slatery asking for an opinion to resolve Armstrong’s concerns. (The letter is being conveyed by state Sen. Becky Duncan Massey, because only state officials can request attorney general’s opinions.)

The response will likely affect the decision-making of the school board, which voted 5-4 last month to express an interest in moving the school administration into the East Tower if the legal questions are settled.

If the board decides against the move, Jacobs has said other county offices can move into the tower. If enough county offices moved out of the City County Building, the school system could potentially move there, which would still free up the A.J. for redevelopment.

A final issue involves an existing lease between TVA and Digital Crossing, a tenant in the Summer Place offices attached to the garage. The county would take over that lease in buying the building, but the lease includes an indemnification clause that both Mamantov and Armstrong said the county couldn’t legally maintain.

Mamantov said TVA has committed to working out a solution with Digital Crossing before the county takes ownership.

The resolution approved by Commission Monday sets a deadline of Sept. 30 to settle all remaining legal issues and close on the agreement.

But the bottom line for Jacobs on Monday was a resounding endorsement of a deal his administration has been working on since he took office.

“I’ve learned that intelligent, reasonable people can have differences of opinions on things,” he said. “And you have to take all that into account. I’m glad that we were able to get this done and Commission saw it that way.”