August 27, 2022

By Linda Ahern
& Staff

On July 27, the City notified the Lee’s Summit Economic Development Council (LSEDC) that the City was terminating its Public Service Agreement (PSA) with the LSEDC due to multiple breaches of contract on the part of the LSEDC. The letter that City staff delivered to the LSEDC office, which the Tribune obtained through a Sunshine Law request, stated that the contract would officially be terminated 5 days after receipt of that letter — August 2.

Under the agreement, the City paid $200,000 annually to the LSEDC for services related to economic development outlined in the Agreement.

Following that notification, Mayor Bill Baird sent a letter dated August 11 to the LSEDC Board of Directors members. In the letter, he states that the City Council had reservations in April 2021 about renewing the agreement and continuing to fund the LSEDC at that time due to their prior performance and lack of accountability to the Council. He further states the Council finally agreed to fund the LSEDC and approve the PSA in good faith that the board members and LSEDC staff would “commit and engage and strengthen the relationship with Council as well as live up to the terms of a new Public Service Agreement.”

“The City Council was clear in April 2021 that going forward, funding must be commensurate with services, results and the relationship. The LSEDC appears to want autonomy to the degree that they do not want to work hand in hand with the City, including not even attempting to meet the terms of the PSA with the City by reporting in responsible ways,” he states in the letter.

At that time, Council approved a one-year agreement with the LSEDC and approved an annual $200,000 investment in the LSEDC paid from the Business and Industry Fund.

More than a year later, on June 14, 2022, during the City Council Public Hearing on the City’s Budget, Councilmember Phyllis Edson raised the question why the City’s budget ordinance included continued funding the agreement without any prior discussion by Council. Staff stated that agreement approved in 2021 was for one year with automatic renewals of up to two years. Since the renewals were automatic, the agreement had not been up for discussion.

On June 21, Council approved the City Manager’s Budget for Fiscal Year ending June 30, 2023, which included continued payments to LSEDC. During Council Comments, Councilmember Phyllis Edson made a motion to “direct staff to review the Public Service Agreement between the City of Lee’s Summit and the Lee’s Summit Economic Development Council to determine if there has been full compliance. If the City Manager determines a lack of full compliance, he shall send a notice that may be applicable in accordance with the Public Service Agreement.” Councilmember Shields seconded the motion. The vote was 8 in favor, with 1 absent.

City Manager Steve Arbo delivered a notice of breach to EDC President and CEO Rick McDowell on June 24. The notice outlined which items in the Public Service Agreement the LSEDC was in compliance with and which items were not in compliance. The notice gave the LSEDC 20 days to cure the breaches.

On July 27, City Manager Steve Arbo hand-delivered a letter to McDowell notifying the LSEDC that the agreement was terminated as of August 2, 2022, in accordance with Sections IV.A of the Agreement which allows the City to terminate the agreement at any time for breach of contract.

In his letter to the board member, Baird describes in detail many of the shortcomings of the LSEDC in conforming to its contract with the City.

Following are excerpts from the letter:

• “The PSA required the LSEDC to maintain accurate records of the receipt, use and disbursal of the City’s funds, including but not limited to, maintaining a separate accounting of the receipt and use of the City Funds from any other LSEDC monies. The LSEDC did not maintain accurate records, nor did it maintain separate accounting for the receipt and use of funds.”

• “The City invests in the LSEDC to provide services for image enhancement, marketing, business retention and recruitment. Only $30,000 or 5 percent of the $600,000 budget goes toward Image Enhancement and Marketing. Compensation to employees, contract labors and consultants is 79 percent of their total budget.”

• “Increases in [LSEDC staff] compensation were given in fiscal years where the LSED ran deficit budgets of over $100,000. LSEDC appears to have granted these adjustments in violation of the organization’s by-laws.”

• “Vague reporting without documentation and year to year comparisons are not acceptable as proof of performance. Further unverified statements of contributing to development and redevelopment without listing the activities and results were not acceptable.”

• “The City Manager and Mayor are voting members of the LSEDC Executive Committee and Board of Directors. The Executive Committee has either not scheduled or cancelled the majority of the monthly meetings in the last year (Held 5 meetings in 12 months). We have only had three Executive Committee meetings in the last nine months.”

According to Baird’s letter, the City’s $200,000 contribution made it the largest investor and partner with the EDC and termination of the PSA by the City will put the LSEDC at a $300,000 deficit this fiscal year.