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Dine and Dash

Airport director says favorable restaurant lease could risk federal grants

January 8, 2014, 12:00 am
The airport manager says a restaurant at the Santa Fe Municipal Airport is in violation of its lease with the city, a deal she argues could already be jeopardizing more than a million dollars in federal grants.

The Internal Revenue Service has levied a federal tax lien on Duke City Gourmet, a limited liability corporation that runs the Santa Fe Airport Grill, a modestly sized American diner located next door to the airport’s only terminal entrance. The Nov. 18 document says Duke City Gourmet owes more than $108,000 in unpaid taxes dating back to 2010.

But the troubles begin with what appears to be a sweetheart deal between the restaurant owners and city government. The two people listed as officers of the business—Lisa Van Allen, who works on a contract as Santa Fe’s film liaison, and her domestic partner Jon Hendry, a union boss with deep ties to the film industry and the Democratic Party—are no strangers to local politics or controversy.

When SFR provided a copy of the lien to city airport Manager Francey Jesson last week, she said it was the first she had heard of it. Jesson referred SFR’s questions to the city spokeswoman, but public records show Jesson’s been trying to make Duke City Gourmet pay more for the space since shortly after she took the top job at the airport in the spring.

Duke City Gourmet is paying much less per square foot than other businesses that rent space in the airport. Originally part of a competitive bid in 1996 and since renewed seven times, the lease for the restaurant does not call for a fixed payment. Rather, it requires the restaurant to remit 5 percent of its gross sales every quarter.

“All other tenants in the terminal, both commercial and non-commercial have leases that stipulate a per–square-foot rate as a base rental rate that is fixed

revenue for the airport,” Jesson wrote to the city manager and division director in a June email obtained by SFR through a public records request.

One of the airport’s car rental tenants, Hertz Rent-A-Car, pays the city a fixed $580 rate each month—or $29 per square foot— based on the 240 square feet of office space it uses inside the terminal. But in calendar year 2011, Duke City Gourmet’s rent payments averaged just $2.50 per square foot—or 11 times cheaper, proportionally, than what Hertz paid.

What’s more alarming is that Jesson says Duke City Gourmet has still failed to live up to even these favorable terms. Older city records repeat that pattern.

Jesson started probing into the restaurant lease in June because she says she noticed “discrepancies while reviewing the airport’s financials in general,” she wrote in another email. In her own analysis of the restaurant’s payments since 2010, Jesson found that Duke City Gourmet never paid rent to the city on time, and when the company did, it always underpaid. In all, the restaurant underpaid roughly $1,775 between January 2011 and June 2013.

“In some cases, the Grill has paid rent up to a year late, or reconciled its accounting of rent payments several months after the rent was originally due,” Jesson wrote.

In 2008, for example, then-airport manager James Montman hand-delivered a letter to Van Allen and Hendry because they had not paid rent for more than a year. Records show they caught up on the payments the next month.

The restaurant’s more recent underpayments, as well as the unusually low rates set in its lease, prompted Jesson to raise concerns to the city manager and her boss, city Transit Director Jon Bulthuis, that the situation may jeopardize Federal Aviation Administration guidelines that demand public airports be as financially self sustainable as possible.

“When compared to other terminal tenants, it could be difficult to defend the Grill’s rates as being [fair market value], if we were to come under FAA scrutiny, since there has been no competitive process or [fair market value] assessment since 1996,” Jesson wrote in June.

Currently, the city holds roughly $2.3 million in FAA grants for infrastructure projects.

According to the terms, the city has the right to terminate the lease at any time. But when Jesson raised the issue, the city manager ended up recommending that the restaurant lease be extended for another six months “during which time we can address the issues regarding uses, timely payment, rates, etc.” according to an email sent to Jesson on June 25.

Three days later, Duke City Gourmet exercised its option to renew the lease for another three years without renegotiation.

City spokeswoman Jodi McGinnis Porter tells SFR that the city’s relationship with Duke City Gourmet “began years ago when market profitability for the restaurant was meager” and that the city and restaurant are in the process of renegotiating the lease “to reflect current market conditions.”

Still, it appears Jesson’s experienced pushback from up the food chain. In an email sent last week to city councilor and mayoral candidate Patti Bushee, Jesson refers to a July meeting when Mayor David Coss, “who was wrapping up a meeting with [city manager] Brian [Snyder], mentioned to me to ‘be nice to them,’ in reference to the restaurant owners.”

Coss, who accepted nearly $2,300 in campaign contributions from Van Allen and her business, does not recall making the “be nice” statement to Jesson, according to Porter. He “routinely instructs staff to be courteous in dealing with members of the public,” she says.

Meanwhile, Porter denies that the restaurant has violated its lease. The federal lien placed on the restaurant does not violate a provision in the lease that states that the “lessee shall allow no liens,” she says, because the lien is on the business assets and not the airport property. The lease also states that the restaurant must “promptly pay any and all taxes,” but Porter writes in an email to SFR that the city “generally would not terminate a lease under this provision unless the failure to pay taxes impaired the lessee’s ability to meet its obligations under the lease.”

Still, Porter acknowledges that the restaurant didn’t include a percentage gross receipts taxes in its rent payments “that may amount to a difference of about $1,000.”

“Resolution of this issue is being discussed as a part of the ongoing lease renegotiations,” Porter writes.

Though his name is still listed as an organizer of Duke City Gourmet in a corporation filing at the New Mexico Secretary of State’s Office, Hendry says he’s had no role with the restaurant for “at least a decade.”

Van Allen did not return SFR’s phone call but did respond in a brief email stating that she’s OK with the IRS, but she didn’t produce any documents to back her claim, and as of press time the lien is still in place with the Santa Fe County Clerk’s Office.

Her version of events, however, is that the restaurant at the airport isn’t a lucrative business and that she’s done the city a favor by keeping it in place.

In a letter she wrote to Jesson, Bulthuis and other city officials in August, Van Allen defended the lease terms. She opened the restaurant in the ‘90s after being approached by the airport manager, and for years, while the sleepy airport saw few flights, she “took a loss for every meal I served,” she wrote. Not until recently did things start to look up.

“It is ironic that I was promised for years that the airport would become the budding enterprise that it is today if I just hung in there,” Van Allen wrote.

But Bushee says that the situation reeks of political favoritism and that she plans to ask the city Audit Committee to review it.

“The biggest concerns are that we may be out of compliance,” Bushee says, “by having both a sweetheart deal of a lease and the fact that the principles also owe the federal government over $100,000.”

The IRS lien against Duke City Gourmet:
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The lease:
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Duke City Gourmet's underfunded payments to the city:
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Duke City Gourmet's registration:
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