After years of scrambling and squabbling about the fate of the Dorothea Dix campus near downtown Raleigh, the two sides are finally doing the right thing: negotiating the size and price of the land parcel that city taxpayers will be purchasing from state taxpayers.
Of course, all Raleigh taxpayers are also North Carolina taxpayers. But the vast majority of North Carolina taxpayers aren’t in Raleigh. As long as the proceeds of selling the Dix property are used appropriately — to defray the cost of serving North Carolinians with severe mental illness — their interests can be consistent with those of Raleigh boosters who want to build a park on most of the Dix property.
Just to be clear: this is not like the state conveying low-value surplus property in a rural area to a local municipality or school district. The Dix property is prime real estate in one of the South’s hottest markets. If the land isn’t going to be used for its original state function of delivering or administering health care services, its value needs to be conveyed to the state treasury.
As former Gov. Bev Perdue was exiting the office in late 2012, she signed an agreement to lease more than 300 acres of state-owned land on the Dix campus to Raleigh. The annual lease payment would have started at $500,000 and then risen by 1.5 percent a year over 75 years.
News reports suggested that this Dix lease was worth $68 million to the state of North Carolina. The figure reflected a simple addition of all the scheduled lease payments through the year 2088. And it was grossly inaccurate. With streams of income, you have to discount to present value. That is, you have to consider that a dollar is worth more to you today than it will be next year, or 10 years, or 75 years from now. In other words, you have to consider the opportunity cost of having the cash up front and investing it.
I’ve seen a variety of estimates of the net present value of Perdue’s proposed 75-year lease deal, depending on the interest rate used to compute it. A conservative estimate, however, would be that the original Dix deal had a present value of no more than $20 million — far below appraised value — and even less if the cost of moving state agencies into new off-campus office space was included.
New Gov. Pat McCrory and the General Assembly rightfully pushed the reset button on this questionable deal. Again, their job is to look out for state taxpayers as a whole, not just those who live, work, or recreate in the capital. After several months of jockeying for position and commissioning new appraisals, the two sides have begun to negotiate.
Raleigh’s opening bid was to purchase 308 acres of the Dix property, leaving some land to house state offices. The city’s apparent bid was $38 million. But the proposal also required the state to pay between $11 million and $22 million for environmental cleanup to ready the site for development into a city park. In other words, the net offer was between $16 million and $27 million, or between $52,000 and $88,000 an acre.
The McCrory administration has now responded with an ask of $52 million for 244 acres of Dix property, with no additional compensation for environmental cleanup (because, state officials reason, the extent and cost of any cleanup is related to what the buyer wants to do with the land, such as using it for a park). If my math is correct, the administration’s asking price works out to about $213,000 an acre. The remaining acreage would continue to house state offices.
Are the two sides so far apart that they won’t be able to make the deal? I don’t think so. I think there will be a Dix park in Raleigh’s future — but without compelling taxpayers in Charlotte, Asheville, Winston-Salem, Greenville, Fayetteville, and Wilmington to, in effect, bear some of its cost.
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Hood is president of the John Locke Foundation.