Deal Breaker (While the City Sleeps)

Opinion Article by Editor Kathy McIntyre

We see that the right thing is not being done at Commerce City City Hall so we have made the decision to tell the story. It’s not a story that has been covered up “per se” by the city, it is more “what they don’t know won’t hurt them”. So all anyone had to do was go to city hall and make a public information request and it is all laid out in black and white if you know what to ask for. We asked and now we want to share with you what we know.


In June of 2007, the city of Commerce City (you) hired a new city manager, Jerry Flannery, who had to move here from Flagstaff, Arizona with his family to accept employment with the city. The city (you) was accommodating of this situation by paying for the moving expenses Flannery and his family incurred including packing, moving, storage costs, unpacking and insurance charges. Also, “actual lodging and meal expenses for him and his family in route from Flagstaff to Commerce City”. An interim housing supplement of $1,500 per month was also paid for up to three months until dual expenses ceased of maintaining the Flannery house in Flagstaff and a new residence in Commerce City. This could be extended if “circumstances justified” is what the contract said.

OK and his base salary for the first year was $160,000, with a monthly car allowance of $835 per month from day one, an early vacation of one week was granted prior to September 2007 with annual leave totaling 256 hours after that and full medical, pension, etc. He is also eligible for annual bonuses based on review by city council. So far so good right? I have done research and city managers do get paid well. Everyone has their own opinion on how well someone is doing their job, but that is not the point of this story.

It is the house. After the three months of housing allowance, the Flannery’s had not sold their house in Flagstaff and wanted to buy a house here, so a series of contracts and promissory notes were made for the city manager by the city (that’s you the taxpayers) with multiple revisions, no payments and until recently no interest.

In June 2007, it was $450,000 cash given to Flannery to buy a home in Reunion, with an interest free loan from the city (you), payable in six months after the date of the loan or the date of the sale of Flannery’s residence in Flagstaff, whichever date shall first occur. On August 2, 2007 a Warranty Deed was recorded in Adams County showing the sale of a house from Shea Homes to Flannery for $450,000, no mortgage or lien recorded. On August 28, 2007 a Deed of Trust was recorded for the same property with Flannery as Grantor and City of Commerce City as Grantee. So February 2, 2008 would have been due date. Nothing happens on February 2, 2008. Nothing.

On April 7, 2008 another amendment, the second amendment is written, voted on by city council and signed now adding interest of 2.9% per annum commencing effective April 7, 2008 to October 7, 2008 or the date of sale of Flannery’s residence in Flagstaff whichever date shall first occur. It also says “provided however on or before thirty days prior to the date of maturity, the city council of Commerce City shall meet with Flannery to determine whether the financial condition of Flannery justifies extension of the date of maturity if Flannery’s residence in Flagstaff has not been sold as of that date”. So due date would now be October 7, 2008.

July 2008 the third amendment is written, voted on by city council and signed, raising Flannery’s base salary to $172,800.

October 7, 2008 the fourth amendment is written, voted on by city council and signed. This one says with accrued interest the amount owed now is $456,525. It also says, “In order to mitigate the economic situation regarding the loan, the maturity of the loan is extended, without accrual of interest, to July 5, 2009, or the date of the sale of Flannery’s residence in Flagstaff, whichever date shall first occur. Provided, however, on or before thirty days prior to the Date of Maturity, the city council of Commerce City shall meet with Flannery to determine whether the financial condition of Flannery justifies extension of the Date of Maturity if Flannery’s residence in Flagstaff, Arizona has not been sold as of that date.” Due date now would be July 5, 2009. Due date comes and due date goes.

Most recent agreement is made on September 1, 2009. This one states briefly the following:
Amount owed is still $456, 525. Due to the unforeseen economic situation that has occurred throughout the United States, Flannery has been unable to sell his former residence and is unable to pay the loan back to Commerce City (you).

WAIT! Rewind here.

Good news is that Flannery actually sold his home on October 5, 2009 for $305,000 for an alleged profit of $39,000. This is taken from the Coconino County website where real estate transactions are made a matter of public record. The alleged profit is based on prior records which show a $266,000 mortgage. House was originally purchased in January 2002 for $216,000. Flannery signed the papers for this house sale in September 2009. Looks like early September. Closing was October 5, 2009. Why is it being said on September 1 that he was unable to sell his house, when he had knowledge he was about to sell his house? We all know you will not have a closing on October 5 and not know on September 1 that the deal is real.

After reading numerous versions of the contract between Flannery and the city (you), over and over a reader of the documents sees that the monies for the house, $450,000, would be paid back to the city (you) at the date of sale of Flannery’s residence in Flagstaff, Arizona, or the date of maturity, whichever date shall first occur.

Well good news and bad news. Good news: the House is sold. Bad news: The City (you) won’t receive any money for it now.

Bad news is that the city (you) will never see a dime of their money back until September 1, 2011 and during all the months from now until then the city (you) will be paying all the insurance and all the property taxes and just paid $72,000 cash to Flannery for what we have no idea as this was paid several months after the closing on the house in Flagstaff. And the house is in Flannery’s name, not the city’s (or you). And this contract is missing entirely the language about - would be paid back to the city (you) at the date of sale of Flannery’s residence in Flagstaff, Arizona, or the date of maturity, whichever date shall first occur. So on September 1, 2009 it appears that the city felt the need to leave the language out about getting paid back, while in Flagstaff the house was in the process of being sold.

The most recent contract says that in July 2007, “Commerce City (you) did not pay Flannery relocation allowance consistent with the market for payment thereof to key management personnel”.
So, “Commerce City shall reimburse Flannery for costs incurred or associated with relocation of Flannery and his family from Flagstaff, Arizona to Commerce City, Colorado in the amount of $72,000. Said amount shall be payable one half on or before October 1, 2009 and one half payable on January 20, 2010.” ($72,000)

Further it states:
“Commerce City (you) shall pay the annual premium for homeowner’s insurance on the Flannery residence” (from September 1, 2009 through September 1, 2011 or until loan is paid is satisfied in full).
“Commerce City (you) shall pay general property taxes for the residence for the period September 1, 2009 through September 1, 2011, or until the loan is satisfied in full."
The loan now starts accruing interest again at a rate of .34 percent per annum. (.34 percent per annum) And now the due date is September 1, 2011.

On Adams County’s website recording real estate transactions, there is another Deed of Trust recorded November 4, 2009 (day after election day?) for the same property naming Grantor as City of Commerce City and Grantee Flannery.

The following is the response from the Commerce City city attorney Robert Gehler about the $72,000. What do you think about his explanation??? No contract ever stated that $450,000 was being offered for a house to recruit him. What is the truth about any of this??? And how does any of this protect the city (you)?

“I have received your request for a description of the basis for payment of $72,000 to the City Manager payable one-half on October 1, 2009 and one-half on January 20, 2010.  Since I was present when the City Council decision was made, I can provide the information to you and you can then circulate the information as you deem appropriate. As City Attorney, I do not provide press releases on behalf of the City but I am glad to explain the process the City Council followed in reaching its decision. Initially, it is important to provide the background for the circumstances surrounding the council decision. The intention of the loan was to provide short-term support to an outstanding candidate for city manager at a time when the city was in need of strong executive leadership. Neither the City nor Mr. Flannery expected the real estate market to fail the way it did in 2007. Every extension and addendum to the contract was executed with the singular purpose of protecting the interests of the city while providing Mr. Flannery with compensation that is consistent with industry standards.

In 2006, Jerry Flannery was targeted for consideration as the city manager for Commerce City after an extensive search. As part of the offer to recruit him, the City agreed to loan $450,000 to him for purchase of a home within the city boundaries since obtaining a residence in Commerce City was a requirement of the City Charter. A mortgage in that amount on the home of his choosing was required by Commerce City in order to secure the loan which would become payable in six months.  Shortly thereafter, the real estate market failed. The Arizona house could not be sold and both the Arizona house and the Commerce City house decreased in value by 20 to 30 percent. An appraisal of the Commerce City house showed a market value of $365,000 and a loan value of $292,000, leaving a deficit of $164,525 between the mortgage amount and the loan value. After much consideration, it was determined that the only solution was to allow Mr. Flannery to remain in the house and to continue the mortgage on the house which had then increased to $456,525.00 as a result of accrued interest.  With those figures in mind, the City Council offered a discount of $72,000 and payment of real estate taxes and insurance for two years. That amount was derived by subtracting from the amount of the loan the loan value of the Commerce City house ($456,525 minus $292,000) resulting in a difference of $164,525. The City proposed to take a loss of one-half that amount and Mr. Flannery would be left to absorb the balance of the loss. The City’s share of the loss totaled approximately $82,000 and consequently a $72,000 proposal plus payment of real estate taxes and insurance for two years was agreed upon.  

Because no relocation benefits had been paid other than travel expenses at the time Mr. Flannery made his move to Commerce City, it was felt that absorbing one-half of the loss resulting from the depressed real estate market would be a fair solution to the problem. A review of relocation benefits across the country confirmed that $72,000 in payment for relocation benefits was a reasonable justification for discounting the loan. Mr. Flannery continues to hold a mortgage with the city in the amount of $456,525. Mr. Flannery was given until September 1, 2011 to fully satisfy that obligation. This arrangement protects the interests of the City by transferring all risk as to the future value of the property and how he will get the funds to make the September 1, 2011 payment to Mr. Flannery. Commerce City will not be involved with the loan any further except to receive full payment plus interest by September 1, 2011.”

Feel free to contact me if you have any further questions regarding this matter.

Robert R. Gehler

City Attorney

The city council meeting where the most recent contract was voted on Reba Drotar and Tracey Snyder were absent. Kathy Teter and Jim Benson voted against the contract, Paul Natale, Tony Johnson, Jason McEldowney, Scott Jaquith, and Orval Lewis voted for the contract and giving $72,000 and two more years free in the house. Jadie Carson, Rene Bullock and Dominic Moreno were not yet council members when this contract was given to the city manager.

So what do you think? Deal breaker??? Let us know via our blog or an email or let your city council members know via email or phone or attending a Monday night meeting. All documents and contracts have been scanned and are on our website . Go to our home page and go to the Opinions section. Having trouble viewing them, call us at 720-221-7352. On our home page we have a link to the city’s website for you, where you can get contact information for your council members.

So what do you think? Deal breaker??? Let us know via our blog or an email or let your city council members know via email or phone or attending a Monday night meeting.  The next city council meeting will be on March 22nd.

Payment of Relocation Benefits CLICK HERE
Original Employment Agreement CLICK HERE
Revised Employment Agreement CLICK HERE
First Amendment to Contract CLICK HERE
Second Amendment to Contract CLICK HERE
Third Amendment to Contract CLICK HERE
Fourth Amendment to Contract CLICK HERE
Modification of Deed of Trust CLICK HERE
Flagstaff, Arizona House Sale CLICK HERE
Promissory Note CLICK HERE
Original Arizona House Bought for CLICK HERE