Dec. 10 2008 12:00 AM

It is confirmed that local developer Harry Hepler has paid property taxes to the city on the building he owns that houses the North Precinct police station

The check, it seems, was literally in the mail.

After all the commotion about the $97,000 in back taxes local developer Harry Hepler owed on the North Precinct police station, a clerk in the city Treasurer's office confirmed on Dec. 1 the full receipt of the payment.

Hepler has explained to local officials that he withheld paying his taxes as a way to shore-up capital.

Hepler has been at the helm of some of Lansing's most high-profile developments in recent years, most notably the Motor Wheel Lofts, at the corner of East Saginaw and May streets. For that project Hepler spearheaded rehabbing and renovating the old Prudden factory and converting it into apartments. Also included in the complex is the North Precinct police station, a striking building and a sort-of anchor for the development. (Fellow developer Pat Gillespie’s Prudden Place neighbors Hepler’s Motor Wheel Lofts and there’s lots of open land for further development.)

Hepler first made news after the Oct. 9 City Council Committee of the Whole meeting, where it was revaled that one of his companies was delinquent on taxes for the North Precinct, at 740 May St. The city leases the building from Hepler's Summit Street Development for approximately $25,000 per month. The city had faithfully paid rent in full while Hepler’s taxes were outstanding, partly, officials said, because it was not legally permitted to withhold the payments. Shortly after the Oct. 9 meeting, Hepler paid around $100,000 in back taxes to Ingham County.

Then, Hepler himself made an appearance at the Nov. 19 Development and Planning Committee meeting, invited there by At-Large Councilwoman Carol Wood, who chairs the committee. Wood had wanted to give Hepler an opportunity to explain himself before the committee, which is the first stop in approving the developments and tax incentives companies like Summit Street have sought in the past.

Lansing Economic Development Corp. C.E.O. Bob Trezise declined to comment on the practice of withholding taxes to retain capital.

At that meeting, Hepler explained that his company, Summit Street LLC, withheld taxes to retain capital, a common practice for developers.

"Not paying our tax bill gave us capital," he told the committee.

By withholding the taxes for a certain amount of time — in this case a year — what Hepler's company was able to accomplish was a sort of in-house "bridge loan." In fact, Hepler said, even considering the penalties incurred on the back taxes, the total cost of using that money for other purposes — essentially reinvesting in the company in the short term — was still less than securing a bank loan to cover expenses. He also pointed out that the decision to withhold the taxes was made over a year ago after considering the tightening credit market and rising interest rates. The penalties for withholding the taxes amounted to 6 percent, he said.

"No bank is going to offer you a 6 percent loan," Hepler said in an interview following the committee meeting. "You're loaning to yourself at 6 percent.”

If what Hepler says is true, and the practice of withholding taxes as an in-house bridge loan is common among developers, why is it only his company receiving negative press for it? He mentioned, somewhat cryptically, that the discussion of the late taxes and the insinuation of structural problems with the police station were the outgrowth of having a "political tenant," but, he added, he was "disheartened" all the same.

The answer could have something to do with the ongoing lease negotiations between the city and Hepler. The city can renew the lease for 10 more years. However, the city also has plans to study the neighborhood precinct model, the possibility of precinct consolidation and the costs of each. Until that study is completed, administration officials continue to look for a lease renewal somewhere in the three-to-five-year range.

The push and pull over the lease has played out publicly, but not overtly, as the city looks for the best deal in the face of increasing criticism for renting buildings at all. At the same time rumors of roofing problems have surfaced. Hepler maintains the problems were caused by a faulty installation job but had been addressed and resolved nearly 10 years ago, which left him baffled as to why the issue was even being mentioned.

"You should be cautious about making these kinds of statements," he said to Wood’s committee, likening the publicity surrounding the taxes to a public assault and the questions about structural deficiencies at the north precinct as potentially damaging to his credibility.

"The only way we're going to get people to stay in this town is to be more supportive of our own," Hepler said.

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