Harley-Davidson to pay city $700,000 for failed museum plan (UPDATE)

Listen to this article

By James Briggs

Milwaukee took a step toward a financial settlement Tuesday to release the Harley-Davidson Motor Co. from an obligation to build a 100,000-square-foot structure on the site of the company’s south-side museum.

But Alderman Robert Bauman criticized the deal, arguing it sends a message that corporations can ignore promises they make to Milwaukee.

Harley-Davidson in 2005 agreed to develop a 13-acre riverfront site at Sixth and Canal streets in three phases. The first two phases, including the $85 million museum, an archive building and a restaurant, all were completed by 2008, which was ahead of schedule.

But company officials say they can’t afford to build a new structure under current economic conditions. The city originally required Harley-Davidson start construction on the third phase by this year.

That deal, though, was reached “at a time when the economy was booming,” said Paul Jones, vice president of general counsel for Harley-Davidson. “I don’t know if anybody could have predicted what the economy had in store. Harley-Davidson doesn’t believe it’s in anybody’s best interest to pursue construction of a 100,000-square-foot building.”

The additional structure was part of the city’s conditions for giving Harley-Davidson $7 million in tax-increment financing for the development. The city also spent $25 million to move Department of Public Works operations to a new site.

Under the settlement approved Tuesday by the city’s Zoning, Neighborhoods and Development Committee, Harley-Davidson would give the city $700,000 in cash, forfeit $1.23 million in TIF financing, and Milwaukee would reserve first right of refusal for five years if the company tries to sell the undeveloped property. The deal goes next to the Common Council for a final vote.

Bauman, though, said rather than erasing Harley-Davidson’s commitment, the city should extend by three years the company’s deadline to build a new structure. Allowing Harley-Davidson off the hook, Bauman said, could set dangerous precedent.

“The question before us,” he said, “is a rather simple one: Do we hold this corporation to its commitment to the city of Milwaukee, a commitment made specifically to induce us to agree to this project in the first place?

“I think that is a principle this council should carefully think out before a basically knee-jerk response.”

Bauman also blasted Harley-Davidson for opening offices in Chicago, Nevada and Texas at a time when it says new development is untenable in Milwaukee. Bauman noted the company’s second-quarter earnings rose 36.8 percent to $190.6 million from $139.3 million in the same quarter a year ago.

“Apparently there is job creating going on in the Harley corporate empire,” Bauman said, “just not in Milwaukee.”

But Rocky Marcoux, commissioner of the Department of City Development and a leader in negotiating the settlement, said Harley-Davidson exceeded its commitment to Milwaukee even without continuing with a third phase of development.

“We feel the company has done everything it presented it would do in good faith through the first two phases,” Marcoux said, “and we believe their explanation for the elimination of a third phase is a legitimate request.”

The museum development, Marcoux said, has increased nearby property values and helped nearby development prospects.

“It has now made Reed Street Yards a developable site where people can look across that canal and say, ‘Wow, we’ll be right next to Harley-Davidson,'” he said. “I believe it will leverage millions of dollars in development going forward.”

Delaying Harley-Davidson’s deadline, as Bauman wants, simply could delay the same conversation, Alderman Jim Witkowiak said.

“I’m probably one of the more optimistic people on the council,” he said. “Boy, three years from now, the way things are going, we might still be in this financial quagmire.”

The city has options beyond the approved settlement. The Common Council in its 2005 resolution reserved the right to either sue Harley-Davidson for exact damages if the plan fell through or buy the undeveloped property for $535,000 if the third phase didn’t start this year.

Those options, though, no longer are viable for the city, Alderman Michael Murphy said.

“I don’t think anyone on the council in this climate is prepared to sue a Fortune 500 company for damages,” Murphy said. Also, Murphy added, the city isn’t in a financial position to “offer $535,000 for two parking lots at this time when we don’t have a single developer willing to develop on this site.”

If the Common Council approves the settlement, Marcoux said, it would be no different than any other instance in which the council amends original agreements negotiated by city staff members, and it would not set a precedent for future agreements.

“Why?” he said. “Because conditions change.”