Milwaukee Public Schools plans to proceed independently and hire a construction manager to take over renovations of the empty Malcolm X Academy after cutting ties with an outside developer. Credit: Journal Sentinel files

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Less than a year after shunning a cash offer from a private school operator for the empty Malcolm X Academy building, MPS is cutting ties with the developer it commissioned to renovate the site — but not before paying at least about $500,000 toward the $1 million worth of work the developer has billed so far.

The split marks the end of a public-private partnership championed by former Milwaukee Public Schools Superintendent Gregory Thornton as "probably the best deal in town" for taxpayers just 11 months ago. The district now says it will proceed independently and hire a new construction manager for the building and sprawling 5-acre parcel at 2760 N. 1st St.

The latest twist was set in motion by a new agreement the Milwaukee School Board approved after meeting in closed session.

At the moment, the district and the developer — 2760 Holdings LLC, formed by Dennis Klein of KBS Construction and James Phelps of JCP Construction — disagree on how much it will cost to settle up on the work done so far. The developers want close to $1 million; MPS says it has determined the cost of the work done to be just under $500,000. The parties are meeting Tuesday to discuss the situation.

The reason for the split depends on whom you talk to.

Erbert Johnson, chief of staff in MPS, said the developer made what the district considered a "questionable request," prompting the district to seek another partner.

Phelps said he wasn't sure what made MPS move in a different direction.

He said he was done with the "brain damage" induced by working with the district in recent months.

The Malcolm X situation has come to embody concerns about how taxpayer money is spent on unused public buildings. MPS has more space than it needs but is reluctant to sell its empty schools to operators that compete for students. Supporters want the district to protect its assets, and potentially use them in the future if enrollment increases; advocates of private and independent schools see the district as hoarding space it doesn't need — and paying to maintain it.

MPS officials wouldn't say Monday what they thought it would cost to exclusively pursue the renovation of the school inside Malcolm X. But Phelps projected it would cost at least $10 million more.

The City of Milwaukee has the final say on the sale of on MPS buildings but has trod lightly on using that authority.

History of the deal

The deal drew scrutiny from the start.

The district proposed in fall 2013 to sell and lease back the Malcolm X site from the developer at about the same time St. Marcus Lutheran School, seeking to expand its operations, offered to buy the building.

The deal called for the developer to purchase the Malcolm X Academy building for about $2.2 million. MPS was to lease back the renovated school portion of the site, likely for 10 years, which would essentially pay the developers back for the cost of renovations. MPS would then purchase the school at the end of the lease term for $1.

Supporters said the deal would let the district spread out the cost of renovating part of the empty building into a school with an International Baccalaureate program. Part of the site would be renovated and put back on the tax rolls as commercial space. The project was also to include low-income housing.

But critics called it a poorly conceived — and initially vague — rush job designed to prevent St. Marcus from getting the building.

As of this summer, it was clear there were hangups in the development. No physical work had happened at the site. The developer didn't apply for tax credits, let alone close on the purchase of the building — both of which were key to the deal.

Johnson, from MPS, said the net effect of the new agreement is mostly a change in the financing structure. He contends a school will open on the site in fall 2016.

"We were always going to reimburse the cost of the renovations, it was going to be over a period of time," Johnson said. "It was just a financing mechanism. We wouldn't have to raise the money, we'd pay it back through a lease, and once we paid their construction and financing, it would revert back to us."

As for St. Marcus Lutheran School, it leased a different building at 2669 N. Richards St. and quickly opened this fall with about 100 children in early childhood classes.

Superintendent Henry Tyson said the school has plans to buy and expand the building to serve more children.