It's Monday, the eve of what is certainly the most crucial city council vote in memory. The city council is poised to vote tomorrow on the latest incarnation of the mayor's rec center plan, a plan which will bind the townsfolks' existing BDO revenue stream for the next 25 years.
Mayor Godfrey has a lot of himself invested in the current plan. It's been on the drawing-board four at least four years. In its original form, of course, it involved the lofty neoCON goal of having the city enter into a "partnership" with the private sector. It had been predicated for the most part, (until last month,) on private financing. Private parties would lease the new facility, and "other people's money" would build out the site. The townsfolk would NOT be placed "on the hook," (except for a little "tax increment money," which is "free," as every grand-scheming urban central planner knows.)
So Scott Brown and the gnomes in the city economic development department located a couple of prospective lessees (Gold's and Fatcats,) and proceeded to peddle the project to lenders and bond underwriters around the country, looking for somebody to take the bait. After a few years of peddling and conniving, though, no lender would get involved. What ought to be obvious to attentive readers is that the private credit market has given Gold's and Fatcats a no confidence vote.
At that point, gentle readers, sensible folk would have seen the writing on the wall. Private lenders have a bias, of course. They're in it for the money. They avoid projects that don't demonstrate "economic viability". They do their own private "feasibility studies;" and they don't invest in projects that are likely doomed to failure.
Failure of course is not an option for the current Gang-of-Six. They're "can-do" folks with zero risk aversion. Why should they be risk-averse? It's not their money they're playing with. Failing to find a private investor who was interested in their obviously doomed private-financing scheme, they did what risk-takers (some would call them gamblers) everywhere do when they're a little short of cash, and their credit ain't so great -- they visited a loan shark.
The net result? The Bank of New York will finance the project; and Norwest Securities will underwrite the bonding. But the taxpayers will now be fully"on the hook" in the event of the lessee's default; the private investors won't bear any real burden. The original plan has changed utterly, in one giant flip-flop. In the event of default of the Health Club lessee co-partnership, Bank of New York will have recourse to 100% of BDO lease revenue for the next 25 years, or until the bond debt is paid off, whichever happens sooner. The formerly private project has now thus become a palpably public one.
This eleventh hour course-change presents another serious problem though, which puts the city council in a genuine ethical predicament. Over the course of the past several years, opponents of the rec center project have incessantly demanded the completion of a "public feasibility study," something that is mandatory for all public projects. In response to these demands, the mayor's office has consistently demurred, arguing that all necessary preliminary studies would be done by the private lenders, and that a public study would be redundant.
The problem for the city council now, is that they're thus forced to consider this project in the complete absence of such a study. The Mayor's sudden flip-flop has created and ethical problem for the council of extreme magnitude. What the council is being asked to do on Tuesday night is to approve a highly burdensome and risky project without even the slightest fundamental information necessary to make such a decision. All they have is the mayor's blue sky promises -- and their own emotion.
"Larry Miller will come," says, Mayor Godfrey. "Boyer will come. Others will come. The rec center will be a "business development magnet for Ogden," so says the mayor.
None of these folks are under written contract, of course. None of them has even provided so much as a letter of intent. Not even Gold's or Fatcats principals have made a written commitment. Gary Nielsen in fact joked with me last week that he could kill the whole project at any time, simply by refusing to sign on the dotted line. That's how truly flaky this project is. "Trust me," says the mayor. The mayor has "the true vision," of course.
I don't know about councilpersons Jorgenson, Burdett, Filiaga, Stephenson and Safsten, but I'd be feeling mighty "put upon," having something like this laid in my lap at the tail-end of a lame-duck council session, if I were sitting on the city council. Sure, these folks have a lot of themselves "invested" in this project, just as does the mayor. I'm sure they're all brimming with emotion over this project, and its truly bizarre timing and fact circumstances.
Nevertheless they should remember that they are fiduciaries, and holders of a public trust. Nobody in their right mind would approve this project in its present posture, given the paucity of objective data that is available. A wrong decision in this matter will have possibly devastating personal-legal consequences; and I hope they will all be thinking about that. Hopefully they'll respond to their rational faculties, rather than their emotional ones, as they arrive at Tuesday's decision.
A couple of other tidbits for this morning's reading:
Kristen Moulton frames Tuesday's issues nicely in this morning's Salt Lake Tribune story.
And I've learned from email scuttlebutt that mayor Godfrey will be staging a "rally" on Tuesday afternoon in the municipal gardens, adjacent to the council chamber. Mayor Godfrey's political base these days, mainly consisting of teen-agers and twenty-somethings who don't vote, it would seem, will be carousing and listening to a live band, in anticipation of Tuesday night's council meeting. Lacking anything concrete on paper, I suppose an emotional rally is all that remains. "Any port in a storm," as the old saying goes.
And what say our gentle readers about all this?
Will the city council honor their fiduciary obligations...or simply roll the dice?
Comments, anyone?
15 comments:
What provisions are there for overflow spectators at the City Council meeting? (Audio in the hallways, outside the bldg, etc?)
Big meeting tomorrow. Filled to capacity, most probably by those there "just to hear the band, Andy."
A pity they don't get involved on a regular basis.
Vote prediction: initiative passes by a vote of 5-2
What say U?
Things have changed.
Within the past year, the city has had to pay damages in two lawsuits. This has led to a need for Debt Restructuring. I attended info meetings discussing this, and also the rec center. Here is the financial info I received at those meetings in handouts:
Here is the Debt Restructuring part:
Refinancing RDA loan from Ogden City (BDO) for acquisition of the mall site (includes accrued interest:) $12,350,000
Refinance Woodbury Corporation settlement: $5,070,000
Capitalized interest (1.5 years): $1,989,000
Other Redevelopment costs, legal fees, underwriting, etc.: $891,000
(Total so far for Series 2005C-1 Bonds: $20,300,000)
Then, Use of Series 2005C-2 Bonds:
Refinance RDA Wells Fargo loan to construct the American Can parking structure: $2,100,000
Total from both Series: $22,400,000
The primary payment source for these Restructuring Bonds is tax increment generated by BDO. The secondary source of security is the city's share of lease revenue from BDO. The third source is tax increments belonging to the county.
The term of these bonds is 20 years.
Most or all of this above is debt we have accrued in the past year. It is money we owe and had to borrow to pay back. In fact, when Woodbury won the lawsuit, Ogden had to take out a short term loan to pay them their $5,000,000. This debt is money we did not and do not have and did not expect to have to pay out.
This $23,000,000 has nothing to do with the proposed rec center bonding. That is a different deal entirely, with different bonds.
Here is the Rec Center part:
(and it totals $18,475,000 as follows:)
HUD Section 108 loan: $2,000,000
Series 2005A Bonds: $7,280,000
Series 2005B Bonds: $8,900,000
One time tax increment$295,000
The HUD loan will be paid by "tax increment generated in the 10 RDA project areas dedicated to support the recreation center."
The bonds will be paid by "revenues derived from the lease to Health & Fitness Holdings, L.C. The lender also has a second position (in line behind the debt restructuring lenders above,) for the city's share of BDO lease revenue.
The tax increment is an unused increment fund from 2004.
The term of these bonds is 25 years.
Total debt on the restructuring and the rec center:
$41,275,000
It looks like the strategy is to almost double our existing debt in an attempt to dig out of it. Lease revenue from BDO will be pledged in both the refinancing and the rec center deals as a secondary security source.
Without the financial reverses from lawsuits that led to the debt restructuring, we would only be talking about $18.5 million. But the fact is, we're not. Like I said, things have changed. There is a lot more risk now to all of us. 20 years of paying off the restructuring is something we can't avoid, it seems, but to add on another debt of 25 years duration to this to pay off the rec center seems like overextending.
Did anybody ever have an answer to the question: "What if it all goes south?"
If it all goes South, the city and lenders will sit down and hammer out a deal, with the lenders owning the greater share of downtown Ogden for about 50 cents on the dollar. The other option will be to continue to pay the Rec Center obligation with BDO reenue streams and find another operator for that entity. Fats and Golds walk away, leaving it all to us, plus the equipment which is akin to used bar equipment....worth about 10 cents on the dollar. No security deposit, not attachments, just the prevebial "adios."
In the meanwhile, the RDA funds will continue to support the 2005A bonds, Godfrey's contribution to getting the mall up and running. The hopes that by then, both Miller and Boyer will have AT LEAST signed something that says they'll come aboard, but the structuring of this deal certainly puts the ball in their court (pardon the play on words, Jazz fans) and you can bet the ranch that those guys will get the better end of the transaction, as this whole thing has been put together with their participation in mind.
It could work, and if it does, and everyone comes aboard as represented, the mall site might show some growth and progress. Maybe enough to convince Godfrey to seel the Episcopals the much needed land they seek. There comes a time when beign a good neighbor trumps the minor commercial ramifications that Godfrey is hung up on. And, another factor that we don't hear about, is the Episcopals offering the vacant parcel on the SE corner of 24th & Grant to the City, which would offset the alleged commercial loss that has given Godfrey heartburn.
Meanwhile, RDA TIF roles on, re-paying the restructured 22,400,000 bond issue that is really a deadhorse due bill. The talley for Godfrey's High Adventure Recreation Center is between $40,000,000 and $50,000,000! Big bucks to bet on a gym/arcade/bowling alley, especially in lieu of the fact that there has been NO feasability study performed by a dis-interested 3rd party, someone who doesn't have a dog in this fight, nor Miller & Boyer signed on the line, the repeaded assurances that the people wouldn't be put on the line but in order to make the loan they now are, and the massives lease/operating costs put in the hands of two questionable business entities.
Buildiong conversion is possible, so says the City, but a foyer with an 80 foot rock mountain in it and a river running through it with a windstorm stirring things up, seems hard to imagine. Where will the desks and computers go, in a kayak or hung from a caribeaner or dangling from a parachute? IT folks will be faced with moutaineering skills, as well as software skills. But the Mayor seems to like it.
This is an extremely high risk gamble, taking money from 2 positive sources, money that could be used for infrastructure and public services, and putting on the COME LINE that the Mayor will roll a 7 or 11. The lameduck council does have their hands full.
Those who advocate the vote passing feel, I'm sure, that this is the best thing for Ogden, and maybe it will turn out to be so. However, it's easy to beat your chest and puff and posture with other people's money. I wonder how they'd be acting if they hand their dollars tied up in this project? More cautious, I'd imagine. Hopefully, the new council-elects will fill their role as stewards and ensure the proper functing of this whole affair. That is the one thing I feel good about. But remember, be careful what you ask for, for you just might get it. And, if that happens, will the gondola/gondola be far behind?
If we do not see increased revenue, are we currently capable of meeting our obligations on the debt restructuring?
If not, the rec center turns into a last ditch attempt to generate revenue in order to stave off bankruptcy.
Those who have "promised to come in" may suspect this, and may be comfortably putting the squeeze on for us to finance this rec center in this definitely buyer's market. It will of course make their position more secure.
But what about ours?
I don't like the fact that we seem to be groveling at the feet of developers. In fact, I found this from the Trib article today very off-putting:
Boyer President Steve Ostler agrees his company will go away if the rec center does not happen.
It takes all three people magnets - the recreation center, cinemas and the Treehouse Museum already under construction - to create enough "pizazz" to draw regional visitors and turn downtown around, he says.
Ogden, says Ostler, may not be the best place to invest, he says. But, he adds, "I have become a believer."
So here we have Pressure From Boyer. "Ogden may not be the best place to invest," he says.
Of course he would say that it's not a good place to invest, having the exclusive opportunity to do so right now and perhaps not wishing to compete with other prospective developers.
And he would also threaten to not come in until the rec center is approved, simply in order to act in his corporation's best interests, because he believes that the rec center will make Boyer's position more secure. (Again---What about our position?)
He can do this, and make these statements to the media because he hasn't signed anything.
And I am really wondering whether all the emotionalism and pressure to approve this project stem from a closely guarded knowledge that this is not simply a chance for us to revitalize downtown, but a "solution" to stave off bankruptcy.
Maybe the developers think/know that we have no choice but to accede to their demands.
Can that be?
We've heard from the administration that "We have to do Something!"
Is this why?
Everyone seems to be predicting that the vote will pass. If by chance it did not, what would happen regarding our situation?
Would we have to start over with downtown development? Or would we be starting bankruptcy proceedings?
Thanks to Dian for unravelling a confusing [for me] mix of financial obligations Ogden faces with and without the Rec center bonding, Appreciate the clear explanations.
I regret to sy I think you're wrong, curmudgeon.
Most of the Ogden refi is necessary, under terms of the underlying agreements.
The Woodbury "take out" had to happen eventually, even though it occured inelegantly. Ogden city finally settled at fair market value for the purchase. However badly it may have been handled at the outset, Ogden city purchased the property at fair value, from the point of view of all parties to the transaction.
It's the same for the army/BDO settlement. Godfrey's government blundered badly in unilaterally "borrowing" the mall purchase money, but even Mayor Godfrey ought to have deserved some offset, for the similar amount of city money that went simultaneously into the BDO infrastructure from Ogden city funds, at about the same time the "borrowing" occured.
I don't mind criticizing mayor Godfrey for his blunders, and I'll volunteer that I hate his undemocratic attitude toward democratic governance.
Nevertheless, let's not take unnecessary cheap shots.
Most of the proposed refinancing is necessary because of terms in the individual loan documents, which REQUIRE refinancing..
The only glaring problem with the reefi package, IMO, is the lease revenue bond on the rec center.
The only REAL problem with the series of refis is the lack of info...inasmuch as the city councli lacks even the most fundamental documentation upon which to found a "yes" vote for the lease revenue bond proposal.
As much as I like Dian's research, I believe she muddied the discussion when she expanded the discussion to include the entire refi proposal.
The issue tomorrow night, as I see it, is the documentarily unsupportable Rec center lease revenue bond.
Ironically, this is the lynchpin of th e whole downtown "revitalization," and the weak link in whatever "plan" there is.
Unfortunately, it's founded on nothing but blue sky promises and "faith-baserealty...which is an oxymoron at best"
To: Rudizink
I don't think we disagree. I was thanking him for giving me [I thought and think] a clear, succinct grip on the size of Ogden's current and potential indebtedness and the sources of it. You're commenting on whether the existing debt was necessary, and on whether the new debt would be wise. I'm still trying to work those questions out. But I've seen so many numbers tossed about over the last several months, and I was glad to get a clear and [relatively] succinct laying out of how big the debt is and the components that went into it, and will go into it if the new bonds are issued. Blame for the past debt and the wisdom of incurring more for the rec center are other questions about which we may disagree. [Haven't really considered who is to blame for what parts of the old debt for example. I really don't know for most of it.]
Now, don't go putting the entire responsibility for muddying the waters by the inclusion of the refinancing proposal on me, Rudi.
This is the way this has been presented by the city from the beginning, and the mall info meetings I attended began with an overview of the Debt Refinancing and then led into the rec center financing.
The hand out sheet they provided begins with the debt refinancing and then the rec center financing.
I was also irritated by this "muddying of the waters" on the city's part, and asked Dave Harmer at the meeting why both of these things were being done and presented at the same time.
His answer was that the fees involved in borrowing/refinancing such large amounts of money were astronomical, and so it was cheaper to do everything at once. These fees are the $800,000 figure.
But really, that method of presentation is not solely my idea, and I wrote the post in an effort to clarify the separate issues: the refinancing, and then the mall, because the joint presentation has led to much confusion.
No offense was intended; and I hope none was taken, Dian.
It's just that I thnk we need to keep our eye on the ball for tomorrow'a upcoming teenage glee-club-and band-driven event.
You're right. The Godfrey administration has sneaked-in the rec center vote with other votes that are arguably justifiable, in an economic sense, along with the rec center one which isn't.
Yes. It's Godfrey himself, through his numerous $100K/yr shills who have REALLY "muddied the waters" of the conversation -- by intemixing legitimate or semi-legitimate) refi projects with an obviously undocumented and possibly unsustainable one.
I wrote earlier on this subject. Here's an an article I wrote on the general "debt" subject.
And here are some tables I put together. I think they're still pretty accurate, in light of the information I've received at this month's public meetings.
Some of our old debt needs to be refi'd I think.
It's the rec center financing that needs our undivided attention now, IMNSHO.
We can deal with the rest of the Godfrey blunders, once our new council is in place.
You're way off base here, Rudi. The council package, which I've taken at hard look at, includes Series 2005a, 2005b bonds, which deal with the rec center finacial package and ALSO the $22,400,000 2005c bonds which are the re-fi's. All are dependent upon RDA TIF and BDO revenue streams. The vote is inclusive. There is NO muddying on this issue, except for that which the Mayor and his bunch have created whe they put this complexly woven deal on the table.
No offense taken at all, Rudi. Actually, we are both in agreement that putting the refinancing in tandem with the rec expenses is what makes it so confusing.
You know why I think they did this?
Because a previous council passed an ordinance that one half of the BDO lease money was to be used for Ogden City infrastructure.
As things stand right now, no one can touch that money, for collateral, or to pay things back, or to do anything with except fix Ogden City Infrastructure.
So part of tomorrow's meeting, I have heard, is that a motion will be made to rescind that ordinance made by that previous council in order to free up that money.
Both the refinancing and the rec center deal have BDO lease money as a second source of security.
If the council chose to let that ordinance stand, only half of the BDO lease money would be available for securing loans. Maybe it wouldn't be enough for both loans. Maybe it would be enough for just the refinancing one, but I don't think anybody has looked at doing just one part of this.
That's my take on it, at least. I mean, they couldn't be doing it this way just to confuse us.
A query:
Ogden City has a public tv channel. Why isn't it covering the city council meeting Tuesday night? Come to think of it, why doesn't it put ALL city council meetings on the city cable channel? That is commonly done in other cities that have publically financed tv stations. Why isn't it being done by Ogden's city owned and operated [and subsitized with public funds] tv station?
Article in today's Trib terming tonight's vote a "Leap of Faith." It mentions that there has been no feasibility study other than the one Dorothy mentioned in the WCF thread, "This is No Feasibility Study," lists various court actions involving Fats and Gold's, and ends with a quote from Mayor Godfrey about how getting sued is a fact of life.
It's here:
Leap of Faith
Yes Dian, there is a Santa Claus!
"I mean, they couldn't be doing it this way just to confuse us"
This deal is overly complex for that very reason Dian.
In business there is generaly only one reason to be complex and interwoven like this series of deals the city is involved in. That is to confuse someone in the middle of it. Gives the rascals more room to operate!
New comments are not allowed.