A $6.3 Million Write-off Invokes a Few Questions

Delving into a discussion of the true nature of Emerald City's RDA debt

On December 22 one of our gentle readers lodged a comment in one of our lower comments sections which raised fundamental questions about the nature of Ogden City RDA debt, and the relationship of Ogden City with respect to such liabilities. Specifically, gentle reader Ogden Resident zeroed-in the contents of Ogden City's newly-released Comprehensive Annual Financial Report (CAFR), which, among other things, revealed that Ogden City was in the process of "writing off" some $6.3 million in accounts receivable, representing current account balances owed by the Ogden RDA, for loans "advanced" from the Ogden City General Fund, toward three Ogden City RDA projects at some unspecified times in the past.

Coming on the heels of our recently completed Emerald City municipal election, this appeared to be red meat news indeed for our gentle readers, inasmuch as the relationship of RDA debt to Ogden City was a key issue in the election. Whereas Boss Godfrey had continuously maintained throughout the election campaign that Ogden City WAS NOT generally responsible for the debt of its own RDA (on the theory that Ogden City and the Ogden RDA were two separate and distinct entities), his opponents had unsuccessfully argued the contrary (on the theory that the Ogden RDA was either an Ogden City sub-entity or alter-ego).

Our readers naturally latched onto the information contained in the CAFR, assuming that the information contained therein constituted "blanket proof" that Ogden City is generally responsible for ALL debt of the Ogden City RDA.

Somewhere along the line, the Standard-Examiner picked up on this story; and we were thus treated yesterday to this Ace Reporter Schwebke article, fleshing out the facts, with a series of he said/she said interviews. In a nutshell, these are the essential facts, as reported by our favorite Standard-Examiner reporter:

OGDEN — The Ogden Redevelopment Agency will likely be unable to repay the city about $6.3 million remaining from loans received in the 1970s and 1980s to form three business districts that underperformed, according to the city’s recently released 2007 financial audit. [...]

However, Richard McConkie, the city’s deputy director of community and economic development, said a 7 percent interest rate on two of the loans has made it impossible to repay the debt.

“Without the interest rates, the loans would have been retired by now,” he said, adding the city administration has repeatedly recommended to the city council that the interest rates be reduced to zero.

John Arrington, the city’s finance manager, estimated the RDA has paid several hundred thousand dollars in interest alone most years on the two loans.

The city council has known for years that loans to establish the RDA’s Central Business, 25th Street and Washington Boulevard districts likely wouldn’t be repaid in full, McConkie said.

However, due to new reporting requirements the anticipated default was made public in the city’s 2007 financial audit released last month. The default is listed because, in the past, it hasn’t been the city’s practice to forgive interfund advances or declare them uncollectible.

The Washington Boulevard District will expire in 2008, followed by the Central Business District (2014) and 25th Street District (2015), all ending before they generate enough tax revenues to fully repay the loans, Arrington said. The loans total about $9 million, according to the audit, and about $2.7 million is expected to be repaid by the time the districts expire.

Enlightening though Mr. Schwebke's article is, we believe it leaves a series of unanswered questions. We'll reel off those which seem of foremost importance to us, just off the top of our head:

1) Is it proper for Ogden City to now "write off" the Ogden RDA's entire $6.3 million loan balance, because these three projects will have "expired" within the next seven years?

Our suggested answer to this is a resounding No! Even though these projects are set to expire, the entire loan balance remains an obligation of the RDA itself. Assuming for sake of argument that the RDA is a distinct entity, separate and apart from Ogden City, (as Mayor Godfrey argued throughout the municipal election campaign), the taxpayers of Ogden ought not bear the burden of the RDA's earlier poor judgment, in overestimating the tax increment which would ultimately flow from these projects. The Ogden RDA has received, and continues to receive substantial flows of cash as it disposes of RDA properties, and is certainly NOT insolvent. Although these monies have in the past been routinely diverted to uses other than the reduction of the RDA's debt to Ogden City, we believe the RDA Board should adopt new policy applying these revenues to its debt to the taxpayers of Ogden City. As set forth in Mr. Schwebke's report, Ogden City has historically observed a policy of not forgiving debt. We believe there is no reason to deviate now from such sound and prudent policy.

2) Does Ogden City's expressed intention to "write off" this debt by itself constitute "proof" that Ogden City is generally responsible for ALL RDA debt?

Once again, our suggested answer is No. Unlike a circumstance where Ogden City might be hypothetically called upon to satisfy an obligation founded upon a defaulted RDA-issued bond, the instant situation involves straight loan debt. Ogden City is peculiarly an actual creditor in this situation.

3) Do the facts as reported in Mr. Schwebke's article, taken as a whole, support Mayor Godfrey's contention that the Ogden RDA is in fact an entity separate and distinct from Ogden City?

Our suggested answer is an emphatic NO. And we think Ogden CAO John Arrington says it best, with this possibly inadvertant admission:

The default won’t affect Ogden’s financial picture since the loans are regarded as an interagency transfer from the city’s general fund, Arrington said. The net effect is a reduction in the city’s current year fund balance and an increase in the RDA’s current year fund balance.

“In reporting the combined activities on the loans, it’s a financial wash,” Arrington said, adding if the money had been fully repaid there would have been more capital for other city and RDA projects.

That's right, folks, Ogden City's own Chief Bean Counter considers the Ogden City RDA to be just another Ogden City sub-agency, involved in a mere "interagency transfer." Shuffling money back and forth between Ogden City and its purportedly distinct and separate Ogden RDA is no big deal, to people like John Arrington; and if the Ogden City taxpayers get stuck holding the bag now and then... so what?

We'll apologize in advance for the extended length of this article. This is a highly complex story, not easily expressed in brief form.

And it's in that connection that we invite our readers to now join in on the discussion. Although our readers have already discussed this story in the lower comments section at some length themselves in lower comments sections, we have a funny feeling they're not yet "tapped out."