Tuesday, February 12, 2008

Emerald City Junction Project Already Running in the Red

The Godfrey administration finally provides some loose Junction project numbers

Tantalizing headline on the Standard-Examiner front page this morning: "Junction exceeds funding," the headline says. As a convenience for those readers who across the nation who are not Std-Ex hard-copy subscribers, we provide a link to the full story, together with Scott Schwebke's pertinent paragraphs:

OGDEN — Cost overruns for The Junction, an entertainment, residential and retail complex being built downtown, are expected to total at least $774,890, according to a report from a city official.

Dave Harmer, community and economic development director, will present the report during tonight’s work session with the Ogden Redevelopment Agency Board, made up of the city council.

The board has asked Harmer to provide monthly financial updates on The Junction.

The projected overuns at the development were derived by subtracting expenses from funding sources totaling about $45.5 million, according to Harmer’s report that covers activity through the end of 2007. [...]

The projected overruns at The Junction are expected to exceed funding by about 1.7 percent.
That's right, folks, it seems that administration officials have taken the easy way out in reporting today's figures, netting cost overruns to date against funding sources for the entire junction project. While we'd have preferred to have been presented with calculations comparing expenses and funding sources element by element (netting expenses and funding sources for the Salomon Center, for example), that's not what we got from this morning's Std-Ex story.

We'll also note in passing our great delight to read that our Ogden City RDA Board is now at least monitoring the Junction project, as is more particularly set forth in these encouraging paragraphs:

Harmer’s report should help the RDA board get a handle on funding and costs at The Junction, said City Councilman Jesse Garcia.

“We just want to see what’s going on with funding at The Junction,” he said. “I don’t anticipate any problems, but when we have a question, we would like to have an answer.”
Let's just say that former RDA Board Chairman Garcia is a very patient man. Our insider sources inform us, by the way, that the RDA Board has been demanding financial updates from the Godfrey administration for the past 15 months, to no avail, until now.

Perhaps the RDA Board will be able to squeeze out more detail about individual project elements, item by item, at tonight's work session. And from here on out, we hope that the RDA Board will insist upon timely updated administration financials, on at least a quarterly basis, at the VERY least. Without access to this most basic ongoing financial information, the RDA Board has been flying financially blind since last summer. That's not a good position to be in, we think, for an elected board of public fiduciaries.

We have a busy calender this afternoon, so we'll resist the temptation to indulge in our usual microanalysis, and rely upon our gentle readers to provide that instead.

Please consider this an invitation to crunch the numbers that ARE provided in today's Ace Reporter Schwebke story. The floor is now open on this topic. Perhaps a few of our gentle readers can help us make some sense of all this.

That's it for now, gentle readers. Time for y'all all to let 'er rip.


dame edna said...

Yogi Berra used to say, "a million here and a million there and pretty soon it amounts to real money" -

Of course, Godfrey is too young to know who Yogi Berra was --

hang down your head in shame said...

The Junction has only been under construction since Dec, 31, 2006, or so the City claims, because they had to get it started before the legal date to comply with Utah Statute for construction expired.

Incredible that the City Council/City Council RDA has allowed this incompetence to go on for almost 14 months without a monthly accounting.

Absolute incompetence on the part of Mayor Godfrey, the City Council and most of all Mr. David Harmer who would have been canned long ago if he tried dragging his feet in private industry. Maybe that is why he no longer works in the corporate business world.

Old habits can be hard to change.

Ogden City wins the prize said...

I wish I knew some cuss words so I could use them about this group claiming to run Ogden City.

How can these people have the guts to show their faces in public....

big jim said...

So where is the Mayor going to find a way to cover this million shortfall?

Has he tapped into the money machine the Feds are running right now?

I hope that every voter who voted to put Godfrey back in office will take a class in addition and subtraction and suddenly comprehend what the consequences of Godfrey in office portend for the next 4 years.

build it cost plus said...

Negotiations with the employee groups is coming up, I am sure he'll stick it to them to cover his bad investments.
Or He may just have people snitching on each other so that the city can increase it's fee collection. (Hidden Taxes)

dame edna said...

This is just the cost ovrrun on building these projects.

Where are the figures on operation of the Junction because it has to be deep in the red?

dan s. said...

Has anyone actually seen this report? Rudi, can you get a copy and post it for us?

It'll be very interesting to see the breakdown of both expenses and revenue.

Remember, everyone, that the Junction is the entire two-square-block area. That's not the same as the Salomon Center, which is just one building. From what we've seen previously, we know that less than half the total expenses are for the Salomon Center itself. The rest must include buying out previous owners, demolition, and improvements to the parking garage, roads, etc.

What will it cost us said...

What parking garage for $3.8M at Grant and 23rd? If it was for the ramps to use the north side of the parking garage that is a lot of money for ramps. If they meant the parking garage by the Amer-Can operation which looked less than 1/4 full today at 2, then the RDA Board needs to know exactly what plans $18M+ will buy for the New Hotel garage and sidewalks, with quarterly cost updates written into the agreement. Unless this is for the bottom floors of the hotel with sewer, water, electrical run through plus re-enforcement for the actual base of the hotel at taxpayers expense. I'm all for good economical development as long as it it the developer who takes the chances of a successful business venture. Why aren't we charging to park at the Ameri-Can parking garage or have monthly permits, seems like the gates are always up, free parking. Just trying to have those who say they love Ogden so much pay their way, or dues. Seems like lost revenue for the city since we own that garage I think.

danny said...

So this whole Godfrey downtown thing not only cost a bundle, but it loses money, and always will.

Gee, what a surprise.

Am I living in an alternate universe? This was always a 100% certainty.

Now even the bozos who did the project admit it's a loser and always will be.

And so now, what are they claiming about the Midtown property subsidies for their building and water park. Let me guess.

Are they also saying that will be an eternal black hole?

Hey city council. Thanks for asking for the accounting! Now tell us, are you paying attention?

One word: "Duh."

danny said...

Going back a few articles in todays WCF:

Rudi says, regarding the proposed public funded ice tower:

"OK. Suffice it to say in summary that we continue to believe this is a dumb idea."

And then:

"At the very least, we think you'll all agree that Jeff Lowe is a quite remarkable man. Who can blame him for his desire to fulfill his dream? Really. And for Jeff's sake, we hope it works."

Then, from the Standard, Ogden city bureaucrat John Patterson says regarding the ice tower:

"On all sides, except for fundraising, things are going well"

Danny sez: Well, no shinola Sherlock? All you need is dough huh? Yeah, you and Adam Aircraft and 8 billion other people huh? Everything perfect except for the bread? No kiddin?!

Hey, here's a thought. Lowe's such a nice guy, let's all buy the poor SOB a subscription to Reader’s Digest! But $1 million plus for his STUPID idea so he can fulfill his dream before he croaks??? Okay, there’s about 200,000,000 Ethiopians who have a dream too - they’d like to stay alive tomorrow! Let’s help them fulfill their dreams too! All they need is . . . . wait for it . . . . free money! Becha didn’t guess!

Somebody call the little green men. I gotta get off this rock. I can’t take it no more.

Tec Jonson said...

I have to say that for all of Jeff Lowe's exceptional adventures, he seems to have missed a few eco ethics. Most people involved in these outdoor adventure sports pursue them with the spirit of minimal technological assistance. Of course snowboarding, skiing, climbing, skydiving, could not exist without the aircraft, lifts, fabrics, alloys, plastics and processes we take for granted. Where do we draw the line on technological assist. For a guy who preferred to climb without oxygen assist, he seems to have the ethic. Why does his ethic not extend to examine the excessive energy input/assist necessary to maintain this ice tower. There is an obvious disconnect. I would venture that this contraption requires several times the energy/user input factor of any of the other aforementioned sports.

Good Luck, Jeff. I hope this venture does not sully what has been a remarkable career.

Ear to the Door said...

Interesting that the budgeted dollars reported to the city council for the cost of the Junction in the Oct 31, 2006 report was $44.2 million and yet on the Dec 31, 2007 report that number had grown to $45.5 million. A difference of $1.3 million before the latest additional cost over-runs that were disclosed today (and that now adds an additional $800,000 to that $1.3 million number). In the business world, budget numbers don’t increase from quarter to quarter (or from report to report) on a project development cost but rather from the original cost estimate to the finished project. This makes me question what the original cost estimate numbers actually were when the project was initiated as opposed to the number presented in Oct, 2006 and Dec, 2007 reports. RDA members should find out.

City is also claiming that the Junction generated $3.8 million in revenues for the year ending December 31, 2007 with $850 thousand in expenses for a net profit of $2.9 million. Doesn’t sound to bad until you realize that $2 million of those revenues are a one time grant from HUD (supposed to be used on housing, by the way, and not yet received by the RDA from HUD but rather amounts to a loan from the city until the money is received) and those funds will not be available for next years revenues to prop up the financial returns of the Junction. Another $1 million of the revenue is contributions from all of the other (10) profitable RDA projects within our city. The net effect is the RDA has dumped all of their money gained from all of the other projects into the Junction. Without those contributions and without the one time HUD money the Junction would barely have broken even and not even earning any type of rate of return. Without the HUD money, next year’s return will look terrible based on the investment that the city has in the development, a paltry $900,000 in revenues (and that coming from the other projects that the city is drawing from) based on an investment of $46 million. So if this project doesn’t generate substantially more income from the business development at the site, it will take 51 years (the year 2059) to pay off this project (that is, if it doesn’t receive greater subsidies from additional RDA projects or the city’s general fund) and yet the bonds for this project will come due in the years 2013 through 2032 (the longest bonds being for 27 years). The likelihood of the project standing on its own financially is rather limited too based on the number of multi-year contracts at preferential rates that are already in place on the majority of the developable property in the project.

Of note is the fact that the city claims that the RDA has invested some $46 million dollars into this project (it’s equity in the project) and yet the balance sheet shows a starting equity position in the development of only $40.6 million. So what’s the story with the difference in these two numbers, they should match.

Also of note is a accounting entry on the Transaction Though Dec 31, 2007 worksheet, it’s a little journal entry about an Interfund Note for $1.75 million and a journal note underneath it stating a deduction of this like amount from the balance sheet with the explanation of “Allowance for doubtful”. Does this mean that the city has written off more RDA debt?

Just a curiosity question, if the project cost $46 million and the city bonded for $38.1 million, where did the other $8 million dollars not raised in the bond offering come from? I have to assume this is part of the write-off of RDA debt held by the city or the city has held back on some of the numbers and that needs to be investigated. Additionally prior existing assets at the location should have been included in the equity number and should have elevated the equity amount above the indebtedness dollar amount but that is not represented in the report.

The city has loaned the RDA some $12 million dollars for various projects through out the city. In the 2006 budget the city administration is trying to write-off $6 million of those dollars (City Council claims that they have not authorized that write off – Yet - I’m afraid). If the administration successfully writes-off that debt it will mean that 50% of the money that the city loaned to the RDA was not and will not be paid back. How many banks would lend additional money to an entity that didn’t pay them back and yet the RDA is now asking the city to issue bonds ($18 Million) for the benefit of the Mid-Town development. Bond money that will be raised by the city, money that will be a financial obligation of the city to pay but will only be paid back to the city by the Mid-Town development if it is successful. Those dollars mentioned above in the previous paragraph may be an additional effort by the RDA t o renege on additional loans to the city or some of them may be in fact some of the write-off that the city administration is trying to do in 2006. If this truly turns out to be a write-off of RDA debt owed to the city or for that matter if the city has to write-off any RDA debt, I don’t see how our City Council/RDA members can justify the city lending any more money or taking on any more bonding debt risk for the RDA. It would simple be irresponsible of them to even entertain the idea.

The RDA members need to start immediately requiring the administration to provide the reports necessary to allow them to review on a no later than a quarterly basis the financial performances of all RDA projects on a project by project basis. They should demand timely updates no later than 30 days after the end of the required reporting period and in a format that allows them to compare quarter to quarter results. These are the same standards that are required in any public corporation and are meant to act as tools for those given the fiduciary responsibility of their position.

Additionally the RDA members need to start requiring that on all major projects, and the current $18 million city infusion requested project represents a major project where this dollar amount represents 1/3 of the total city annual revenue receipts, that they have reports prepared for the members, in advance of any decisions. Reports that come from independent unrelated third party firms that specialize in like type projects (not firms provided by the developer or the administration) to determine the effects on the city’s existing businesses, the effects over all on the city relative to the development being proposed, the financial capabilities of the developer and to justify if there is a need and benefit to the city that warrants the investment. These should be minimum requirements that the city’s RDA board requires before they make decisions to expend city money or take on additional debt in the name of the city. The City Council/RDA members can not be expected nor would it be responsible of them to make these kinds of major decisions without these needs tools to evaluate the projects

RudiZink said...

Per Dan S: "Has anyone actually seen this report? Rudi, can you get a copy and post it for us?"

I'll be working on that today, Dan, and will scan, upload and link a copy as soon as it's available.

I'm also impressed with Ear to the Door's above analysis, and may decide to post it as a main article with a link to the report, once the report is made available on our storage site.

ozboy said...

Ear to the Door

Very nice, thank you for this excellent analysis.

In reference to the RDA board's relationship with the Administration you wrote:

"that they have reports prepared for the members, in advance of any decisions. Reports that come from independent unrelated third party firms that specialize in like type projects (not firms provided by the developer or the administration) to determine the effects on the city’s existing businesses, the effects over all on the city relative to the development being proposed, the financial capabilities of the developer and to justify if there is a need and benefit to the city that warrants the investment."

Sorry to be the one to tell you this, but here in the land of the Godfreyites extreme naysayer and heretical concepts like that are not allowed. We are a faith based government, we only believe in concepts that are built around the Hail Mary method of business.

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