Friday, August 07, 2009

The Junction: What Next?

Tough decisions confront our community -- UPDATED

By Dan Schroeder

In two recent articles I’ve tried to provide an overview of Ogden’s Junction development and a detailed look at its revenue shortfalls. The most pressing problem is how to make the $1.9 million annual payments on the Junction’s “Series C” bonds over the next 17 years.

Revenue Sources

For the short term, most of this money can come from the tax increment revenue that the Ogden RDA receives from the mall redevelopment district (which includes the Junction plus the block west of Grant between 22nd and 23rd). This year the tax increment should be about $1.1 million, and over the next two or three years it should creep up a little higher, as more of the new buildings are completed and taxed at their full value.

A second source of revenue is tax increment from the American Can redevelopment district, north and west of the Junction. About 10% of the funds raised by the Series C bonds actually went toward the American Can parking garage, not to the Junction (as I should have mentioned in my earlier articles). In return, the American Can district is contributing $200,000 per year to the debt service.

A third revenue source is lease payments from Junction tenants to the Ogden City RDA. Most of the Salomon Center lease revenue is being used to pay off the Series B bonds, but there is about $100,000 per year left over that can be applied to the Series C bonds.

In addition, it was hoped that the Boyer Junction developments (Megaplex Theater, Wells Fargo building, restaurants, and smaller residential and commercial buildings) would be generating lease revenue by this time. But much of Boyer’s space is still vacant, so it isn’t yet making a profit or passing any income on to the RDA. City officials are now refusing to predict when this situation might change. Two years ago, however, they apparently projected that the city would receive over $300,000 annually from Boyer. It seems possible that this could still happen eventually, but not in the next few years.

The final source of funds is lease revenue from Business Depot Ogden. BDO currently provides the city with about $3 million per year, and a substantial portion of this money has gone toward the Junction bond payments during the construction phase.

The Short Term

For the next few years, however, it appears that the subsidy from BDO can decline dramatically: $1.1 million from mall district tax increment, plus $100,000 from the Salomon Center, plus $200,000 from the American Can district gives a total of $1.4 million, leaving only $500,000 needed from BDO to make the $1.9 million bond payment. And the mall district tax increment should soon climb to $1.2-1.3 million, allowing the BDO subsidy to decline further.

That’s the situation until 2015, when the mall district tax increment is scheduled to revert back to the taxing entities. Even in a best-case scenario (with $300,000 in Junction lease revenue from Boyer), the BDO subsidy would then have to climb back up to about $1.3 million. Whether the city can afford this would depend on what other uses it has in mind for the BDO lease revenue.

Long-Term Tax Revenue

Presumably there are other uses for the BDO funds, because the RDA is now asking the Taxing Entity Committee to extend the tax increment on the mall district through 2026, when the Series C bonds will be fully paid off. To understand the magnitude of this request, let’s make a few more projections.

By 2015, all of the existing Junction buildings should be completed and fully on the tax rolls. Even if we allow for a slight decline in the tax rate, the tax increment on the mall redevelopment district should be at least $1.25 million per year from 2015 through 2026. Barring some unexpected catastrophe, this is reasonable low-end estimate.

In a more optimistic scenario, the two vacant Junction parcels will be developed by 2015 and contributing additional tax. If the value per acre of these parcels is then comparable to the rest of the Junction, they could provide about a half million dollars of additional tax revenue, bringing the total annual tax increment to about $1.75 million. (Two years ago, city officials dreamed that these parcels would be developed to much higher values, resulting in a fantastic projection of over $3 million in tax revenue. I’ll ignore that projection in this reality-based article.)

So when the RDA asks the taxing entities to extend the collection of tax increment, it’s asking for about $1.25-1.75 million per year, over a period of 12 years.

The Taxing Entities

Now let’s look at where this money will go if the RDA’s request is declined. The answer is about the same for the Junction as for any other property in Ogden. Here’s the breakdown from my own recent property tax statement:


I’ve simplified this chart by combining taxing entities with similar purposes; for instance, “Schools” includes both the Ogden City School District and the Statewide School Basic Levy, while “Health & Safety” includes the Weber-Morgan Health Department, Paramedic Fund, 911 Service, and Mosquito Abatement.

Multiplying these percentages by the total projected tax increment of $1.25-1.75 million gives the following annual revenue to the taxing entities:

(Click the highlighted link for a more detailed version of the above table.)

If the tax increment is extended for 12 years, each of these entities will either have to do without this revenue (and thus provide a lower level of service) or make up the revenue by raising taxes on the rest of us.

Because the schools would take the biggest hit, the RDA is offering to pay them back $300,000 per year through so-called “mitigation payments”. As you can see, these payments would make up no more than half of the lost revenue to the schools. The RDA is also offering to sweeten the deal by handing some real estate over to the school district. There have been no reports of similar offers to the other taxing entities.

In order to extend its collection of tax increment, the RDA must convince six of the eight members of the Taxing Entity Committee (TEC) to vote for this proposal. The eight members include two from Ogden City (currently Council Chair Amy Wicks and CED Director Scott Waterfall), two from Weber County, two from the Ogden School District, one from the State Board of Education, and one from the Central Weber Sewer District (nominally representing most of the smaller taxing entities). The Ogden City representatives are being asked to relinquish general fund revenue in exchange for five times as much revenue going to the RDA. Everyone else is simply being asked to hand over their money to the RDA--although the school representatives are being offered part of their money back.

Why any of the TEC members (except those from Ogden City) would vote for such a deal--against their own best interest--is beyond me. The RDA could perhaps argue that it is morally entitled to the tax increment because without the new Junction developments, the revenue wouldn’t be there in the first place. But this argument should have been made before the buildings were financed, not after. Instead the city was promising, until just two years ago, that the Junction taxes would revert to the taxing entities in 2015.

So at this point, the RDA is effectively begging the taxing entities for a bailout. But assuming that the entities would even consider such a gift to charity, they should be asking how much the RDA truly needs.

Just how needy is the RDA?

Unfortunately, that question doesn’t have a simple answer.

One complication comes from differing attitudes toward the BDO lease revenue. On one hand, this is the revenue that formally underwrites the bonds, so perhaps it should be used to pay them off. On the other hand, anyone can think of other uses for that revenue.

Another complication comes from our uncertainty over the Junction’s future taxable value. Take the low and high estimates from the table above, subtract the $300,000 mitigation payment, then add back $300,000 from the American Can district and the left-over Salomon Center lease revenue. If you’re optimistic, add another $300,000 from Boyer lease revenue, and you end up with anywhere from $1.25 million to $2.05 million in revenue that the RDA can apply toward the $1.9 million annual payment on the Series C bonds. So there could be a shortfall of $650,000 that would have to come from BDO or somewhere else (still much less than what BDO paid in 2008), but there could also be a surplus of over $100,000, with no subsidy from BDO at all.

Given this wide range of uncertainty, a reasonable approach might be to wait and see how the Junction is doing in 2014 before promising any bailout. Indeed, the minutes of the June 25 TEC meeting show that one of the members asked why the RDA is in such a hurry to get the extension approved. And the RDA’s response was telling:
He [Richard McConkie] clarified for planning purposes, and for staff to have the ability to be able to negotiate on a future hotel or other major retail component, the tax increment plays an important part in sitting down with developers.
Moreover, at an earlier point in the meeting, McConkie specifically stated that in order to lure a hotel developer to the RDA’s vacant Junction parcel, the city would probably have to build a $4-5 million parking garage.

So the reason this is coming up now is simple: The city wants to borrow another several million dollars, and it needs another guaranteed revenue source to underwrite that debt. Then the city can gamble the money on yet another speculative venture such as the much-rumored new hotel. Whether Ogden’s market is ready for a new hotel, which would compete with the Marriott, the Hampton, and the Ben Lomond, seems not to concern the city administration.

Instead of asking the TEC to further enable its gambling addiction, here’s a novel idea for the Ogden City RDA: Sell the vacant “hotel” parcel on the open market (it’s assessed at nearly $1 million), get it on the tax rolls, apply the proceeds to pay down a little of the existing debt, and let the market decide what should be built on that parcel of land--and when. With the Salomon Center and Deseret Books right across the street, any number of businesses should be able to thrive at that location if given the chance. And when the streetcar comes through in a few years, a parking garage will be superfluous.

Selling the vacant parcel may or may not be the RDA’s best option at this point. Perhaps there are other options that don’t require incurring even more public debt at the expense of our schools and other public services. At the very least, I hope more citizens will become aware of the uncertainties, the trade-offs, and the risks that accompany the decision our community is now facing.

Citizens, please weigh in with your opinions!

Update 8/7/09 12:55 p.m. MT: "I've just received word that the Taxing Entity Committee will meet again, to consider the RDA's proposal, on Wednesday, August 19th, at high noon." -Dan S.

30 comments:

Waterboy said...

One concern I have is what will the condition of the Junction be in 2015 and even 2026. With the example of the FlowRider repair disaster earlier this year, what can we expect down the road? Ogden City fronted the repair costs on the FlowRider to my understanding. Will this repair turn out to be another fiasco in which it will only last 2-3 years and the need to repair will loom again? What other repairs can we expect? Where will that money come from? City employees already lost out on raises this year (pay for performance...what a joke). That was a big fat slap in the face. "You really did well and we do see the improvements in the city from your hard work...However...we don't have any money so no raises for you".

Back to my topic. If the facilities and "novelty" attractions are not attracting customers in 5-10 years how can the junction expect to maintain itself, let alone contribute to pay off the debts? I can not see the FlowRider, IFly, and the rock wall consistently making money once the newness and novelty wears off. 5 years from now will be more telling. I can see them making more money at Lagoon rather than downtown Ogden over an extended period of time.

Ogden simply does not have the financial and manpower resources to back up the junction like SLC has for Gateway or Park City has for its venue's.

Waterboy said...

BTW Dan, thanks for your articles. They have been very informative. I appreciate all of the hard work you have clearly put into them.

Curmudgeon said...

Dan, you wrote of the big vacant lot at The Junction: "let the market decide what should be built on that parcel of land--and when."

Let the market decide? What are you, some kind of radical socialist?

Dan S. said...

Waterboy: Good point. But one thing I like about the Junction is that, unlike the old mall, not all the eggs are in one basket. The Salomon Center may very well deteriorate and need to be completely replaced in 20 years, but the office buildings and condos and Treehouse Museum should last much longer. Perhaps in 20 years the city can simply sell off the Salomon Center building (for a pittance) and let someone else decide what to do with it. More likely, if the mentality doesn't change, the city will want to borrow $20 million or $40 million to give it a complete make-over.

Curmudgeon: Yeah, as Rudi has been pointing out for years, our Republican mayor is really the socialist here and even most "liberals" would prefer a little more capitalism. But although I'd let the market decide the future use of that parcel, I'd still put zoning in place to ensure that the design of the building(s) is compatible with a downtown, pedestrian-oriented neighborhood.

the gambler said...

Double down, put it all on the black.

Bill C. said...

Dan, are you suggesting that the gondola hotel is not only a ridiculous notion at best, but could also be the straw that breaks the camels back? Is that a one or two humped camel?
If lying little matty won't even follow the City policy regarding recreational facilities, how could we ever expect him to sell the "holy grail" of his gondola pipe dream? He is the excecutive director of the RDA.
I think this one will have to wait for a new honest, pragmatic and sane mayor to take over in three years.

Dan S. said...

Bill,

Thanks for reminding everyone that this hypothetical hotel is part of the grand Godfrey gondola scheme. That may indeed be part of the reason why the administration is so intent on having a hotel on that parcel. But even without the gondola in the picture, I suspect the administration would rather put forward a grand scheme (involving more public debt) than simply sell the land to the private sector.

Bill C. said...

Oh, I forgot, it's double gondola hotels. The developement disguised as a water project, coupled with the idiotic skippers fraudulent golf course committee plan calls for about 140 million in financing and sacrifice of all what Ogden holds dear on the east bench for another gondola hotel and of course a very high adventure half-pipe.
This seemed to come up during his tirade after Doug Stephens voted to override the veto, as you recall. He also lied publicly for the who knows how many times, about the finances of the golf course. Even his accountant Arrington disputes his figures.

Dan S. said...

This article is too long already, but I probably should have mentioned that this 12-year extension on the mall district tax increment would be on top of the half-million-dollar annual subsidy that the Junction is already getting from ten other RDA districts. I don't know the history of how that subsidy came about, but the bottom line is that the various taxing entities are already giving up over a half million dollars in revenue each year to subsidize the Junction. (This money is being used to pay off the Series A bonds, which helped finance the Salomon Center.)

disgusted said...

Blaine Carl

please give us your balanced side to this article or should i say the administrations. once again another example of the fine work our bd department does.

btw great article Dan S.

Rockford J. said...

One quote stood out upon first read:
"McConkie specifically stated that in order to lure a hotel developer to the RDA’s vacant Junction parcel, the city would probably have to build a $4-5 million parking garage."

Other than essential infrastructure, the city does not have to build anything to lure a business to the city. The days of "luring" or giving away public funds to in order to bring in businesses is over.

A solvent business that really wants to be here will not require freebies in order to make the decision to relocate.
When businesses are lured, look for nepotism, and then follow the money.

Trec Bronson said...

Great work Dan,

The evidence of the Junctions shortcomings have been visible all summer. The place is dead. I have been down there daily and nightly all summer. There are now too many restaurants and too few diners. Even last Sat. night at 9 pm; No one riding the flowrider, all restaurants practically empty and a smattering of teenage groups hanging out spending no money. Now that Lindon has a municipally run waterpark with flowrider many of the local riders are actually driving down there because you can ride it all day and hang around the pools for 20 bucks. Not too mention the obvious benefit of flocks of youthful moms out sunning. Salomon center, on the other hand, with it's quasi public funded- privately operated and heavily subsidized flat rate blanket lease on premises and 5 million dollars plus in recreational equipment charges prohibitive admissions to the premium attractions like the flowrider and iFly.

Trec Bronson said...

Now in it's third summer and still largely incomplete and finished space less than fully leased, the Junction has definitely lost it's Grand Opening appeal. Most people in the region have been there and spent their limit. Parents likely avoid it as it's simply a cash drop. No real shopping around, so the mall and Riverdale still gets the real consumers.

Dan S. said...

Trec,

Thanks for the report.

I haven't been to the Junction nearly as often as you, but when I have been there, it hasn't seemed dead. One Friday night at 11:30 I went down to see where that blasted searchlight beam was coming from, and I saw that WingNutz was packed and there were also plenty of folks hanging around the theater. I suppose the Salomon Center was already closed by then.

McConkie told me that the city just got a positive report on the progress toward leasing Boyer's residential units. Of course, given the economy, almost any progress at all might be interpreted as positive. Where McConkie seems much more pessimistic is on the leasing of the rest of the Wells Fargo building. Good thing the city didn't spring for putting two more floors on it!

Dan S. said...
This comment has been removed by the author.
Rockford J. said...

When they announced a Flowrider Wave Pool in Weber county, a lot of Real Live Actual Surfers were quite, um, stoked.
It is, after all, a 14 hour drive or a 165 dollar plane ticket to the nearest break.

Once we all saw the actual installation, and the pricing scheme, we were less than thrilled. The room is too small, the price too high for the time allotment, and the way it is laid out does not draw people in.

If I was going to go to Lindon, I would say screw it, and take a red-eye to Ventura.

Curmudgeon said...

Dan:

I hope he's right about leasing out the condo units. The original design for the project, at least its retail/dining portions, rested on there being many relatively up-scale condo dwellers living at the Junction [Enshaw and Reid properties, plus the Boyer units.] The Reid mega-condo building is not happening. Not sure where the Enshaw condos are, or when or if they'll be filled. So it is doubly important for the Boyer units to do well and put at least a portion of the predicted relatively high-end occupants a mere stroll from the Junction's eateries and retail shops [if/when any of them appear .]

Dan S. said...

Curm:

Right. The residential and entertainment/retail components of the Junction are supposed to reinforce each other.

As for "high end", the situation isn't so simple. I'm pretty sure the Boyer residential units aren't nearly as expensive as the Earnshaw condos or the (canceled) Ashton Square. And I believe the Boyer units are rentals, not condos for purchase. But the Junction's restaurants and entertainment venues aren't particularly high-end either. In general, the more successful elements of the Junction seem to be those that are more moderately priced. This should hardly come as a surprise, but it shows how some of the planners were a little out of touch with reality.

Dan S. said...

Update: I've just received word that the Taxing Entity Committee will meet again, to consider the RDA's proposal, on Wednesday, August 19th, at high noon.

Dan S. said...

Here's a little more on the politics of the Taxing Entity Committee:

I'm told that the State School Board rep always votes along with the two Ogden School District reps. Because 6 out of 8 votes are needed to approve an extension of the tax increment, that bloc of 3 has the power to stop any proposal. That's why the RDA is offering the mitigation payments and the additional real estate to the school district.

If we ignore the Statewide School Basic Levy and just look at the Ogden School District's share of the pie, the tax revenue they'd be giving up is somewhere between $490,000 and $686,000 per year according to my estimates. But they'd get back the $300,000 mitigation payments, so their net loss would be only $190,000 to $386,000 per year, or $2.3-4.6 million over the 12-year period.

Is the RDA offering the school district enough real estate to make up this deficit? And if so, why does the school district want so much real estate? I have no idea, but I hope someone is looking into this.

Even if the deal is a fair one for the school district, I don't understand why the State School Board rep would vote for it when there would be a large net loss for the Statewide School Basic Levy.

And even with all three school votes, the RDA will need at least one more vote from among the representatives of Weber County and the Central Weber Sewer District. The fact that another meeting is now scheduled probably implies that they've found one such vote. Could they be offering mitigation payments to the sewer district?

In any case, the whole idea of mitigation payments seems extraordinarily unfair to the taxing entities that don't get the payments. The RDA is literally trying to buy the votes of a majority of the TEC, and thereby shift the tax burden almost entirely onto the other taxing entities whose votes they don't need. In effect, the mall district would end up paying taxes to the city and the school district, while other taxing entities would have to do without. It's almost as bad as if Ogden, Roy, and Riverdale could get together and vote to raise property taxes only in the rest of Weber County.

the system is infested with Godfreyites said...

Interesting new info, Dan. Thanks.

Here's a link to the governing body of the Ogden City Schools.

Lobby them people, and tell them that they should receive their lawful share of tax money up front, and that they shouldn't compromise their principles (and those of the taxpayers) and split the TEC vote, simply because the Godfrey administration is offering them a half-ass, cut-rate bribe.

These people should have absolutely NO CONFIDENCE in Boss Godfrey, especially since he's disdained the Ogden Public School system, even to the point of sending his own kids to private school at the Ogden Preparatory Academy. Godfrey lives less than a block from one of Ogden's premier public elementary schools, Polk Elementary, btw.

What's even more interesting is the fact that Ogden Schools superintendent Noel Zabriskie lives four houses north of mayor Godfrey, and has served with Godfrey in the bishopric of their neighborhood ward for many years. Zabriskie's a loyal Godfreyite, if ever there was one.

Will the Ogden School District act prudently, to protect the income stream that's provided by law for this already seriously underfunded school district? Or will they cowtow to the little twerp, allow their yearly schools revenue to be cut roughly in half, and permit Godfrey to free up BDO revenue once again for more reckless Godfrey borrowing and spending?

The Ogden Schools system is highly infected, I say.

Paying Attention said...

Dan, thanks for the great review.

I'm seeing a similarity between a couple of recent posts here. Your hypothetical example of Ogden, Riverdale, and Roy raising the taxes only in the rest of Weber County has a parallel in the Powderville situation.

In Powderville, it's the non-resident owners of Powderville (whose mostly undeveloped land gets "greenbelt" exemptions, and is taxed at an effective rate of 0.012% of fair marked value) who've gotten together and, if this incorporation is successful, can fund their infrastructure by raising the property taxes primarily for the resident homeowners (whose property is taxed at an effective rate of 0.618% of fair market value).

That's right. For every $1000 they need to balance the city budget, for properties of equal value the developers will pay $19 additional property tax and a homeowner will pay $981. No wonder these homeowners are so enraged.

ozboy said...

Great work Dan. So good in fact that I am going to write to Mayor Godfrey and urge him to proclaim you Ogden's citizen of the year. Being that he is so fair and honest I have no doubt he will see the wisdom of this nomination and proclaim you as such with no delay. After all, fairness and honesty have been the hallmarks of his time in office.

Danny said...

I took the kids and the wife to Sal's Place a couple of times this summer.

It was fairly busy, but clearly not enough so to be viable without subsidy.

Typically, the argument is that gummint projects like this are money losers, but are "good for the economy" and for "taxes." But Dan's research disproves both of those arguments.

What they ARE good for is gummint parasites both in and out of gummint.

Most can see that gummint does most things fairly poorly and inefficiently. Why people look to gummint to solve problems only shows how stupid many people are.

No wonder people think we came from monkeys.

ozboy said...

comment bumped to top shelf

Rockford J. said...

Comment moved to new article comments section

disgusted said...

Blaine Carl

i miss you please come back and address this topic. i want a balanced response.

Ogden Dem said...

To the system is highly infested - what do you mean by, "The Ogden Schools system is highly infected, I say"?

Infected with what?

Dan S. said...

Today's Standard-Examiner provides more detail on the leasing of the Boyer apartments. According to the article there are 93 units, of which about 75% are leased. The article puts the total value of the apartments at $14 million, though it's unclear if this includes the ground-level retail space. The assessed value for 2009, including the retail space, is under $6 million. Let's hope that in 2010 the assessed value will rise to the full $14 million, adding to the tax increment collected by the RDA for the next 5 years (and by either the RDA or the taxing entities after that).

Just a Thought said...

Dan S,

If the city raises the tax value on the property it might be the only way that the city or RDA ever gets any money out of Boyer.

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