Surprise of surprises. A mere two days after our Ogden City Council/RDA Board voted "to approve [a] letter supporting the allocation of two tax-exempt bonds totaling $12 million" for the Junction Hotel Project, the Standard-Examiner reports this morning that "State officials agreed Wednesday to allocate to the city about $11.3 million in tax-exempt bonds for construction of a hotel and underground parking garage at The Junction":
• Bonds OK'd for hotel, parking garage in OgdenThat's what we call a rapid response, folks. It's evident that the Obama stimulus funds which are feuling this bonding effort has been burning a hole in the Utah Department of Community and Culture's pocket, and that the ball is back in Ogden City's court once again.
In yesterday's SE story on this topic Council Chair Gochnour provided a quote suggesting that the RDA Board was merely locking in its bare request, and that the decision on whether to formally sign aboard this project would come at some point down the road, after careful and deliberate evaluation of the facts:
"It's a great opportunity for the city to get this funding," said Council Chairwoman Caitlin Gochnour. "We're just showing our support at this step of the process.Well, folks, at the frenzied rate with which this matter is proceeding, it's evident that "the future" to which Ms. Gochnour refers is NOW.
The RDA board will have an opportunity to review or tailor its support with further information in the future, she said. [Emphasis added].
Adding aggravation for Ogden taxpayers who are watching this rapidly developing situation is the fact that neither the Standard-Examiner nor the Council/RDA itself has clearly explained the true mechanics of this proposed multi million dollar bond funding. This morning's SE story again refers to "allocat[ion] to the city," which would logically imply that the primary new obligor under this arrangement (The Ogden RDA) would be assuming obligations founded on presently-existing bonds. Nowhere in any of the previously published stories or reports has it been suggested that the Ogden RDA will be issuing any new bonds, yet the true source of these bond funds remains entirely foggy. Did some other Utah municipality previously qualify for these bond funds and then back out? If so, why? Did the Utah Department of Community and Culture issue an underlying bond itself; and is it now scrambling to find another sucker to take on these already-bonded obligations?
Our fear is great that the Ogden Council/RDA is allowing this project to be shoved down the taxpayers' throats without adequate time for cool deliberation. As we opined on 7/12/10, there are many facts and feasibility issues which yet need to be resolved before the council should jump into this project with both feet.
So what about it, gentle readers?
Now that the Council/RDA has gone out on a limb and requested to participate in this bond funding, and now that the that the pressure is on, will our seriously outgunned City Council be shamed into signing on to this risky deal?
The world-wide-webosphere awaits your ever-savvy comments, O Gentle Ones.
Don't let the cat get your tongues.
19 comments:
From what we've seen so far, it's not clear to me that Ogden will be on the hook for any of the bonds mentioned in the story. The full faith and credit of the state may be at risk for the bonds if the hotel company goes belly up, but not I think the city. Or nothing so far suggests it will be the city.
If the project can be built without city subsidy and without new city debt and without putting the full faith and credit of Ogden City behind the bonding for a private commercial project, I don't see a problem with it from the city's POV. As a state taxpayer, maybe. But not from the city's POV or, then, the Council's.
But the questions need to be answered -- e.g. what part [if any] of the funds for the project will put the city on the hook for failure of the developer/hotel operator to pay off the bonds? What [if any] other city money will be involved as a subsidy to the builder? If the answer to both questions is "none," I don't see a problem with all this from the city's end.
If the answer to both questions is "none."
It will be like every other RDA - billed as not city debt, no risk to taxpayers.
In reality, it is. No city would default on it's RDA. So it's really a back door general obligation debt for private welfare.
Same as always. No mystery here folks.
The only difference is the federal gummint subsidizes the interest, for a lower interest rate for the corporate welfare recipient.
Assuming that the Ogden taxpayer won't be on the hook directly should annother Junction-related project go toes up there is the wonderful prospect of our city becoming the "city of broken dreams" or perhaps, broken "visions" is more appropriate.
No matter how you slice it, the odds favor Ogden losing out in the long haul through the misguided efforts of a compromised city government.
I smell a Gondola Station in the plans for the new Hotel. and by the way the other taxing entities are put in a hardship on their taxing on these RDA projects, which does raise taxes for everyone.
It's irritating the way the news media reports these things with words like these,
"RDA is slated to receive $3 million in bonds"
"State officials agreed Wednesday to allocate to the city about $11.3 million in tax-exempt bonds"
"In addition, the RDA has been allocated $8.3 million in stimulus bond funds to help finance construction of the hotel"
These leave the impression it is free money! Wheee!
But there is this line.
"The bonds for the parking garage would be repaid by the RDA over 23 years"
Yes, this is city debt - all of it - motel and parking, on the RDA, which is a unit of the city government.
The only subsidy is these bonds would carry a lower interest rate, based on an allowance for them to have their interest federally tax free, or else for the feds to pay a portion of the interest.
It's really just bait to get local government to take on more debt in a recession, to stimulate the economy.
The money is available because other cities were not dumb enough to take the bait. Other cities, compared to Ogden, are not corrupt cesspools.
Clear now?
Not to the voters. Patterson and Godfrey must be peeing their pants at the fact that is is confusing to so many people, since confusion is their stock in trade.
For confusion allows them to lie more easily, not be caught, and get what they want.
This is a lot of money and a very dangerous situation.
Very savvy post, Danny. Between you and I, it appears that at least two Emerald City Citizens know what kind of taxpayer ripoff is going on here with this idiotic Junction Hotel project.
Thanks for demonstrating that there are at least two Ogden residents with adequate real estate finance backgrounds who understand municipal bond financing and are willing to speak out about the complete idiocy of this new Junction hotel/parking garage project.
Thanks for continuing to chime in about this latest Boss Godfrey corporate welfare plan, Danny!
So, does Ogden really need a new hotel???
We don't need the hotel.
But R&O, Keir, and Wadman need the work.
The banks need to make the loans.
And the city council members need to feel they are doing for the citizens by spending the citizens' money in a visible and flagrant way.
That's what I figured.. :(
Rudi and Danny: Before you pat yourselves on the back too much for having this whole thing figured out, please tell me the details: Which city assets, specifically, are at risk due to this project? For instance, what assets would be used as collateral for the loans? Or, what assets would be used to supplement the loans in some other way?
Dan S.
Technically, the city is not on the hook for RDA loans, therefore, under state law, they need not go to a vote of the public to do them.
But effectively, the banks and the city wink at this, because both know the city would be loathe to allow an RDA project, or the RDA itself, to default.
Therefore, think of an RDA as an unofficial, general obligation bond, or a GOBBAON (general obligation bond by any other name.)
Years ago, legislatures, in a fit on decency, started requiring public votes for public bonding. This resulted in almost all bonding being disapproved!
So the bankers, to keep their fees and interest coming, started the idea of RDAs, where technically, the public is not at risk, and so therefore, the public did not get a chance to vote on the RDA bonds.
But as I said, it is an end run, because the government, and the banks, view RDA debt as essentially city debt.
And so Godfrey has piled on $100 million of it, with nary a public vote.
Hope that explains it for you. If not, ask another question.
Danny: No, that doesn't explain it to me. You're describing RDA projects in very general terms, and I'm getting the impression that you know nothing about the specifics of this particular project.
A bank will not loan money to the city without collateral, or underwriting, or whatever you want to call it: a guaranteed source of funds to pay back the loan. Usually, in an RDA project, the collateral is tax increment collected on the project. For The Junction, this wasn't nearly enough so some of the bonds are also underwritten by lease payments and BDO revenue and now (as of last year) by city franchise tax revenue. In other words, the city is using totally unrelated revenue sources to finance and subsidize The Junction.
But what about these new projects? Will a bank demand that some other revenue source, besides the special assessment tax, be pledged to underwrite the bonds? I have no idea. But that's what we need to be looking out for, rather than just stating categorically that all RDA projects are equally bad.
Dan S.
You're right. The collateral on an RDA is partly the project itself. But also the tax increment (TI). That latter term means that the increased taxable value of the property does not flow to the community but instead, forms a revenue stream to service another loan. So the larger RDA bond covers the hotel which serves as both collateral and cash flow (hopefully), and for the smaller bond the TI stream covers the parking garage as collateral and cash flow.
I stand by my assertions of what RDAs are and why they came into existence. Remember, your lack of understanding does not impute such in anyone else. And my unwillingness to be your blog tutor doesn't stop you from boning up yourself. But let's be honest, the devil (Matthew "Satan" Godfrey) reads this blog. He knows that if you don't understand this, then 99.9% or more of the public will not, and neither will the city council. He will use that.
(Truth is Godfrey probably doesn't understand it either. But his handlers do.)
And I know how this will come down, exactly, because it is always the same.
But yes, do watch for the details (if the city council publishes them beforehand which if they do the deal is dead). And learn from it.
Unrelated homework assignment:
Global Shipping Rates
Leading Economic Indicators
Note the temporary effects of $4 trillion in borrowed money stimulus spending in the charts above, and how it is now ending. (Circle where the government stimulus occurred in 2009 and 2010 for extra credit.) Does government stimulus make things better or worse? Explain your answer.
Small Business
Read the small business release above. Did the stimulus help small business, based on this survey? Given 70% of new jobs are created by small business, and the economy has not produced net new jobs over the past 2 years, are these ideas connected? Explain your answer.
Dan
Like most things Godfrey, this seems like a very muddy picture. If some how in all of this goblygook they are talking about financing this hotel project with General Obligation bonds, then therein lies the security for said bonds. It will be the "General Obligation" of the property owners in the jurisdiction that issues the bonds to pay them back with interest.
Seeing that virtually every RDA project in Ogden is pledged to the Junktion bonds and required Boyers approval to further encumber them, it seems that any new hotel project financing is going to have to somehow stand on its own, or the tax payers, backs. I suppose there could be some remaining leverage in the BDO income, but Godfrey has gone to that well so many times with so many loser projects it is hard to imagine there are any more crumbs at the bottom of it.
Well, if we could all be as smart as this Danny guy, I'm sure we'd all be in a better place.
Actually, Dan S. is quite accurate in his analysis of the Junction's bonding picture and the collateral necessary to back the A & B bonds.
When one needs to borrow money in order to finance a project, house, etc., the lender basically looks at satisfying two criteria:
(1) what's the collateral; and
(2) what's the borrower's ability to pay back the loan.
As for the Junction, (1)the collateral was certainly there (the project itself-the improved real estate, et al); and (2) the ability to repay the debt was present (proposed revenue and the BDO monies that would pay for any shortfalls). Of course, the barracudas (lawyers, Boyer, et al) would fill in the gaps with other finite details, etc., but basically the financing the Junction came down to the above. The people being "on the hook" came quite a ways down the line (a complete failure of the Junction and the BDO and a deficiency occuring after the Redemption Period and Foreclosure Sale).
I suppose one can string out a "people being on the hook" obligation, but a lot of planets need to align (in a negative sense) and a catastropic economic failure of tremendous proportions needs to happen (which, granted, nearly did in 2008). Regardless of what these doomsayers like Danny says, the people are pretty safe here and occassionally a community has to invest in itself in order to get back on its feet.
Opposing view:
You seem to have a rather narrow definition of "the people". All city funds, including BDO revenues and franchise taxes and tax increment from other RDA areas, actually belong to the people. So the people have been subsidizing The Junction from day one.
Gee, Dan....I thought I was on your side, complimenting you for your analysis of what it is you DO understand, and offering a rudimentary example of the Junction bonding in support of such.
The narrow view comes from Danny
(Remember, your lack of understanding does not impute such in anyone else. And my unwillingness to be your blog tutor doesn't stop you from boning up yourself. But let's be honest, the devil (Matthew "Satan" Godfrey) reads this blog. He knows that if you don't understand this, then 99.9% or more of the public will not, and neither will the city council. He will use that.) as his words slap you around for your ignorance and cast disbersions on 99.9% of the public (I wonder where this guy got that statistic).
As for my "narrow" view of the "people," you're making issue out of exception and have no idea what you're talking about. My view of the "people" is that the "people" pay for it ALL, from the guy who picks up your garbage to the cop who patrols your neighborhood to the fireman who keeps your property safe and to the projects and developments that are sometimes necessary to augment the tax revenue that's needed to pay for ALL of our services. Maybe your view of the "people" is more narrow than you claim mine to be. Maybe it's as narrow as some of these guys' views on those who try to make Ogden a better place to live through their efforts but get continuously smacked down because their politics and methods don't jive.
Like you telling me I have a narrow view of the people, that's a the real narrow view, pal.
Ahem, opposing view.
The "people" whom Dan S. is referring to, are the Ogden taxpayers, who ultimately pick up the pieces every time you Godfreyite gamblers decide to again roll the dice.
There's a big difference between "gambling" and "investing," BTW, dumbass.
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