Tuesday, December 10, 2013

Too Tangled a Web For Haste…

In the mid-1960’s, I had the pleasure of serving on the Minneapolis City Council. It was a remarkable experience in that it provided immeasurable learning experiences that helped form a foundation that was most helpful in future years.

The city had a system of diffused power that often frustrated mayors and sometimes the council. But it worked and, in some areas, it worked exceptionally well.

For instance, most projects that involved debt went through a series of hearings before any finalization. The Planning Department had charge of the long-term city plan and was very sensitive to community needs, aesthetics, etc. The Committee on Long Range Improvements (CLIC) focused on the viability of the project and placed its funding and implementation on a 20-year plan. In addition a financial review by the Board of Estimate and Taxation was conducted before it went to the City Council and Mayor.

The system worked because it highlighted transparency, diffused power, and compelled separate aesthetic and financial reviews. It was no accident that Minneapolis enjoyed the highest credit rating – AAA.

But recently, there have been efforts to consolidate power, weaken oversight and dim the lights on transparency.

This is becoming increasingly evident in the city’s Downtown East Project which involves a private-public partnership and an investment of over $400 million. Located adjacent to the new stadium, the proposal includes the building of parking ramps, a park, apartments, office space and retail. The developer is financing some $350 million of the project with the City of Minneapolis borrowing $62 million for a park and a parking ramp and various small items.

Now that is the simple part. The reality is that the inner financial arrangements between the city, the state, the Vikings, the developer, and the Minnesota Sports Facility Authority (MSFA) are far more complicated than any Rube Goldberg device.

For instance, the financial report submitted to the City Council on December 5, 2013 outlines that the MSFA will pay $17.9 million towards a parking ramp with the City paying $32.6 million. The developer will be responsible for bond payments for 10 years but possibly longer if certain revenue targets are not met. However, ownership will reside with the MSFA with the City retaining development rights.

This raises a host of legal and practical issues. For instance, can a city bond for the development of property it does not own? Who is liable for the ramp debt if the developer defaults? How did a financially minority participant gain ownership?

And then we have the $18 million the city will borrow for the park. The remaining funds are listed as coming in the form of grants from “other” governments, and $1 million from the Vikings listed as a “charitable donation” which will receive “recognition consistent with those standards.”

The park will be used by the MSFA for up to “forty days a year” and the Vikings will be allotted the park for Viking games and an additional ten days per year. Hence, again the MSFA has legal use of the park without any specific contribution listed toward the purchase and development of that park. And the Vikings will gain exclusive use without any payment unless that “charitable donation” is really a business deal.

And to make this even more interesting is that the MSFA will have a liquor license for use by the Vikings which will become another profit center for them.

On November 22, 2013, the Star Tribune quoted the city’s chief development official, Jeremy Hanson Willis, as declaring, “It’s one of the largest and most complicated development projects that has come before us in many years. So there are many issues still under discussion that need to be resolved.” (Emphasis is mine).

However, instead of heeding this note of caution, the Mayor and Council want the deal fully approved by December 13th – this Friday.

Toward that end, scrutiny and approval from CLIC and the Board of Estimate and Taxation are being bi-passed.  Further, in order to lower the number of votes needed for this public debt package, the proposal will go to the Port Authority which is actually the City Council but approval for debt will only take a simple majority of seven votes instead of the normal nine required for debt issuance.

Two members of the Board of Estimate and Taxation, Bob Fine and Carol Becker, have expressed their outrage with the latter using the word “sleazy”. They like others are concerned that the traditional checks and balances are being thrown aside in the rush to approve this most complicated and poorly understood project.

Time and again history has shown that secrecy and haste are the enemies of good government and good public policy. Nevertheless, the state and city seem to persist in both.

Look at what has already transpired.  Numerous critics have lambasted the legislative closed-door process including two writers currently or formerly with the Star Tribune.  Jon Tevlin referred to the stadium deal as “transparent as the Berlin Wall.” Nick Coleman on observing the House-Senate Conference Committee on the stadium bill declared, “Yes, as we all learned in school, the corrupt days of smoke-filled rooms are gone. But that’s only because smoking is no longer permitted.”

Even the vice-chair of the Minneapolis Audit Committee is alarmed: “Unfortunately, the lack of transparency on critical spending decisions over the past several years has only increased the lack of trust our citizens have in City Hall.

I could go on but sadly there are other difficulties as well. On December 6, 2013, a MPR reporter, Tim Nelson, disclosed that the state may have to change its stadium financing plans due to the fact that electronic gambling will probably produce $89,000 for fiscal 2013 (June 30th) rather than the originally anticipated $72 million. Now that will probably be covered by the cigarette taxes that were to be used for the reserve fund for the stadium. The bottom line according to Nelson: the fund is expected to be drained by the end of June 2016 – about two weeks before the stadium is completed. Suffice it to say, the financing for the stadium is still a work in progress.

On top of that we have the fact that Minneapolis lost its AAA credit rating last summer. Much of this is due to the pension liability which has been largely solved but continues to demand according to the Center of the American Experiment ten percent of every tax dollar with debt service taking another 8 percent. These are high fixed costs and should strongly suggest more oversight and caution on debt issues and not less.

Simply put, what we have here is an expensive, complicated arrangement that ties together the state’s stadium package with this development. It may well be a fine project because it does reinvigorate downtown, create jobs, bring in added revenues and tie in light rail with the stadium. These are all excellent positives.

However, what elected officials have to understand, particularly in private-public ventures, is that the private sector will always hire the best talent and advance their best deal. They are successful because they know how to make money. This is not the public sector’s strong suit.

With that in mind, we should consider the reality that the stadium package and this downtown development are tied together both financially as well as in user terms. And there are all too few people who understand the intricacies involved.

Further, Zygi Wilf did remarkably well in negotiating the stadium package with the state and city.  Brian Lambert, a MinnPost columnist and longtime Twin Cities journalist, estimates that Mr. Wilf will probably have around $20 million of his own money in this $900 million plus package. I suspect he will make a profit just on the stadium piece alone when naming rights and its profits are thrown in. He is immensely skilled in real estate and financial matters.

By now, the public is aware of the state-city’s appalling lack of due diligence in examining Mr. Wilf’s financing. For instance, after the package was approved, one leader acknowledged surprise at the disclosure of a long-standing lawsuit against Wilf and was taken aback by Wilf’s announcement that he would impose a seat license fee as part of his “contribution” to the deal in spite of the fact that the approved package permitted it.

The public is also aware that Mr. Wilf will not likely win the “model citizen of the year” award after the New Jersey Court found him guilty of civil racketeering and fraud in cheating his partners.

Now for months, the Council and public have seen only the sizzle of the project with appealing sketches and verbiage about jobs, revenues, etc.  That may all be accurate. But the financial details with all of its moving parts were only released on December 5 and December 9. Of all the red flags waving, that is the most important.

How can a City Council digest this complicated financial arrangement in a matter of days sandwiched in between Thanksgiving and Christmas and with six members of the Council and Mayor departing and looking for jobs?

This not only weakens accountability but also denies the public any kind of understanding and participation. Frankly, it is totally reckless.

Good projects improve in a democratic society when we have truthful and open disclosure and a thoughtful and thorough examination of all the elements involved.

I pray that good judgment will prevail and that the incoming Mayor and Council will hold public hearings and do it right. Public service is at its best when it truly embraces the public good and earns the public’s trust.