Sunday, April 10, 2011

A Candidate’s Progress (9): It’s time to answer those River View questions.

Wouldn’t you love to see the unprecedented expenditure of $42 million, spread among dozens of small, grassroots investors, and spent across the entirety of downtown New Albany to improve, upgrade and revitalize the urban infrastructure we already have?

Of course you would, but the reality – or so we’re often told – is that the purportedly free market isn’t interested in such a dispersed and unfocused (read: unprofitable) investment in the future. Rather, it is interested in a concentrated investment on a single profit-making project, such as the one being proposed by Mainland Properties for the waterfront at River View.

Truth be told, River View isn’t exactly the free market, either. For the development to happen, the city must spend between $12 and $18 million for a parking facility and levee improvements, so as to prime the pump in a public-private partnership. Such partnerships are described by some as the wave of the future (others, like Rep. Clere, see bridge tolls as a similar “wave,” one that I earnestly hope swamps their dinghies).

Fittingly, precisely such a big-ticket project fits snugly within the parameters of a riverfront master plan written to snugly include precisely such a project. It’s Kismet, or Instant Redevelopment Karma, or something like them.

Advocates point to a stylish building at the foot of State Street as an example of public and private funding streams coming together. Yes, it has been done before – sort of.

The Horseshoe Foundation pledged money to the YMCA, the YMCA raised money of its own, the city kicked in a relatively small annual tithe, and voila! Downtown New Albany welcomed a non-profit organization that pledged to accommodate citizens of all income levels to the best of its ability. As far as can be determined, it has done so, while succeeding admirably in drawing people of all demographics to downtown.

But River View is decidedly different, not to mention a more expensive proposition for the city to help facilitate. Being a for-profit housing and retail venture, River View’s backers stress myriad future benefits to a downtown repopulated with condo dwellers, including a public plaza atop privately owned property. It also is expected that oodles of needed development will ensue in River View’s wake, presumably financed in more conventional ways without the city’s assistance.

In other words, financed in the way that almost all of downtown’s recently established new businesses were financed: Without $12 to $18 million in TIF leverage to prime their pumps – and, in fact, with very little monetary assistance at all from the city.

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I’ll readily admit that for quite some time, the River View project seemed like a no-brainer to me. Now, even if my respect for the proposed developers remains undiminished, I’m not quite as sure.

For one thing, it’s a very big move, one that dwarfs the adjacent YMCA both in complexity and the potential to impact New Albany’s epicenter for decades to come. Get it right, and downtown is forever altered … maybe even for the good. Get it wrong, and the reverse likely will be both true, and ineradicable.

I’m plagued by these growing doubts, because the last thing I want to see is for the troglodytes to win. Personally, I stubbornly nurtured the hope that a project like River View might be the massive garlic-festooned stake driven through the civic lifeblood-sucking hearts of naysayers and obstructionists.

Unfortunately, there is precious little evidence to suggest that this is a possibility.

Before I’m yet again scolded for not grasping the nature of creative financing, permit me to add that the scheme seems clear as river mud to me. It goes something like this: The city wields its TIF as a magic wand to borrow against future tax revenues in order to build a parking garage beneath the buildings that the investors cannot finance without the city’s parking garage as collateral, and in time, the city gets paid back while the developers profit from their project.

In theory, the developers make money, the city loses nothing on the transaction, downtown development is spurred to greater heights, and we all have an ideal, accessible plaza for viewing the river. More or less, that’s it, right?

There’s even the railroad track running right through the center of it, which pushes dreamers like me to envision light rail connecting downtown to IUS, and across the K & I to Louisville, thus providing a mobility solution that is dependent neither on cars, nor Kerry Stemler’s orgiastic/oligarchic whims.

Maybe … although probably not in my lifetime. Mose Putney’s drawings remind me of Holland. Sadly, this isn’t Holland.

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In the final analysis, the source of my discontent is not, as some surely believe, an eagerness to deploy my infamous contrarian tendencies “against” one or the other presumed power bases in the community, although it irks me to no end to witness the involvement of hands-off-politics entities in conceptually espousing this politically charged development, while not possessing the simple courage to conceptually denounce bridge tolls.

Rather, it’s a growing suspicion of top-down thinking in virtually all its manifestations, and a concurrent advocacy of bottom-up activism. It stems from an evolving recognition of the many thoughtful and skilled urban revolutionaries incubating grassroots innovations that empower smaller, sustainable units, and do not rely on gambles of this magnitude.

I’ve learned, I’m learning, and I will continue to learn. The more I learn, the brighter the seeming future for small economic development ball, as opposed to grandiose Hail Mary plays.

It also has me thinking back to my tenure as board member of the Urban Enterprise Association (UEA), and the success of our façade grant program. Relatively small matching grants undeniably helped to achieve a good measure of improvement within the boundaries of the zone. These matching grants could not be any more than half the total cost, but usually comprised a far smaller percentage than 40-odd percent, which $18 million would be in the case of the city’s River View TIF maneuvering.

Furthermore, dipping my toes ever so hesitantly into turgid political waters (squeamish DNA members might consider refraining from reading this paragraph), if the River View development project is everything it is touted as being, isn’t it worth the outgoing mayor’s expenditure of political capital to support the idea and alleviate escalating negative public opinion?

At the same time, if River View is not worth scattering a few farthings of lame duck political capital, what are we to conclude about its veracity?

In fact, after all is said and done, River View is not the YMCA, and the much touted merits of sparkling new office, retail and housing space in a city where plenty of them exist already, merely awaiting tender loving refurbishment, quite likely are dubious.

Consequently, our city council was right to table its April 4 resolution. It is both fitting and natural for questions to be asked, and just as important that they be answered.

There may yet be a powerfully persuasive argument in favor of recasting the TIF area to give away acreage for what might be an outstanding riverside commons area, providing a parking garage for a private developer to use as collateral to build a for-profit complex, permitting the developer to take possession of all of it when finished, and perhaps even cutting through the levee and erecting flood gates – because wouldn’t it all be worthwhile if we could see the river again?

Problem is, no one has made this powerfully persuasive argument.

There is still time on the clock. I’m listening.

25 comments:

Iamhoosier said...

When I read, "$42,000,000" development downtown, it's hard to resist. Perhaps a tad less hard to resist when the $12,000,000 city financed parking garage is added to the equation. But, it's not really added, is it?

Actually it is a $30,000,000 private development plus the city's contribution of $12,000,000 in the form of a parking garage. I don't know about anyone else, but when I look at the figures that way, it doesn't seen near as appealing.

G Coyle said...

What if 12 important downtown historic properties were restored (think Schmitts windows) for $1 million each?

What if we spent $12 on a housing court and rid New Albany once and for all of slumlords?

What if the public housing complex + the country club were turned into a eco-friendly mixed-use botanical park development?

What if we started a small business incubator that helped bring start-up businesses to the 100,000 sq ft of empty "loft" space downtown, starting with blanketing the downtown in WiFi?

What if we spent $12 putting the financial documents at city hall on-line so we could streamline government and get a grip on the budget year-to-year?

What if the city center was NOT a "heat island" for 5 months every year? For a $1millon we could restore and maintain an urban canopy?

...$12 to start a light rail line out to IUS...?

O-MI-God - the list is endless.

dan chandler said...

Gina, you're right that there are many, many excellent things the city could do with $12M. However, the things you mentioned would require $12M from general funds or grants or the like. They do not generate new TIF.

If the city had $12M in unencumbered general funds to spend, I think we'd get more bang for the buck by spending the $12M on code enforcement, parks, sidewalks, facade grants, youth programs, etc. However, that is not an option.

Our options aren’t (1) spend $12M on garage vs. (2) spend $12M elsewhere. Our options are (i) spend $12M on garage vs. (ii) not have the $12M to spend on anything.

That's why the $12M does not concern me. Even if River View is built and then fails to draw tenants, there’s still a building there that will be owned by someone, even if it’s the bank after a foreclosure or a developer who buys it later at a huge discount. Once it’s built, it will be owned by someone and that someone will pay property taxes and the city will be repaid the $12M it put it.

What concerns me is the portion of the project not covered by TIF, whatever that amount is.

G Coyle said...

Dan, is there any estimate of what the cost of personnel resources(staff) are on building a $12 million parking garage and then sheparding a $30 million condo development, from me, the taxpayers perspective?

I can't help thinking the 8-10 people who are working this thing at city hall would be better off using their time on more pressing projects....like code enforcement.

Couldn't Mr Mayor and Co-Mayor et al be better occupied running down slumlords?

All this top-down "development", as Roger calls it, misses the reality of where we all live. Except the people who would make the most money on this RiverView Project, who I don't believe, live near New Albany.

Jeff Gillenwater said...

A lot of folks with whom I've spoken agree with you, Mark. Handing the garage over to a private developer represents an extreme tilting of the playing field in favor of a single entity while, as Roger mentioned, most get little or no assistance in the development of their businesses and homes.

There's a fairness concept central in all this that I've not seen addressed much by project supporters. I think most understand that, under the current proposal, the developer will never actually repay the cost of the garage from private, out-of-pocket funds even if a new development generates enough revenue to make garage bond payments.

We all pay property taxes. Most of us are not gifted large real estate assets as a reward for doing so. We pay for those assets and pay the property taxes on them, too. Receiving such a gift is a huge competitive advantage.

Gina is right, also, in that there are any number of smaller investments that could be made to spread both risk and benefits in a more equitable, publicly-focused approach. Incrementally implemented, those expenditures could collectively have just as much impact on the tax base while simultaneously keeping us from spending even more resources on sewage, storm water, energy, etc., in the future, thus providing long-term solutions to known issues rather than an attempted quick fix for a problem (lack of available space) that we don't really have in the first place.

TIF may be an appropriate approach for some of them as it has been for many projects before River View. Others may come from EDIT, River Boat funds, or the grants we're not applying for while city staff spend their time on proposals like RV.

dan chandler said...

Most of us are not gifted large real estate assets because most of us do not gift to the city the means to pay for them.

When you write that the garage is a "gift," and note that you pay property taxes, you falsely imply that your property taxes will support the garage. They won't.

Jeff Gillenwater said...

When you write that the garage is a "gift," and note that you pay property taxes, you falsely imply that your property taxes will support the garage. They won't.

It implies that when I or anyone else wants to own a piece of property, we pay for both the cost of the property and the taxes due on it. Calling the garage a gift simply implies that Mainland will get ownership of it without the first portion of that responsibility.

Show me where in the deal Mainland will pay for the garage over and above the same property taxes we all face, and I might stop referring to it as a gift, i.e., the receipt of property for which one did not pay.

Likewise, if Mainland paying property taxes constitutes a gift to the City, then anyone paying property taxes is a gift to the City. When most of us pay property taxes, we receive basic governmental services in return. Mainland would receive those same services plus a $12-18MM asset. Many people find that unfair.

In the general vicinity of RV and elsewhere in the city, people have invested millions in New Albany in the past few years. Most of those folks pay property taxes on those properties, just like Mainland would. What property or other assets do they get beyond basic services in return for their "gifts" to the City?

Iamhoosier said...

Dan,
The city ought to give me a $700 dog house. (Only have a cat but but cathouse didn't seem appropriate)

dan chandler said...

I think most understand that...the developer will never actually repay the cost of the garage from private, out-of-pocket funds even if a new development generates enough revenue to make garage bond payments.

So?

Many of your comments focus on the developer getting some sort of sweetheart deal or special advantage. Well, this isn't a zero sum game.

I only care about what's a good deal for the citizens of New Albany. If it's a good deal for the citizens, then who cares how much money the developer does or does not make?

Jeff, sometimes I wonder if you'd prefer New Albany miss out on a good deal if missing out means the developer does not profit.

Partnerships, no matter what type they are, only work when they're win-win.

I don't care how much of a "win" it is for the developer. I care only about whether it's a win for the city. Talking about the developer needing to put in more cash doesn't not address whether this is a win for the city.

dan chandler said...

Mark, is your decision to confer some benefit to the city contingent upon receiving a $700 doghouse? Will construction of your dog house create jobs? Will your doghouse attract new businesses and shoppers? Will the doghouse generate more than $700 in new property tax revenue that can be earmarked for paying off the doghouse? Will it beautiful a portion of the city. If you answer "yes" to those questions, then I agree, the city needs to buy you a new doghouse!

Jeff Gillenwater said...

As someone who, like many others, thinks that trying to maintain a level playing field and a general sense of fair play is vital to any community, I'm alarmed when someone suggests those principles don't matter when it comes to development and/or money.

Iamhoosier said...

Yes. Yes. No. No, but only because it's not in a TIF. Yes(but beautifying is very subjective, don't you think?)

So the only real no is attracting new business and shopping. On the other hand, the bond payment on a $700 doghouse is pretty low.

Iamhoosier said...

The bond payment is low should I default on building and/or finishing my house.

dan chandler said...

The opportunities available to Mr. Bobo are available to anyone else who wants to invest here in a similar manner. No, TIF bonds aren’t available to every start-up retail establishment. But that’s solely because of transaction costs, not because of bias. All businesses are not the same; by enforcing an arbitrary one-size-fits-all standard, we shoot ourselves in the foot. If I were an elected official, my principles would tell me to pursue what was best for the city.

dan chandler said...

Mark, I believe the transaction costs with your doghouse TIF bond would be prohibitive too. Though, I wouldn't oppose creating a special TIF district for your doghouse if it generated a little more public good.

I agree, beautifying is very subjective. I've heard people both for and against Mose's design for River View. I doubt it will win a Pritzker Prize, but in my subjective opinion, it's far, far better than what's there now and far, far better than many similar developments I've seen elsewhere. Plus, most people in New Albany don't want Pritzker Price winning architecture and never will.

I'm sure that if Mose had an unlimited budget he would design something different. However, buildings with infinite price tags rarely get built. The YMCA isn't a "perfect" design, but it's far better than just about any other YMCA I've seen and far better than many new downtown buildings I've seen elsewhere in the region.

I'm not going to let "perfect" be the enemy of better.

G Coyle said...

"If I were an elected official, my principles would tell me to pursue what was best for the city."

Dan, why are you the only person I've heard, besides Mr. Co-Mayor/Mayor, who is advocating for RiverView? Full Disclosure...

I feel like you're reading from a PR script, I know you are capable of true cost/benefit analysis, but...

You won't answer my questions about who are the principles, both private and public, who stand to gain most from this deal.

Right now you have only $12 in TIF money on the cost side.
I'm still unsure who is on the benefit side...

Iamhoosier said...

Dan,
Forever is a long time and that's exactly why a project like this has to be debated and the light of day shown upon it. From the city's perspective, that area could very well be the most valuable around. A $20 million private investment would net the city approximately the same as the RV plan with no risk to city. Anything above that amount would be gravy. Granted, I'm not aware of a $20 mil developer lurking around the corner but that doesn't mean that there won't be one.

I'm not smart enough to know when to pull the trigger but for the city to have to give 28% of project and the associated risk, it just seems to be a bit much.

dan chandler said...

You won't answer my questions about who are the principles, both private and public, who stand to gain most from this deal.

Gina, I'm not sure I understand the question. Can you repeat it?

Again, I don't care who stands to benefit most. I care whether the city benefits, period.

When I buy bicycle, and two bike shops have the identical bike, I don't ask myself which shop will profit more. It's possible that the shop with the lower price will profit more because they're more efficient or have lower overhead or lower levels of debt. I don't care. I care what value I'm getting, not what profit the shop is getting.

dan chandler said...

Mark, what is the associated risk?

Also, how long should the city wait for a new, non-TIF aided developer to come along? If the property sat undeveloped for another ten years, should that be sufficient to pull the TIF tigger, or would you say RV would be OK in 2021?

dan chandler said...

Dan, why are you the only person I've heard, besides Mr. Co-Mayor/Mayor, who is advocating for RiverView? Full Disclosure...

Gina, actually I don't think I've advocated for River View at all.

For the record, I have not made up my opinion that it is a good deal for the city. That's because I've not seen a final number that the city will be required to invest beyond the $12 TIF bond.

I do advocate (1) not judging the project based on the profit the developer may (or may not) make and (2) not suggesting that the $12M garage money will be available for projects elsewhere.

Frankly, if the city needs to put up $6M in general funds for the levee cut, I'd have a hard time supporting the project.

Iamhoosier said...

The risk is, the garage has to be built first. If the rest of the project stalls or fails we have a very expensive garage with bond payments to make.

Profit. I'm not against profit. I admitted that I don't necessarily know when to pull the trigger. I will say, that for the city to commit over 28% of any private project cost, it had better be a real doozy. It's true that, in this deal, it is the only way the city gets the 12 million for the garage. It's also true, that should that area be developed privately the city could get $12 million to invest in that TIF district and not in a garage.

It's not a "no brainer" like some(not necessarily you)keep saying.

dan chandler said...

A $12M city-financed garage with no $30M of tax generating condos and retail on top would be a disaster of the highest magnitude. However, if the deal is properly structured, the odds of that happening are miniscule. Big real estate developments with multiple financial contributors are everyday occurrences for attorneys who specialize in this field. There are a number of ways developments can fail, but with planning, most of those risks can be addressed.

There’s an entire industry of insurers who will bond the builder to make sure the builder completes the construction. The track record and financial strength of the builder affects the amount of construction the insurers will bond. There are a few local commercial builders with a $42M+ bonding capacity to make sure the deal is done.

Similarly, many treatises have been written on construction loan agreements between developers and lenders. Labor strikes, natural disasters, major changes in raw material costs, lawsuits…they all happen, but the biggest risk is that the bank will pull the plug on the financing after the garage is completed but before the retail/condos are complete. That’s why you need an iron-clad, irrevocable and unconditional loan agreement from the lender in place before ground is broken on the garage. This should be mandatory for the city. Furthermore, the city should get an unequivocal opinion letter regarding the loan commitment from a major law firm, one with more than $20M in malpractice insurance. There’s no such thing as zero risk, but most risks can be dealt with such that an unexpected event will at most cause a construction delay and not an indefinite construction stop.

Iamhoosier said...

Risk can be managed. It's not as simple as you try make it or we would hardly ever read about a development deal gone sour. Without picking on any one person or group, what in NA's history assures you that we can dot every one of those "i's" and cross every one of the "t's?

The more I think about this project, the more it bothers me. If it's such a grand idea, an almost can't miss deal, why does it need so much capital from the city? And, please, don't tell me that it's "free capital."

Jeff Gillenwater said...

The opportunities available to Mr. Bobo are available to anyone else who wants to invest here in a similar manner.

There's at least a part of the rub. In reality, this translates to opportunities being available only to those who have already achieved a certain level of personal wealth, creating a rich get richer scenario.

We're not talking about an incentive program that's open to everyone and scales according to investment level say, on a percentage basis up to a certain cap, but rather about creating singular opportunities exclusively for those who already have a lot of money.

Do we have public money to make scalable opportunities available to people at different income levels? Yes. Could those opportunities increase the tax base via property improvements, employment, etc? Yes. Could they save us money in other areas in which we regularly spend? Yes. Do we do it? Typically, no.

TIF is only one way to approach the situation, so simply saying it wouldn't be viable to use TIF for certain smaller projects doesn't really address the issue.

In terms of the resource prioritization that Gina has mentioned, I think two-way street reclamation provides one good example among others.

While campaigning, Mayor England regularly made promises that two-way street conversion would be a major priority for his administration. He got quite a bit of electoral support from downtown residents and business people as a result and was elected by a narrow margin.

The cost of that street reclamation was estimated at $2 million with the purchase of new traffic signals given as the single largest individual cost. Thanks to a federal stimulus grant of ~$900K, most if not all of those signals have now been in place for some time.

What have we heard from the administration in terms of two-way streets? Hardly anything, even though the initial expenditure would be a lot lower and both tangible and intangible public benefit more clearly understood.

At one point, I was told that an additional study/plan would be needed and that staff had a contractor in mind to complete it. What they didn't have was the money to pay for it, so two-ways were stalled.

Wanting to help and knowing that a) two-way reclamation was important to many in the neighborhoods and b) neighborhood groups would have some opportunity to acquire funds, I asked for a cost estimate of said study/plan to determine if perhaps a neighborhood group(s) could help or completely pay for it if doing so would move things along. After asking several times for over a year and not getting a number, I gave up asking.

More recently, another resident trained in urban planning volunteered to help with traffic/pedestrian/bicycle studies or plans (including helping with grant writing) for free. He was turned away under the guise of city staff not having time to deal with it.

However, it was no problem to come up with funds for an RV feasibility study nor to devote staff time and other administrative costs to it.

So, which is better for the people who live here and pay the lion's share of taxes? Two-way, pedestrian, bicycle, and business friendly streets or a single development?

Who gets priority? Multiple downtown neighborhoods who helped put the mayor in office, who have been asking and volunteering for years, and are concerned about safety and quality of life (in addition to their own property values/profitability) or a single developer whose primary goal is to extract money from the community for out-of-town investor profit?

River View isn't occurring (or not) in a vaccuum. We have an overall development/redevelopment attitude that says providing corporate air conditioning is a bigger priority than basic housing safety. I'm not sure how to calculate that as a good deal for anyone besides out-of-twon investors.

G Coyle said...

"However, if the deal is properly structured, the odds of that happening are miniscule. Big real estate developments with multiple financial contributors are everyday occurrences for attorneys who specialize in this field."

How many people with "big real estate development" do we have on staff at city hall?

Are you suggesting a second-rate city whose track record with tiny real estate developments (Tabernacle, Linden Meadows..) is abysmal are qualified to shepherd something like the River View project?