Half Past the Month
THERE’S A CERTAIN TYPE of councilman — you will recognize him once described — who wants to be someone else. Don’t get me wrong, these are men and woman of some accomplishment in their profession. It’s just that . . . well, they’ve always wanted to be a banker, a developer or some other captain of their own ship.
That is a human failing too common to judge. At one time all of us fall into this temptation — hubris, the Greeks called it. When you sit on a city council, though, and your decisions are publicly recorded in some detail over time, the error can become glaringly theatric.
Such was the case last week in Fort Wayne. A touted-to-the-gods downtown urban-renewal project fell flat — and I mean flat on its rear, a pratfall.
In two years, the project had grown to $280 million by the final contact extension. That included promises of over $60 million from the state, $60 million from federal tax credit programs, $62 million from local government as well as $62 million in preferential loans with the remainder to be provided by equity investors.
Stop me if you know the punch line, but “equity investor” is code for people willing to spend their own money. In this case, they were ghosts; they never materialized. Or if they were actual, they were somewhere else investing in projects not the vision of full-of-themselves politicians.
The five contract extensions were only the developers’ way of buying time until local government could be convinced to put in more cash — $30 million more, to be exact. But to the city administration’s undying credit, the plug was finally pulled. That could make Fort Wayne one of the rare cities that avoids the tragic nonsense of subsidized economic development, or “eco-devo” to the savvy insider.
It all should be seen as warning to cities throughout Indiana that such decisions are best made by those with their own resources at risk. It’s called free-market capitalism.
But that is only the first part of the story. There is a second part. It’s called hubris-fueled nemesis.
ONE MIGHT HAVE hoped that such a failure, after three years of official mulling, would be cause for agonizing reappraisal. That would be especially so when a contrary argument had been made all those years by knowledgeable critics, including an ex-banker sitting on the redevelopment commission, Jason Arp.
And this week, Councilman Arp had the last word, shaming a media and a council that failed to do their job of protecting the interests of citizens:
“The media tried to steer events to the prescribed outcome rather than observing and reporting, rather than informing the public that there were serious doubts about Electric Works from the very beginning. Instead, they tried to coax officials to just try a little harder (i.e. spend a little bit more of the public’s money). Anyone with open eyes would have seen that this project was questionable from the weeks before the first hearings were held.”
But instead of reappraisal, the next-day headline in the Fort Wayne Journal Gazette reflected the editors’ “shock” over the project’s demise. Theirs was a newspaper, please know, that only a few weeks earlier had boosted the project as moving along swimmingly. Eight members of council piled on, writing a letter expressing their surprise and demanding more “transparency.” These were councilmen who had joined the newspaper in squelching every concern.
Expressions of surprise and calls for transparency duly noted, in summary it is worth reviewing an early council discussion with the Electric Works developers (Feb. 27, 2018). As you read it, keep in mind that the council members cast a rousing 7-2 vote of confidence in the project immediately afterward. — tcl
Councilman Arp — “We are going to spend $444 million from different sources — federal, state, city — but we are going to end up building something with construction costs that are $440 million that is worth $150 million?”
2nd Developer — “Hence the public-private partnership . . .”
Councilman Arp — “So we are potentially paying three times what this is worth.”
1st Developer — “Well, that $15-square-foot rent, which is what your analysis is based on, is the rent we are starting at in terms of what our base rents will be, so . . .”
Councilman Arp — “Yes, but a 6 percent discount rate is pretty generous and a 50 percent operating margin. You are getting the benefit of the doubt on these numbers.”
1st Developer — “OK . . . but councilman, we would be happy to sit down (outside of council chambers) and go over the pro forma with you.”
Councilman Arp — “Great, but how much of a development fee are we looking at?”
2nd Developer —”The development fee is at market or about 10 percent.”
Councilman Arp — “About 15 to 16 million dollars?”
2nd Developer — “Correct.”
Councilman Arp — “How much equity are you putting in up front?”
2nd Developer — “The total is . . . about $18 million.”
Councilman Arp — “So substantially all of it (the ‘investment’) gets repaid in a development fee at closing (before the project begins).”