EDITOR’S NOTE: The following opinion piece was submitted Friday afternoon by Bill Schramm, president of Citizens Oak Ridge (COR). COR is a citizens group that has forced a referendum on the issuance of up to $6 million in general obligation bonds to help cover site-preparation and infrastructure costs related to a proposed $65 million shopping center anchored by a SuperTarget atop Pine Ridge. This retail project is known as Crestpointe and has been presented by the development firm of GBT Realty Corp. of Brentwood, Tenn.
Even as early voting on the bond referendum for Crestpointe ended, individuals were still trying to determine what the city will actually do if the referendum passes. Nailing down the particulars of the Crestpointe subsidy has been challenging because the city's position keeps changing. The inability to pin down the specifics makes it difficult for voters to develop a clear picture of the implications of the vote. Four examples of the city's shifting position are provided below.
• Inflating Projections: The city has revised its financial analysis of the project. The revised depiction inflates the rate of return by omitting project costs. At the League of Women Voters forum on Crestpointe on May 15, the mayor indicated that interest payments on the new city debt (used to provide funds to GBT) would be offset not by project related growth in sales and property tax revenue, as the city previously maintained, but from Crestpointe property taxes alone. According to the mayor, all project related sales tax revenues would go to schools and the city. An earlier Jan. 29 depiction by the city, however, showed that much of the sales tax revenue would be used to pay interest on bonds. This news seems too good to be true and, unfortunately, it is.
The revised depiction yields higher returns not by increasing estimated tax revenues, but by ignoring most of the cost of public money given to GBT. Rather than borrowing $4.5 million from city reserves and $6 million in the form of bonds, as initially proposed, the city now proposes borrowing $8 million from reserves (primarily from money being accumulated to pay for high school expansion) and $2.5 million in the form of bonds. The city's current depiction (unlike its Jan. 29 description) assumes that money taken from reserves will eventually be offset by rising tax revenues without considering lost interest earnings and increased risk (that is, the city forfeits interest on reserve funds and assumes a higher default risk without reflecting these costs to citizens). This represents "creative financing" at its worst. By ignoring a major cost of the subsidy (forfeited interest), the true cost is greatly underestimated and hoped for benefits are overstated. The city's approach flouts basic principles of finance and is unacceptable by industry practice.
At the LWV forum, city representatives indicated that they did not include interest costs because reserve funds were not intended to be held long-term. As the city's finance people must surely know, this is irrelevant to the cost of funds. As there is no financial basis for the city's representation, one must question whether the purpose is political. Ultimately, however, this is not only a question of whether one favors or opposes a particular subsidy, it is a question of the city providing an honest and appropriate representation of its intended action according to accepted industry norms. The city approach falls far short of standard practice and should be clearly and unequivocally rejected by all Council members and candidates.
• Spending High School Funds? The source of reserve funds becomes increasingly important as the city changes the financial structure of the Crestpointe subsidy to rely more heavily on reserve funds. The city has not emphasized the source of the reserve funds, but the primary source appears to be money being accumulated through the 0.5 percent increase in sales tax for the high school. By taking high school funds (currently earning interest with little risk) and using them for Crestpointe, the repayment of high school debt is made contingent on the financial success of the shopping center and its developer. In short, the city is betting that future property and sales taxes from Crestpointe will arrive in time, and in sufficient quantity, to make the necessary principal and interest payments on the school debt. This significantly increases the risk associated with high school debt service. Thus, while Crestpointe is marketed as a means of securing the school’s financial base, it, in fact, puts school finances at greater risk. Further, it appears from the language of the high school sales tax referendum that the city’s authority to use funds accumulated from the high school sales tax revenues for other purposes is questionable (until the high school debt is paid).
• Lowering the Bar — A Not So Super Target: For months the city has stressed that the Crestpointe project would be required to have a SuperTarget before receiving city funds. The city formalized their assurances in the backstop measures approved by Council on March 19. Exhibit A to the Council's resolution directing negotiations with GBT specifically required that "The Department Store must be occupied by SuperTarget during the period that the payment in lieu of tax agreement is in effect." In other words, if there is no SuperTarget, then GBT does not get the $10.5 million from the city. However, during the LWV forum, the city dropped references to the "super" part of the SuperTarget. The LWV discussion was apparently no accident since the mayor said in a [subsequent] interview: "We want a Target-anchored property, whether it be a Target or a SuperTarget.” Less than two months after passing iron-clad backstops to protect the city, officials are reducing those backstops.
• Creating a Slush Fund: While the petition drive was under way and other potential sites were surfacing, the city began promoting the idea that the bond issue was not specific to any developer or development and, thus, was a tool that would give the city flexibility in encouraging retail development. The city is asking for authority to borrow up to $6 million, but has claimed that much of that authority will not be used. Yet, the authority does not go away if unused, and as the authority is not specific to a particular project, it could be used for nearly anything that the Council chooses. Indeed, city officials have stressed this lack of specificity in their promotion of the bonds. There is another name for this type of tool — it is called a slush fund. It is precisely the flexibility in the use of such funds by public officials that has often led to abuse and has given these funds a bad name.
The examples of changes in the city’s position on the Crestpointe subsidy are not a complete list. Voters deserve a straightforward, consistent and documented plan from the city supporting any subsidies. With the election only a day away, the city has done a disservice to voters by not providing such disclosure on a subsidy equivalent to nearly 70 percent of 2006 total municipal expenditures.
Vote NO!
http://www.oakridger.com/stories/060407/opi_174667384.shtml
