With the March 3 primary election for Wichita city council and school board seats fast approaching, I’ve started a special page of coverage. The page contains links to news stories and candidate websites. If you are aware of news stories or candidate websites that I’ve missed, please send them to me by email at bob.weeks@gmail.com.
The link to the page is Wichita City and School District Candidate Websites and News Coverage.
Today’s Wichita Eagle reports that Wichita’s “Minnesota Guys,” formally known as Real Development, are seeking yet another subsidy as they work in downtown Wichita. The article in the Eagle is HUD loan sought for downtown Wichita apartment plan.
In this case, the subsidy sought is a loan guarantee from the U.S. Department of Housing and Urban Development. Some readers say that a loan guarantee is not really a subsidy, as the government isn’t lending or giving Real Development any money. But it’s a subsidy nonetheless.
A loan guarantee will let Real Development borrow at a lower interest rate than it could without the guarantee. That is a benefit that pays off year after year, as long as the loan is in effect. It also puts the United States taxpayer at risk, as if Real Development defaults on the loan, the U.S. Treasury must pay.
Judging the risk of default for this loan is difficult. But if this application is approved, we’re stuck with this risk.
The development receiving this subsidy has also received other subsidies, according to the Eagle: “They got the city of Wichita to agree to spend $3 million to buy Exchange Place and the Bitting Building, and give it to them. The city is also committed to spend up to $6.2 million for a parking deck along Douglas.”
When the Minnesota Guys came to town a few years ago, they didn’t ask for subsidy, at least according to my research. I wrote to them, commending their position and asking why. Quoting from my letter: “If, as I believe, you have not sought help from our local government, I salute you, and I am very interested as to why.” No one responded to my query.
We can now confidently place Real Development in the crony capitalist column. Its principals — Michael Elzufon and David Lundberg — have become adept at working the halls of government power for taxpayer subsidy. The danger that Wichita faces is that since these developments are built with capital raised from politicians rather than markets, their roots are shallow.
Bob Weeks recommends postponing approval of a Wichita TIF district until new procedures are put in place. Plus, a question about future mill levies, with a response from council member Sharon Fearey. The remarks in printed form are at this link: Prudence Requires Postponement of Wichita TIF District.
Remarks to be delivered to the Wichita City Council on January 6, 2009.
Mr. Mayor, members of the council:
Last month it was discovered that procedures used to investigate the background of potential city business partners were lacking in some respects. It is now recognized that the process that were in place failed to give city council members information that they needed in order to make a fully-informed decision about the desirability of partnering with a certain development firm.
Today the council is facing a similar situation. As with the previous case, the TIF district itself has already been approved. Now the actual project plan is before you.
Also as with the case last month, these developers made application under the vetting process that this council has now realized was faulty.
To my knowledge, no one has made any allegations that the developers before you today have problems like those that caused the postponement of the project in December. But since these developers applied for and were approved for TIF financing under a system that is now recognized as flawed, we really don’t know.
There is one thing in particular I would like to know: The developers have been asked to agree to what the city calls a “Tax Increment Shortfall Guaranty.” It seems to me that this guaranty is only as good as the financial condition of the guarantor. Has the city examined financial statements of Reverend Harding and his partners, in order to determine whether they have the financial capacity to make good on this commitment, if it becomes necessary?
I think the citizens of Wichita would sleep better at night if these developers would go through the new qualification process that the city is preparing. It’s been reported that this new process will be ready soon. Mr. Mayor, why don’t we wait a month or two and investigate these developers under the new process that is presently being developed? Then the citizens of Wichita can have confidence in this council and the project the taxpayers have been asked to subsidize.
Mr. Mayor and members of the council, there’s another issue that I’d like to call your attention to. That’s the possibility that the city or county — perhaps both — might decide to raise their sales tax rates in exchange for lowering the property tax mill levy. If that were to happen, what would be the impact on TIF districts? The assumptions used in the projection for this TIF district assume that the mill levy in future years is the same as it is today. But if either the city or county were to reduce or eliminate its mill levy, it seems that this — and other — TIF districts would not generate enough property tax to service their debt.
Wichita Eagle reporting from yesterday (Past client: Developer admitted embezzling) provides more evidence of the need for improved procedures and greater accountability at Wichita city hall. In this story, investigative journalist Dion Lefler reports that Grant Gaudreau admitted stealing money from a business partner. This comes to light just after the City of Wichita nearly became a business partner with Gaudreau.
Past articles on this website and in the Wichita Eagle (Wichita’s Faulty Due Diligence, Sharon Fearey Doesn’t Appreciate the Wichita Eagle, Wichita TIF Developer’s Ownership Restructuring not Very Reassuring, and Wichita City Council: Put Better Procedures in Place Before Proceeding) document the specifics. But a few new developments and questions have arisen.
First, it’s been reported that Gaudreau has a warrant for failure to pay $12,332 in income tax. I asked Wichita police chief Norman Williams if Gaudreau was subject to arrest because of this warrant. He said yes, he is.
Second, it’s unclear whether Joe Kramer and Len Marotte of the real estate firm Joel LLC were aware of the entire scope of Gaudreau’s problems when they teamed with him to develop the Renaissance Square project. It’s clear, however, that they knew a lot. Their business judgment must be questioned.
Mayor Carl Brewer asked city staff to develop new procedures for vetting potential partners. The problem is that city hall is occupied with some transitions. A new city manager will start work in just about a month. The assistant city manager (now the interim manager) has been looking elsewhere for jobs, and given the mayor’s public treatment of him, I think he’s smart to do so. Three council seats are up for election in the March primary. The city botched a public hearing, but calls it “leadership.”
My recommendation is that the City of Wichita stop participating in public/private partnerships. Instead, work on improving the business climate for everyone, across the entire city. But when the city considers partnering with someone, I recommend that the city hire an outside firm to conduct an independent investigation of potential partners. This is how we can have confidence in the procedures the city is developing.
At the December 2, 2008 meeting of the Wichita city council, three citizens spoke to the council on the same issue. The treatment these people received in the official minutes of the proceedings varied quite a bit.
At the meeting, Jeff Fluhr of the Wichita Downtown Development Corporation spoke in favor of action the city was contemplating. John Todd and I spoke against the action. The difference in the treatment given to each party in the minutes of the meeting is evidence of bias in the city’s attitude towards its citizens. Yes, the mayor and others thank us for our participation. But I don’t know if they really mean it.
I measured the length of each citizen’s talk, and counted the number of words of coverage received in the minutes. Here’s the results:
Jeff Fluhr: 1:08 minutes, 95 words.
John Todd: 4:04 minutes, 72 words.
Bob Weeks (me): 3:49 minutes, 13 words. About half of those words were my name and address.
What is the reason for this discrepancy? Does the position taken by each speaker have any effect? It seems so, as a similar situation took place in August, described in Wichita’s Naysayers Shortchanged in Council’s Record.
Perhaps the City of Wichita needs to do what the Board of Sedgwick County Commissioners does, which is to provide a verbatim transcript of each word spoken by everyone at the meeting. But that seems to generate its own problems and delays. As of today, minutes are available for meetings through November 12. For meetings after that date, minutes are not ready, at least on the county’s website. (The county prepares a short review of each meeting, and these are ready perhaps a week or so after each meeting.)
The minutes of this meeting are available here. Video of each citizen’s talk is available on YouTube: Jeff Fluhr, John Todd, and Bob Weeks.
Recently, the Wichita city council passed a resolution announcing a public hearing on a TIF district and its project plan. The city then, on the day before the hearing, substantially changed the plan. This change means that the city must hold another public hearing.
Kansas statute 12-1772 says in paragraph (c)(3)(f) that substantial changes to the project plan require a new public hearing. The changes the Wichita city council made less than 24 hours before the public hearing nearly doubled the planned spending. Further, the new spending is of a different character. These are substantial changes that require a new public hearing.
This post on my blog, which was printed as an op-ed in the Wichita Eagle, explains the situation: Wichita TIF Public Hearing Was Bait and Switch.
Others agree that there were changes to the plan. Randy Brown argued for another public hearing (Randy Brown: Reopen Downtown Wichita Arena TIF Public Hearing). The Wichita Eagle’s Rhonda Holman noticed the problems with the Wichita city council’s action (The Process Should Be Most Important). Interim Wichita City Manager Scott Moore acknowledges defects in the process (Wichita Public Hearing Action Not Evidence of Leadership).
Citizens can’t have trust and confidence in government when business is conducted this way. This action, along with another high-profile breakdown in the processes at city hall (Wichita City Hall Confusion Leads to Evaporation of Confidence), should chasten the city to move cautiously and with due regard to process and respect for citizens. Holding another public hearing on the expansion of the Center City South Redevelopment District, commonly known as the downtown Wichita arena TIF district, would let the city start the process of regaining the trust of its citizens.
John Todd and Bill Davitt speak about the defective public hearing held at a recent Wichita City Council Meeting, and about the importance of open and transparent government.
At the December 16, 2008 meeting of the Wichita City Council, Sharon Fearey expressed her displeasure with reporting done by the Wichita Eagle.
In this clip, she mentions the Wichita Eagle reporting of the history of Grant Gaudreau. Fearey implies that the Eagle knew that he had been removed from the Renaissance Square project over a month ago. But just two weeks ago, Allen Bell, development director for the City of Wichita, referred to Gaudreau as “principal developer.” So Fearey’s accounting of the facts isn’t even close to Bell’s.
Is there a communications breakdown at city hall? It seems obvious.