Guest column: Where did the mall money go?

in Wisconsin news

By Keene Winters

The question on everyone’s mind seems to be what happened to the $4,140,000 the city borrowed in 2016 to give to CBL & Associates to save the mall? CBL defaulted on the payments to its lender and let the bank foreclose on its portion of the mall before any projects got started. Since the city had already borrowed the money, it was re-purposed to the next projects in line:

Keene Winters served two terms on the Wausau City Council from April 2012 to April 2016. (Photo credit: Life Touch)

$   650,000 to purchase the Sears building

$   750,000 to extend Fulton Street into the riverfront area

$2,740,000 to Frantz Community Investors (now Quantum Ventures) for riverfront construction

$4,140,000

Unfortunately, knowing which bond issue tracks to which budget line item is not, by itself, very illuminating.

There are better questions—ones that help us understand whether the money was used wisely. So, let’s pull out the $2.74 million for Quantum Ventures, and ask some questions.

How was the $2.74 million used? A staff memo from Finance Director Maryanne Groat to the Finance and Economic Development Committees, embedded below,  outlines how the money was divided up:

  • Apartment Building Loan: $1,250,000 to be repaid from taxes on the building – 15 year term, 0% interest.
  • Apartment Building Grant: $250,000 to build the foundation (due to poor soil conditions)
  • Mixed-Use Building Loan: $990,000 to be repaid from taxes on the building – 15 year term, 0% interest
  • Mixed-Use Building Grant: $250,000 to build the foundation (due to poor soil conditions)

Consequently, $500,000 (two $250,000 grants) is an outright gift to Quantum Ventures. The remaining $2,240,000 ($1,250,000 plus $990,000) is called a loan, but no loan payments are required. Instead, the property taxes paid by Quantum Ventures will be used to repay the loan taken out by the city to give to Quantum Ventures.  So, the “loan” is a gift as well.

A natural follow-up question would be what about interest? Remember, the city is paying interest on these bonds.  From the City Schedule of Bonded Indebtedness, Taxable Series 2016C, which includes this money, was for $4,755,000.

The bond retirement schedule, above, shows $735,897 in interest paid over the 15-year term.

Since this $2.74 million represents 57.62% of the issue, then its share of the interest should be around $424,050.  That is $424,050 that the developers do not have to pay and the taxpayer do.

What will taxpayers get in return for their $3,164,050 ($3.16 million) in grants, “loans” and interest? The short answer is two new buildings on the riverfront—two buildings that will not contribute any taxes toward city services, county services or schools for the next 15 years.

There is, however, a small catch for the developer. In order to “repay” the $2,240,000 over 15 years, the two buildings will have to generate some $150,000 per year in property taxes. To do that, the buildings must have a minimum average assessment of approximately $5.9 million.

That raises another question. What is the minimum amount of private money that the developer needs put into this project?  Assuming the buildings are assessed at their construction costs of $5.9 million, subtract the $2.74 million provided by the city and that leaves $3.16 million for the developer. Hence, the taxpayers are putting up about $3.16 million to attract $3.16 million in private capital.

Did you get that?  The developer only has to raise one dollar of match for each dollar provided by the taxpayers. If you are thinking that does not sound like a bargain for Wausau, you are not alone.

Of course, the developers are moving to town to hang onto this deal like grim death. In short order, they get to own—and maybe sell—two buildings worth $5.9 million for an out-of-pocket cost of $3.16 million. That’s a  86.7% gross profit for the developers!

So, where did that money go?  The answer is, to the developers’ bottom line.

How Did this Happen?

All this leaves a person wondering why the city couldn’t get a better deal for a “clean and green” urban waterfront property? My personal belief is that an unsupervised collective of department heads operating under the current culture at city hall cannot deliver better outcomes.

Here is how the interactions might play out. Say that Community Development gets its kudos for being productive.  That means inking deals. Calculating returns to the taxpayers or pressing partners for better terms just slow things down.

In my experience, the city’s “core values culture” has come to mean “go along to get along.” Accordingly, on a development proposal, legal services and financial services might keep their heads down and not go looking for trouble. In the end, individual departments seeking to maximize their own perceived self-interests produce sub-optimal results for the organization as a whole.

In sum, there is only one way out of this. It starts with the council admitting that there is a problem with the assignment of tasks and with holding people accountable in the highest level of the organization, and it leads to hiring a professional administrator to do that job.

Editor’s Note:  This is the third in a series of opinion editorials by Keene Winters on what he sees as the endemic failures in decision-making at city hall.  Winters served as an alderman in Wausau from 2012-2016.

Hypertext 1

10 Comments

  1. Quite a bargain if the developer doesn’t default. Will be real bargain if bankruptcy is filed — and a second owner buys. Keep your fingers crossed. No cash flow for Wausau. Unbelievable!

  2. The city is doing better than ever the last couple of years. 135 million last year in building permits. Good paying jobs being created, public amenities to boost quality of life here to keep and attract young professionals. A city needs to invest in order to grow and develop. Not to do so is to die and wither away…property values would sink to a new low without a progressive city initiative.

  3. The political swamp in Wausau, WI seems to be as deep as the one in D.C. What’s pretty undeniable is if our “city planners” did this with private sector funds from a privately owned company, they’d be fired and potentially face jail time. One word comes to mind when reading about this: Disgusting.

  4. Developer still needs to come up with the financing— given default in Green Bay, FonDuLac, Iowa, elsewhere— will be a miracle in Wausau. Will be interesting to see how this pans out — and betting on these original Mall $$$ gone —- more for the Mall will be proposed. Another credit rating drop for Wausau?

  5. I was with this whole bit until the last three paragraphs. These paragraphs introduce ideas as claims of fact, without support.

    “Here is how the interactions might play out. Say that Community Development gets its kudos for being productive. ”

    This could be supported. There must be evidence of a public lifting of that department that we can point to as support.

    “In my experience, the city’s “core values culture” has come to mean “go along to get along.” Accordingly, on a development proposal, legal services and financial services might keep their heads down and not go looking for trouble. In the end, individual departments seeking to maximize their own perceived self-interests produce sub-optimal results for the organization as a whole.”

    Again, Keene is in a unique position to offer up something more in this paragraph as support.

    I do not doubt his over all piece, I just want these two paragraphs supported.

    • I’ve been to enough crisis meetings in city hall to know exactly how it will play out. But, assume we didn’t have that information available.

      Sometimes, the absence of evidence is evidence. So, go to the city website and troll through the meeting packets. Show me where anyone ask for or performed a return on investment analysis for the council? Show me where any explanation was given that the loan wasn’t really a loan at all? Calling it a loan is just spin; it’s a grant with conditions.

      Show me where anyone tried to account for interest in the recovery of costs? Show me where anyone presented background information or a credit rating on Quantum Ventures? It should be clear that a lot of things–things like you see in the LaCrosse procedures–are just not being done. It’s what’s missing that gives us the evidence that people are not doing their jobs.

      Now take the observation one step further. If people felt that had a duty or a benefit from watching out for the taxpayer then there would be evidence of them doing their job. But, the evidence is missing. Consequently, we must conclude the none of the departments perceive it to be in their interest to take the lead on getting this work done.

    • Jim…The standards/guidelines that you shared should be adopted across the State. The goals should be faster “paybacks” on projects so that the money can be reinvested in new projects…TIDs can then mature at a faster pace and begin paying taxes (in lieu of loan repayments disguised as property taxes) contributing to the operational requirements of our community…maintenance, new infrastructure, retention/expansion of services and the establishment of a reasonable tax rate that alone will draw other businesses to the area based upon our assets. The City Council needs to realize that they need to sell Wausau based upon the Quality of Life we offer… we as a city should be tired of “buying our friends”…we as a community are better than that.

Care to weigh in?