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:
$ 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
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