For The Public Record

OPEN LETTER TO THE EAST LANSING CITY COUNCIL:
CITY CENTER II AND "DUE DILIGENCE" --MISSING AND DECEPTIVE DOCUMENTS


Phil Bellfy
phil.bellfy@gmail.com

I would like this "Open Letter" to be entered into the Public Record for the Work Session of Tuesday, June 26, 2012.

As I understand it, the entire purpose for the Due Diligence report was to establish whether or not the Developer had the financial and business wherewithal to see this project through to completion. But, as the Packet makes clear, there is nothing in this extensive set of documents that giveS the Council the information that it requested --and promised the public that it would be made public on June 26th-- so that we can answer these important questions.

Here's a list of the critical information that is lacking:

Risk Assessment on Bond Default
Parking Ramp Appraisal
Developer's Equity
Developer's Risk Profile
Intercreditor Agreements

Also, I'd like to point out two pretty serious and related errors in the data. On Page 40, the O-H Group reports that the "Little Bank Building," at the corner of Abbot and Albert, was sold by DDA member Brad Ballein to the DDA for $700,000. While the sale price is correct, the building was not sold to the DDA. The MEDC lent the City of East Lansing the $700,000 that was used to purchase the building. The property was subsequently "transferred" to the DDA due to the simple fact that the City Attorney wished to avoid subjecting the sale of "DDA property" to a vote of the people as required under the City Code (4.8.b.) --he told the Council that such a vote would be "unlawful."

The second problem is also on Page 40, in the same chart, and is exactly the same error. While it is true that the sale prices are correct, and the DDA is listed as "owner," the City bought those properties. And, very importantly, and in direct contravention to every public statement made by Council members and City staff at the time, the public was told that (1) the DDA would purchase these "parking ramp" properties "with its own money," and (2) that TIF and Parking Revenue would be used to pay off the Bonds used for that purchase. We know all too well that we were lied to and that, as a consequence, the City taxpayers are on the hook for that $6.6 million.

There is a third, more serious problem, although it is not addressed anywhere in these documents. That is, the City still owes $350,000 --plus 3% interest from 11-01-07-- to the MEDC for the "Little Bank Building" "DDA-shell-company" purchase. This substantial debt obligation is not listed anywhere in any documents that are part of the "public record," and are certainly not to be found in the Due Diligence materials.

I have attached the only public documentation that addresses that debt. It should be noted that this documentation presents two other falsehoods. One, Ted Staton falsely states that the "Wharton Center [will be] the anchor tenant." Secondly, Ted Staton also falsely asserted that the Developer was "aggressively pursuing" financing from "HUD's 221(d)4 program." We know that both of these statements are simply not true. And, Council should also know that when Ted Staton submitted his budget to the Council during that budget cycle, he falsely stated that the MEDC was going to "forgive" the remaining $350,000 --or, alternatively, that the project would "commence" before the money was due; so, Staton "zeroed-out" that debt, a falsehood that, I believe, is still reflected in the subsequent and current budgets. The attached document also shows that the former City Manager knew that his "zeroed-out" statement was false when he put that fiction in the budget.

One last thing --there is nothing in the Due Diligence materials that addresses the "market demand analysis" for the 400-seat theater. Oddly, and unrealistically, though, this un-needed theater is expected to require a "weekday base demand" of 144 parking spaces (same for weekends) and an equally surprising "demand" for 106 spaces during lunch.

DDA-MEDC Loan Documents -TO PDF