Park District Non-financing (frightening)

I consider the latest DTN site plan, in the midst of an election, nothing but a PR stunt to try to get voters to approve sale of parking lots. At one point, I thought DTN had the integrity they wouldn’t do bait and switch, but I’ve changed my mind. There is no known market for offices and if they wanted to do a good senior apartment complex, they would do it at the Gateway location and stick to student rentals on Abbot. The earlier selling point of a downtown grocery, which never made financial sense, has apparently disappeared.

What has become clear from the open house on Wednesday, thanks to a new document related to finance, though not a new DTN finance plan, is that financing is rapidly deteriorating to City Center II levels. (Coincidentally, I just got a SPAM offer from a bank in Nigeria.)

The hope is to recoup cost of Evergreen properties ($6.5 million, actually $6.65 million) by selling them to DTN, plus Little Bank Building to PDIG (which everyone outside city hall knows is just a new shell company traceable to Strathmore). Apparently this does not include price tag on parking lots. The problem is there has not been an appraisal of these properties, and there is no reason to believe the combined total is worth even $3 million — last I calculated the assessed market value on the Evergreen properties it was less than $1.5 million, which is because they were bought for three times market value as the market was crashing.

“The City will own all or a portion of the new parking structure and may also participate in funding the parking structure. The debt service associated with an investment in the parking structure would need to be covered by parking and TIF revenue from the project.”

Here we go again. One of the main reasons DTN was selected was because it said it would pay for all the parking and infrastructure, taking on risks of shortfall and failure, instead of the city. We know from experience that estimates for net parking revenue are grossly exaggerated (and fail to account for lost existing parking revenue) and TIF plans are back loaded and have a bad habit of falling short. The developers will want their piece of the TIF, and from precedent we have seen they get first dibs and plans get changed in developers’ favor after the fact.

I warned DTN that based on real numbers from existing net parking revenue, not wishful thinking, they would likely be looking at something on the order of $1 million a year off their profits from shortfall on TIF/Parking revenue. Parking structures and discretionary infrastructure (like reconfiguring streets) are an enormous financial buden. The parking rules were changed to allow developers to build their own to take the city out of building money losing parking structures. If the city takes this on, whatever the snake oil to make the numbers look good, we know from experience with other structures, there will be a huge drain on money needed for public services and neighborhood infrastructure.

Of course, how this should work is, PDIG should put up the money for the added floors of parking not needed for DTN’s own uses, which is what DTN was going to do when it had a plan with the Strathmore properties. But this is the developer-formerly-known-as-Strathmore-pretending-not-to-be and still gets whatever he wants from city hall.

Once again, the scariest thing is that any TIF and parking revenue needed to meet even an overly optimistic debt service financing plan would be contingent of the-developer-formerly-known-as-Strathmore-pretending-not-to-be actually building what it draws up as pretty pictures and then actually paying taxes. There is an allusion to a performance bond to have resources to finish infrastructure improvements. Remember the performance bond related to the demolition of the Little Bank Building was less than 10% or likely real costs, and the breach of contract to pay the full costs has been ignored. A performance bond would need to guarantee 100% of any shortfall of debt service to protect the city, and we do not have a city government that makes tough terms with developers and sticks by them.

City Center II was always premised on the city absorbing huge self-financing losses, just as with previous projects, especially those involving large parking structures. It is not financially possible in present circumstances to build mega projects in downtown East Lansing without someone eating losses. We are paying the price for previous money-draining development with tax increases, cuts in public services, and decaying neighborhood infrastructure. There is no magic money.

Voters need to say no to the sale of parking lots, and that means everyone needs to get this point across to everyone they know. A mega project will come at our expense and incredible risk, given the continued ties to the developer-formerly-known-as. This is discretionary redevelopment and major build up of downtowns can wait until people are willing to do without cars downtown. The way to get rid of the blighted City Center II properties is to get rid of the folks who caused the blight — a foreclosure and fire sale will allow a smaller and better project.

Triplett and DTN/PR Firm say trust city government to make good decisions. We’re talking a planning department that had, and probably still has, a love affair with the City Center II developer. And we’re talking Nathan Triplett, who during the 2011 council election went to Building and Trades with the City Center II developer seeking an endorsement by promising union jobs (Building and Trades knew better).

Eliot Singer
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