4.5 hours, the first half talking about TIF, the second half a long winded sales pitch by Bob Dunn.
Who showed up: Bridget Maniaci, Lauren Cnare, Mike Verveer, Shiva Bidar-Sielaff, Bryon Eagon, Steve King, Brian Solomon, Julia Kerr, Tim Bruer, Larry Palm, Judy Compton
Who didn’t: Jed Sanborn, Marsha Rummel, Paul Skidmore, Satya Rhodes-Conway, Michael Schumacher, Joe Claussius, Thuy Pham-Remmele
Mark Clear calls the meeting to order at 5:06. Clear says it’s the same presentation they did for Board of Estimates,[Except that it isn’t.[ then they can ask questions, then Bob Dunn will answer questions. Then they can have a free flowing discussion at that point.[Except that didn’t happen either.]
STAFF PRESENTATION
Gromacki, has a power point presentation. He says they will work off the staff report, he says he will do a general presentation instead of going item by item. He says this is the most complicated project they have worked on in some time, to have a 4 or 5 page is report is one of the longest he has done.
He starts out by talking about the elements of the project, there’s the 40s hotel, 70s addition and Mansion hill gardens and terrace or public access component (PAC) and new hotel tower. Main points are that they are on the third application, first two had a gap of $16M, developer moved the parking as a result of process, had to purchase more property and moved building 15 feet back and as a result the gap increased to $20M, staff said it was pushing it too far as far as viability for TIF, they were asked to sharpen their pencils, they got it back to 16M, gap is caused by privately owned infrastructure, the public access component, the parking and site cost (demolition,remediation, & structural). [At Board of Estimates, I thought he said it was all the PAC] He says it requires a boundary amendment and three exceptions to TIF polices, and it has a hybrid, pre-paid equity participation agreement. He reads numbers from the square feet, room count and parking stalls. That’s in the power point presentation
He goes over the cost details also in the power point presentation, he says the hotel/land and parking costs are acceptable, soft costs are 17% of hard costs and acceptable, PAC cost confirmed by independent engineering study, they hired them to see if they were in line with the market. There is a report with the resolution from the expert, the expert is not here tonight, he will be there tomorrow to answer questions. The project has a drag of $16M that is attributable to the public access component. He then looked at the money to pay for it, he says they have a mortgage of $30.8M, with $43.6M equity, for $74.5M of sources, project costs is $90.5, mortgage is as high as it can get, in terms of equity they have contributed 3 times the amount of TIF, this will be a long term investor, won’t be getting a significant return until 15 years down the line, that is not a bad thing.
Loan structure, as you see in the resolution, there are 22 or 23 items in resolution, there is a $16M personal guarantee of $1M then the LLC guarantees the next $15M, not to be confused with the increment. This is a performance on the development agreement guarantee, to make sure they are operating as a hotel, keeping in good repair, etc etc. The increment guarantee is fully in force for the project. At closing developer prepays equity participation by deeding conservation easement and new public access easements to city. There will be appraisals, there are some contingencies, there will need to be a 2011 capital budget authorization for $8M in 2010, developer has to show private financing at closing, will review appraisal of conservation easement to show enough value, and they need to amend the TIF district by Joint Board of Review and council. He shows the conservation easement, basically its the air above the project. He says that we also have 120 feet of right of way by the lake, the additional easement is the portion of the plaza, says rationale for exceptions is in the report, he says because of the conservation easement we can preserve views, have control over events and activity in the airspace, we have no liability, we control lakefront, public access, we have no repair costs, this is also all in the power point presentation. He says there will be tax advantages to the developer to attract more equity, it will reduce the gap created by moving the parking component.
The policy exceptions are that they are not following the 50% rule, its 240% instead. It’s not self supporting, $6.6M is supported by the project, 9.4M will be paid by the TID. They also only have a personal guarantee for the first million. He says the Rationale is in the report.
[Wow! Ok, that part was brief. I’m going to supplement it with some of the info he glossed over. I linked all the reports he referred to, but here’s the high lights.]
EXCEPTIONS
TIF Policy 4.1 (15) — Prepayment of Equity Participation
In lieu of a future equity participation payment to the City upon sale or a date certain, Developer agrees to prepay the $16 million Equity Participation Payment by deeding a conservation easement to the City at closing that demonstrates a cost-based value of at least $16 million. Developer’s cost-based appraisal of the conservation easement shall be reviewed with an independent appraiser commissioned by the City. City easement rights enable the City to re-establish lakefront access to the public, with mutually-agreed limitations, at no cost or liability to the City taxpayer. [How the hell are these air rights worth $16M? Plus we already have agreements in place that already were supposed to guarantee that this space would not be built in. We already are entitled to lakefront access. We’re buying back what we sold for a dollar for $16M, this makes no sense. What happens if this appraisal doesn’t pan out?]TIF Policy Exceptions
The Project also requires three exceptions to TIF Policies: 4.1 (8) the 50% Rule; 4.1 (10) the Self-Supporting Rule and 4.1 (12) Personal Guaranty. They apply as follows to the Project:1. Policy 4.1 (8) 50% Rule—No more than 50% of the tax increment generated by a project may be made available to that project as TIF assistance. The incremental value of the Project, as estimated by the City Assessor’s Office, would generate sufficient tax increment to support a TIF Loan of approximately $3,300,000 if the 50% Rule was applied. The proposed loan amount significantly exceeds the limit of this policy. Approval of an exception to policy that allows 100% of the tax increment generated by the Project would support approximately $6,600,000 of the $16,000,000 TIF Loan.
2. Policy 4.1 (10) Self-Supporting Rule—This rule prohibits using tax increment from other property with in a TID to supplement a particular project. In this case, excess tax increments generated by other properties within the existing and amended TID #32 boundary would support the remaining $9,400,000 of the TIF Loan. TID #32 is currently generating sufficient tax increment, estimated at $1,500,000 per year. Combined with an estimated $900,000 of increment generated by the Project, staff forecasts that tax increments will be sufficient to repay the entire $16,000,000 TIF Loan by approximately 2019. The City has previously utilized a similar repayment structure for both the Block 89 and Marcus Hilton at Monona Terrace projects.[Um, I thought the reason we put all these policies in place was so that we didn’t repeat the Marcus Hotel and Block 89 deals.]
3. Policy 4.1 (12) Personal Guaranty—TIF Policy requires that a principal of Developer provide a Personal Guaranty in the total amount of the loan to guaranty that all the conditions of the Development Agreement are met. In the case of a default, the City could take action to receive full repayment of its loan. This is not to be confused with the Tax Increment Guaranty, which requires full repayment each year of the TIF Loan. A Personal Guaranty places an individual in charge to address defaults such as not keeping the building in good working order or changing the use function or use of the building so that it would violate the declared public purpose of the loan (i.e. changing from a hotel to an amusement park).
Public Policy Rationale for TIF Policy Exceptions
The Project demonstrates the following public policy reasons to grant the exceptions outlined herein:1) The Project restores public access, with some limitation, to the lakefront that currently does not exist in the current development at no cost or liability to the City for its maintenance, repair or operation. [With some limitations? Here’s the limitations! Plus, we’re getting back what we were promised in the first place – I don’t see why this is a reason for a policy exception, that flaw should have been reflected in a reduced sale of the property, it should have been corrected at that point, not at the cost to the taxpayer.]
2) The Project proposes to create 230 to 240 full-time equivalent jobs.[Yeah, except Dunn couldn’t answer any questions about the break down of those jobs and refused to enter into an agreement to stay neutral if the service employees wanted to organize a union.]
3) The Project renovates and modernizes a historic structure while preserving its architectural character. [Remember the letter from the state, saying that there were serious issues with the preservation? Including that the new tower makes it difficult to comply with the historic preservation of the 1940s portion of the building.]
4) The project retains an historic Downtown business.This one makes me laugh, were they going to pick and move? Are they threatening to shut down? Would no one else by it? Originally, one of Hammes options was to renovate in place, it wasn’t out of the question.
5) The Project adds approximately $45 million of new tax base.
6) A similar precedent was established with the $12.7 million TIF Loan to Marcus Hilton at Monona Terrace loan in 1998. The Marcus Hilton project also provided a public access linkage to the $60 million Monona Terrace project and lakefront. TID 25 increment and donor increment from TIDs 6 and 14 helped to repay a TIF loan that is still outstanding. The $30 million TIF Loan to Block 89 was also the recipient of increment from TID 25 and donor increment from TIDs 6 and 14 and 15 toward the public purposes of developing downtown parking and retaining jobs. It is unlikely that a similar project in future could claim precedent for this policy exception—i.e. a historic hotel, located on the lakefront, restoring access to the lakefront, retaining a Downtown business and creating 230 to 240 full-time equivalent jobs.Oh, baloney, as my grandmother would say. This is going to be a precedent for every single project that comes along, they will find some way they are similar to the Edgewater and then say “you did it for them”. Mark. my. words. Plus, see comments above.
7) The positive growth in TID 32 and the tax increments generated will repay the Project debt and close the TID by 2019, a nine-year payback that is considerably shorter than two other major projects granted these exceptions. Barring no further major expenditures in TID #32, the district could close in 2019 with a lifespan of about 16 years. Comparatively, the Marcus Hilton and Block 89 Projects, located in TID 25, are on a much longer repayment schedule (approximately 27 years), resulting in TID 25 being open for its full 27-year life.[Note “barring no further major expenditures in TID #32”, well part of the reason for wanting the TIF expanded was to do other projects in the TID, including historic renovation, street repairs and lighting. Those were the things that they tried to lure the neighbors with, are they now saying all those things won’t be done?]
COMLIANCE WITH POLICY
This part of the report confused me. All TIF project are supposed to comply, so I’m not sure why these are pointed out. I understand that pointing out how it meets goals makes sense, but the rest seems like a distraction.
The Project conforms to several TIF Objectives, Strategies and Policies as indicated in the chart below. In particular, the Project creates jobs, eliminates blighting conditions and enhances public access to the lakefront. In addition, Developer has committed $43 million of equity to the project, almost three times the amount of TIF investment.
Goal 1: Support Economic Development Objective (1) Job creation in ―high need‖ area – Blight finding is 52% in the amended TID area. Existing hotel demonstrates deteriorating, obsolete building stock
[This wasn’t what we meant by “high need” area, we were talking about Allied Drive and Darbo and other areas of the city where people really need jobs, we were not talking about downtown. The policies define “high need” as follows:
TIDs that demonstrate a significant and substantial combination of the following economic factors:i. Deteriorating or obsolete building stock
ii. Stagnation or decline in property values
iii. Commercial and/or industrial vacancy
iv. Concentration of unemployment within an existing or proposed TID boundary that exceeds the national average unemployment rateThey have not demonstrated that it meets that definition.
Goal 2: Support Neighborhood Revitalization Objective (2)
Historic revitalization – Renovation of historic 1940’s Edgewater Hotel.
See memo noted above.Strategy (1) – Improve public infrastructure
Although privately owned, the conservation easement over the PAC restores public access to the lakefront
[See comment above.]Strategy 2(d) – Provide assistance to business that create a significant number of living wage jobs Project proposes 230 to 240 full-time equivalent jobs created
See comment above.Policy 1.1 (e) – Project is eligible as business attraction, retention or expansion.
Retains existing business
[See comment above.]Policy 4.1 (7) – Equity is greater than TIF assistance provided per policy
Developer injecting $43 M of equity vs. $16 M of TIF assistance.
[This is the distraction I was talking about. They have to put in so much equity because they have such a high end project and they STILL need to violate many policies. This isn’t really a plus, it just shows that they are doing a very high end project, which was what we were trying to get away from. That is why we don’t support luxury condos any more.]Policy 4.1 – Every financial alternative is to be exhausted prior to the use of TIF… Equity is almost 3 times the amount of TIF loan. Uses several tax credit programs and private investment.
[We’ve seen no proof of this, where is the list that shows where the equity and financing comes from? How much are they expecting to get in historic tax credits? etc.]
INCONSISTENCY
The staff report says the following:
Therefore, staff concludes that the PAC is the primary cause for gap in the Project.
The power point presentation says this:
Gap caused by privately-owned $34.3 MM infrastructure
– $20.4 MM Public Access Component
– $ 8.0 MM Parking
– $ 5.9 MM Site cost, demo, remediation, structural
Which is it? And that’s alot of gap, if that’s the gap, how can the project be feasible?
LIMITATIONS OF PUBLIC SPACE
Portions from the DRAFT agreement that has not been approved by the council, will be approved at a later date. i.e. We don’t know what access we are getting for the $16M they are agreeing to spend:
Public access shall be maintained on the Public Access Components during the Hours of Operation subject to the Events provisions outlined herein. The public shall have the right to use the Public Access Components for any lawful purpose during the Hours of Operation except that such use may not be disruptive to the on‐going operations of the hotel, restaurants, other businesses or Events associated with, or held at, the Project.
[Sounds reasonable right, no quite, read the rest.]
The public is specifically granted the right to bring food and beverages for their own consumption to the Public Access Components subject to the provisions of the Management Agreement. The transport and consumption of food and beverages shall be limited to reasonable personal use. Notwithstanding the foregoing, the use of grills, steamers, coolers, vending equipment or similar apparatus are specifically restricted on the Public Access Components. In no event shall the public be allowed to bring alcoholic beverages to the Site. Furthermore, the Public Access Components on the Hotel Site shall be designated as non‐smoking areas.
[Note: No coolers? So on a hot sunny day, if you want to bring more than one drink and keep it cool you can’t? You have to purchase your alcohol from them. And finally, if there’s no smoking in the public access areas, where are the hotel guests going to smoke, or the ballroom guests?
The Public Access Components shall be open to the public from 7:00 am to 11:00 pm, 365 days per year (the “Hours of Operation”). The Owner shall provide continuous access to the Public Access Components during the Hours of Operation.
[Again, sounds reasonable right?! Wrong, keep reading.]
The Hotel Operator shall have the exclusive right to organize, host and cater public and/or private events (“Events”) on the Public Access Components provided that the following conditions are maintained at all times:
General Events:
General events (“General Events”) shall be defined as Events that may occur on a year‐around basis under the terms and conditions below:
• General Events shall occur in the areas designated on the attached Exhibit C (the “General Events Areas”) The Owner shall maintain access to all other Public Access Components for the use and enjoyment of the general public at all times subject to the Special Events provisions outlined herein;
• General Events in the Public Access Components shall be limited to the hours between 8:00 am and 11:00 pm;
• Temporary structures, furniture and fixtures such as tents, tables/chairs, kiosks, etc. shall be allowed to be constructed and/or placed in the General Events Areas by the Hotel Operator or Events Promoter to support events provided that such structures shall be constructed and removed in a timely manner so as to minimize the disruption to public access and public use of the space(s) during non‐Event periods.Special Events:
The Owner shall have the right to close and/or secure the Public Access Components for special events (“Special Events”) which may occur from timeto‐ time in the Public Access Components and which require the Hotel Operator to monitor the occupancy and/or provide additional services and/or management of the Public Access Components while said event is occurring.Special Events may occur in the Public Access Components under the following
conditions:
• Special Events shall not occur more than fifteen (15) days per year.
• Special Events in the Public Access Components shall be limited to the hours
between 8:00 am and 11:00 pm;
• Temporary structures, furniture and fixtures such as tents, tables/chairs,
kiosks, etc. shall be allowed to be constructed and/or placed on the Hotel
Site by the Hotel Operator or Events promoter to support events provided
that such structures shall be constructed and removed in a timely manner
so as to minimize the disruption to public access and public use of the
space(s) during non‐Event periods.
So what’s the point? On any given day that you might plan to use this open space, how will you know if it will be open or closed, with the exception of 7 am to 8 am.
There’s more, but I want to get this posted . . . See part II for the discussion by Council, which may or may not get up today, depending upon how it goes.
