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Sunday, June 08, 2008
Porkopolitan Politicians Hiding the Pork
Posted by Michael Earl Patton
Photo courtesy of here.
How Many More Hidden Deals Are There?
If a deal is so good for the city, why would council appear to go to such lengths to hide it?
Did council hide other deals? How many, to whom, and for how much?
I have often criticized Cincinnati city council for showing special treatment to the favored few, but at least council (I thought) was in the open about them. For example the $30 million to Corporex for a free parking garage for their new office building now under construction. At least council was relatively up-front about it. There it is in the minutes for August 1, 2007:
Item #: 200700848
ORDINANCE (EMERGENCY), Providing for the issuance, sale and delivery of not to exceed $30,000,000 of Economic Development Bonds (Baldwin 300 Project) or notes in anticipation thereof, of the City of Cincinnati, County of Hamilton, State of Ohio, for the purpose of financing certain improvements; authorizing a pledge of the City’s faith and credit or a pledge of and lien on certain revenues and other city resources, as appropriate, to secure such bonds or notes; and authorizing necessary documents to secure such bonds or notes, and declaring an emergency.
It’s clear from this wording that there is something significant happening with taxpayer dollars here. It’s not difficult to actually go to the ordinance and see that it is for a free parking garage for Corporex. All 9 members of council voted for this (Qualls had not yet taken Tarbell’s seat).
But such directness was NOT the case with the gift of a $2.5 million restaurant building now occupied by Via Vite on Fountain Square. Eventually I tracked down the authorization but it was very well hidden. It certainly was not in the minutes. Here’s what the minutes for February 28, 2007 say about the ordinance which authorized it:
Item #: 200700183
ORDINANCE (EMERGENCY) submitted by Milton Dohoney, Jr., City Manager, on 2/14/2007, authorizing the City Manager to enter into and execute a Ground Lease Agreement with The Fifth Third Company for property located adjacent to Fountain Square. (THIS ITEM WAS APPROVED BY THE CITY PLANNING COMMISSION ON 2/16/2007)
Nada—nothing—about a free restaurant building in that wording. The restaurant is run by Via Vite, which is not mentioned here. The “possessory and beneficial ownership” in the building is held by Fountain Square, LLC (owned by 3CDC), not Fifth Third. Again, all 9 members of council voted for this (and again, Qualls had not yet taken Tarbell’s seat).
If one goes to the ordinance itself, 85-2007, again there is no hint of the gift. Instead it states such things as,
Whereas, the City of Cincinnati wishes to lease the Property for assignment to Fountain Square, LLC, to use in the construction of a restaurant on Fountain Square ...
and
That the City Manager is hereby authorized to enter into and execute the Ground Lease Agreement for unimproved property adjacent to Fountain Square with The Fifth Third Company that shall be substantially in the form attached hereto.
No real tip-off here. If one goes to the lease itself it starts off by stating that the surface amount of land to be leased is 1,126 square feet, the subsurface amount is the same, and the base rent shall be Zero Dollars per year (par. 1.1(c) and 1.1(g). The base rent is a little low, although since the city is charging only $100 per year for its much larger portion maybe that’s not too odd.
Paragraph 2 lists various exhibits attached to the lease, paragraph 3 talks about the landlord’s use of the property and the length of the lease, and paragraph 4 talks in detail about the rent. Nothing about the free building there.
Paragraph 5 talks about the use of the land as a full service restaurant. Can’t use it as bank.
Paragraph 6 says the tenant (that’s the city) has to keep the premises in good repair.
Paragraph 7 has more about Fifth Third being able to enter the building given reasonable notice.
Paragraph 8 is titled “Construction of Building and Alterations and Improvements to Premises.” And it is here where I find it, in sub-paragraph 8.1 (c): “Tenant (that’s the City) agrees to pay for all hard and soft costs, including architectural fees, incurred in the construction of the Building.”
Wow. Over a year before this, the City had signed a lease agreement with Fountain Square, LLC (which is owned by 3CDC) that they would have all “possessory and beneficiary ownership” of the restaurant building and can “retain all income derived from the operations thereof.” But I saw nothing in that lease about who would actually pay for the building. That would come over a year later.
The building itself cost $2.5 million to build according to this story in the October 5, 2007 edition of the Cincinnati Business Courier:
Pietoso declined to say what he has invested in the site, but admitted, with a laugh, that it is about $500,000 more than he expected. He has signed a 10-year lease with the Cincinnati Center City Development Corp., known as 3CDC, which in turn is leasing the building from the city. The structure itself, not including Pietoso’s investment, cost $2.5 million to build, said Chad Munitz, executive vice president of 3CDC.
Sounds like a pretty luxurious place. The cost of outfitting the building to the Via Vite restaurant was paid by Via Vite, but the cost of the building itself, $2.5 million, was paid by the Cincinnati taxpayers.
Why did council appear to go to such lengths to hide the $2.5 million gift to 3CDC if it’s supposed to be such a great deal for the city?
Even though the building was built using city money, 3CDC gets to keep virtually all of the money they get from renting the building. There is a nominal charge for the use of the public land, a mere $100 per year. At that rate the city will recoup its $2.5 million investment in a mere 25,000 years.
How many more such deals are buried in attachments to innocent-sounding ordinances? It was comments by “dieterschmied” and “R” which got me digging into the paperwork I got from the city to look for something like this. The amount 3CDC was getting for the building was so low it looked as if they weren’t trying to recoup their investment. And if it wasn’t their investment, whose was it?
Here’s a partial listing of the documents I searched:
1. Lease and Operating Agreement (Fountain Square, Above Grade), 36 pp.
2. Sublease, 42 pp.
3. Lease and Operating Agreement (Fountain Square North Parking Garage), 31 pp.
4. Ground Lease Agreement, 52 pp.
5. Construction License Agreement, 22 pp.
I don’t have the time to keep doing this. I don’t have the time to search all the documents for, say, the Banks Project to see how many millions of freebies City Council handed out.
Authorization of major expenditures should be disclosed up-front, not hidden. Such expenditures should be either in the budget or in the minutes. Further, it is hypocrisy to publicly cut such items as social services and swimming pools, claiming there is not the money, and then secretly subsidize restaurant meals for the wealthy.
The Cincinnati Beacon has asked all 8 of the members of council who voted for this expenditure and who are still serving if they knew about the gift when they voted for it. After all, it was pretty well hidden. To date, not one of the 8 has responded. Ms. Qualls was not asked since she was not a member at the time although her office did contact the Beacon, merely stating that she was not on council then.
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08 Jun 2008 at 03:32 pm | #
Just to be clear, the phrase in the parentheses (that’s the City) is my own comment. The City is leasing land from Fifth Third. That makes the City the tenant and Fifth Third the landlord. The lease itself also spells this out in the beginning of the document.
08 Jun 2008 at 08:12 pm | #
"Pietoso declined to say what he has invested in the site, but admitted, with a laugh, that it is about $500,000 more than he expected.”
was that because he expected that the City would also pay for the interior and set up of the actual restaurant? If I only had to spend that for a restaurant such as that, on that location, I could easily chuckle about that also if I were him, and got such a deal. . Sounds like he expected that also .
This brings me right back to an filing with the Securities and Exchange Comission from 5/3 ( I will go back to the exact wording )but in essence owning a parking garage and land under Fountain Square Mangement Group LLC , a sub wholly owned by 5/3 bank.
09 Jun 2008 at 06:24 am | #
Why doesn’t the Beacon openly ask each council member to respond to some of the specific questions being asked and keep a running scoreboard going on their respnses or their refusal to respond.
This is just the kind of crap that erodes respect for government and, in this case, the city of Cincinnati. While we are the ones with the questions, there are many more that are interested in the answers and while these others aren’t asking the questions, they are aware and forming opinions.
09 Jun 2008 at 07:39 am | #
"The Cincinnati Beacon has asked all 8 of the members of council who voted for this expenditure and who are still serving if they knew about the gift when they voted for it. After all, it was pretty well hidden. To date, not one of the 8 has responded. Ms. Qualls was not asked since she was not a member at the time although her office did contact the Beacon, merely stating that she was not on council then.”
What does this mean? Did you copy her on your quetions to the other council members or did she hear about the questions and decided to contact you to respond?
Agree with dieterschmied; it would be interesting to see what you ask and any responses…
09 Jun 2008 at 02:02 pm | #
{quote]What does this mean? Did you copy her on your quetions to the other council members or did she hear about the questions and decided to contact you to respond?—from anon (#4)
We copied her. It was her staff that responded.
Since she was not asked and was not on council at the time, I debated about even mentioning the response. But since it was the only response The Cincinnati Beacon received, I did mention it.
10 Jun 2008 at 11:10 pm | #
This is misinformation. The City did NOT pay for the construction of the restuarant. If it did, it would have been correctly budgeted through either the budget process or spelled out in an appropriation ordinance. Rest assured that there is transparancy in those processes.
11 Jun 2008 at 06:43 am | #
#6
Who did then ? Is it a secret?
I see alot of things where there is no transparancy
11 Jun 2008 at 07:18 am | #
Well, I would like to believe that, but then why is it in the contract?
Why then didn’t any council members say, “Wait! We can’t approve this!”? But all 9 approved it.
This contract was approved “as to form” by the assistant city solictor. I have a photocopy of the signed contract but I cannot quite make out the name of the signature. The Economic Development Director, Holly Childs, also signed it. Assistant City Manager Scott Stiles approved it for the city.
Not one of the 8 members of council who voted for it and who are still in office have responded to our query. The Dean has just asked them again.
Ordinance 85-2007 states that the city manager is authorized to fullfil all provisions of the contract.
If 3CDC paid for it, then why is the rent they requested so low that it wouldn’t be covering even a 4% interest rate?
As the article indicates, the fact that this expenditure is not in the open is deeply troubling. How many other deals are hidden? Why would anyone invest in the city if council gives hidden subsidies to favored competitors?
11 Jun 2008 at 10:03 pm | #
“I don’t have the time to search all the documents for, say, the Banks Project to see how many millions of freebies City Council handed out.”
These are what are called “contracts”. If you don’t want to bother to read them, then get out of the game. You can’t expect City Council to issue you a Cliff’s Notes version of every bill they pass. But I think I’ve already made that argument in a previous thread, so I’ll stop here.
“It’s clear from this wording that there is something significant happening with taxpayer dollars here. It’s not difficult to actually go to the ordinance and see that it is for a free parking garage for Corporex.”
It’s called a TIF agreement, without which the building doesn’t get built. You would be hard-pressed to find any significant project being built anywhere without any kind of infrastructure subsidy either by TIF or through the use of capital funds.
The City issues the bonds, which are serviced by revenues from the building. An argument can be made that TIF is a “giveaway”, but I certainly wouldn’t call it a free parking garage for Corporex.
12 Jun 2008 at 07:09 am | #
One should not have to read hundreds of pages inside contracts (these are called “documents") to find out how our tax dollars are being spent.
As for the free garage, it’s called an “Economic Development Bond,” and the “documents” say that taxes will get raised to pay for it.
12 Jun 2008 at 09:18 am | #
BTW, Kevin, Patton DID read the contract, linked to it here, and told you to look at 8.1. It states, in plain English, that the City will pay hard and soft construction costs.
12 Jun 2008 at 12:30 pm | #
I read it too. It also states that it could not be sub leased to someone who has essentially the same business within the Central business District. Isnt Nicoloa’s in the central business district? according to the map it is. Are they both not Italian restaurants?
I am interested in how he got the deal. Was there a bid process? Just courious .
12 Jun 2008 at 02:29 pm | #
Kevin, TIF’s are a give-away and what is the difference between saying the garage was a give-away or free?
12 Jun 2008 at 07:33 pm | #
What other develpoment plans were made for Corporex? The parking garge was a comsprehensive plan to revitalize a blighted neighborhood? I really dont know, its a question.
Is the Princess Di Building considered a blighted neighborhood or are they tying that into the banks, they land between 2 basically brand new sports stadiums and assorted condo projects that have already been relaized? or is it problem of assorted development efforts creating a patchwork quilt. Is it going there because of the Banks project, and part of that “comprehensive Plan” , or is it going there to attract business to the banks?
seems to me a nice park between the stadiums would be a cheaper, more successful project. Louisville is a great example. Why is the world would this city cement the last remaing possible space for the public to have accsess to the riverfront?
I remember in 98 or 99,to be part of the “comprehensive plan to fix OTR. Is that the plan they are using? it was a pretty good one. It seems patchwork to me. Does anyone now where I can get a copy of the Comptrhensive plan for the blighted CBD, and OTR, or did they just combine them into a single TIF area?.
Just courious.
And I for one, I appreciate the time and many hours of reading and gathering this information. I know from my issue that it is not easy. It is comforting to know that someone like these guys, Dean, Justin, and MEP bring these things to issue, before I spent any more time or money downtown. It sure has opened my eyes to what in MY opinion, is a snake pit, thrown is with a little snake oil. From what I have learned here, I have canceled my contract of a piece of property. I sure as hell and not paying 250 to put in a sink.
But seriously, if anyone knows where I can get the comprehensive plan that the TIF requires, I would love to educate myself.
Thanks for the hard work Beacon guys.
12 Jun 2008 at 10:12 pm | #
R...they are building a huge park on the riverfront. It’s going to cost over $200 million. Also, Nicola’s is in OTR.
Everyone else...I don’t see anything particularly “hidden” in any of these documents. It really doesn’t take that long to scan one if you familiarize yourself with how they’re laid out. They’re all standard--they aren’t throwing any curveballs at you.
(DEAN: As for the free garage, it’s called an “Economic Development Bond,” and the “documents” say that taxes will get raised to pay for it.)...that was largely refuted by Anon, who seems to understand better how TIF law works. But you chose to ignore it.
12 Jun 2008 at 10:15 pm | #
"But seriously, if anyone knows where I can get the comprehensive plan that the TIF requires, I would love to educate myself.”
That statement makes no sense. TIF financing is not a requirement of any comprehensive plan nor does it require a comprehensive plan. It’s a way to fund and facilitate development. Cities use this tool all over the country. There are guidlines to getting the money that must be approved by the City. Perhaps that’s what you mean.
You can download the OTR comprehensive plan on the City of Cincinnati website. I don’t know the exact link, but I know its on there. The biggest part of the OTR comprehensive plan is to re-use the buildings (which they’re doing), provide commerical on bottom and residential on top (which they’re doing), and wherever possible hide parking either in the buildings, or inside the blocks (which they’re doing). While there hasn’t been much development up in OTR on a grand scale (a few condo buildings) it appears that they are following to some degree a good portion of the comprehensive plan. I believe new streetscape is in the works which is also part of the comprehensive plan. The outcome of that remains to be seen.
Louisville is an great example of a nice park that people rarely use because it is disconnected from the City. Sure there are some people there, but given how nice the design is, I think there should be more. The area for the Banks is big enough for development AND a park, which by the way is part of the plan.
12 Jun 2008 at 10:38 pm | #
MEP,
I believe that since the City owns the square that was why that particular language was in there. In separate agreements, the City contracted with 3CDC to do the renovation of the Square, garage, etc. As you know 3CDC paid for that construction in part with private funds, city funds, restricted NET parking revenues from the operation of the garage, etc.
R,
There is a Cincinnati 2000 comprehensive plan that was used for downtown TIF projects. By the way there are two TIF districts in OTR. They both extend down into the CBD. The dividing line between OTR and the CBD is Central Parkway. The TIF districts were specifically drawn that way so that the higher value CBD property increases could be collected and then directed to investment in OTR which is needed.
3CDC were in talks with quite few local restauranteurs for the restaurant. It was competitive and the Via Vite concept won out.
14 Jun 2008 at 08:30 am | #
The funding specified for the square is discussed in more detail in the Beacon’s response to David Crowley. The original funding agreement with 3CDC did not have the city paying for the restaurant. That came only with the 2007 agreement with Fifth Third.
The garage revenues may or may not be restricted, but the income 3CDC derives from the restaurant is not. The language in the contracts is contradictory with respect to the garage revenue, but that is not the issue at hand. The revenue from the restaurant clearly goes to 3CDC to be used as it wishes. Check the above link for more information.
14 Jun 2008 at 08:47 am | #
If one knows that there is a gift of a restaurant building to 3CDC in the Fifth Third lease, then one does indeed have a restricted area in which to search. But the point is that such an expenditure is not reported in the minutes, nor is it in the ordinance itself. When I first suspected there was such a gift I looked in the contracts signed with 3CDC since that was the logical place to find it. Further, even in the Fifth Third lease there is no paragraph heading or entry in the table of contents saying “City Funding” or “Cost” or something similar. In fact, the document is labeled “Ground Lease” and the gift of the building is not discussed in the paragraphs labeled “Rent.”
Also surprising to me is that Fifth Third would intermingle its affairs with that of 3CDC in such a way. After all, Fifth Third is one of several members of the consortium that makes up 3CDC. Then 3CDC set up a subsidiary, Fountain Square, LLC, to handle the affairs of the square. With the lease document specifying that the city pay for the cost of the restaurant building, which is NOT Fifth Third’s restaurant building, they punched through this corporate structure and got directly involved.
Perhaps a corporate lawyer will write in and explain that this is a perfectly normal, standard operating procedure. Maybe it is, and if so I would like to know more. But it was surprisinng to me.
14 Jun 2008 at 08:56 am | #
This is part of the problem. Why should any company invest their own funds if the city is willing to invest taxpayer money to subsidize competitors?
The other part of the problem is that this subsidy was pretty well hidden. It is one thing to analyze a market and see how much of a subsidy is being given to one’s competitors—and therefore how much subsidy one must ask for themselves—and it is another thing entirely to realize that one doesn’t KNOW how much the city is subsidizing the competition and to find out one must read thousands of pages of documents. Since a lawyer charges upwards of $200 per hour to do this, this can quickly add up to huge amounts of money.
So companies just go and invest elsewhere.
16 Jun 2008 at 03:11 pm | #
^ You will not find me disagreeing about subsidies for businesses, and the way that municipalities fight against each other to “win” a business. It’s a destructive practice. Unfortunately, that’s what we’re stuck with. If you choose to stay out of the game, then you lose. And that’s just sad.
16 Jun 2008 at 09:34 pm | #
MEP,
You will not find anything about the City paying for the costs of the restaurant, because THEY DID NOT pay for the costs of the restaurant. Show me the expense if they did. Out of what budget? Where was the transfer of funding for this? If you paid attention in Finance Committee today you will see that these types of things go to City Council for approval and they are NOT buried in hundreds of pages of text.
You are simply wrong on this issue. In the lease with 5/3rd there are two parties, the City and 5/3rd, since 5/3rd was not paying for the restaurant, that is why that clause was in there. As you know the City leased the property including the restaurant space to 3CDC who then PAID for the restaurant.
17 Jun 2008 at 05:58 am | #
We know it went to committee—where Council voted to enact the ground lease that made the City responsible for paying construction costs?
If it is so outrageous to think that such spending at City Hall is out of control, then why has the Planning Department been put on Fiscal Watch?
You show us where 3CDC paid! We showed you a document where responsibility for payment was put on the City. We showed you a statement from David Crowley where he said the restaurant was from the original $40. So then we showed you what that original money was earmarked for—and it did not include a restaurant!
We have found multiple documents which substantiate our position. Your side can’t find one. Not one. Very telling.
17 Jun 2008 at 07:24 am | #
Yes. But what makes it worse is that council is subsidizing more of the items of whch we already have plenty—houses, condos, office buildings, and restaurants. Localities, when they feel the pressure to subsidize, should at least focus the money on attracting new, prime job-creating businesses which do not compete with existing area businesses.
The city is like a dog chasing its tail. As the city shovels ever-increasing subsidies to its favored few, the non-subsidized businesses find themselves at a disadvantage and may close. This will inspire council to subsidize some more, which will cause more businesses to close.
Will people eat more food because the city subsidized Via Vita? Or will the new restaurant’s business come from other restaurants in the area?
Even if the city increases subsidies so much that more people eat at restaurants, this only means that fewer groceries will be bought at Kroger’s and other stores.
17 Jun 2008 at 07:43 am | #
Actually, I was at the Finance Committee meeting and I saw where such funding could be hidden. As the Dean mentioned, the Budget Director stated that the city manager is putting the Planning Department on fiscal watch for excessive spending.
When I spoke against the red light camera proposal, I said that council has a credibility problem. Here there was a hidden $2-1/2 million gift of a restaurant building on Fountain Square to 3CDC. How many more hidden gifts are there? Like cockroaches, if you see one that means there are at least a hundred. Is the money from the cameras to pay for more such gifts? I asked them again to respond to the Beacon’s questions.
If I had been wrong, it would have been easy for someone on council to speak out right then and there and say I was wrong. But no one did.
(The fact that the red light camera proposal was before the FINANCE Committee and never had been before the LAW AND PUBLIC SAFETY Committee shows that this was, in fact, about raising money. Cranley belatedly realized that that was a public admission of the true purpose of the cameras, and the Finance Committee transfered it to Law and Public Safety.)
25 Jun 2008 at 11:21 pm | #
So I recommend that you ask for records request from City Hall on the restaurant and you will find your answers. There is documentation out there which shows exactly what the City’s $4 million paid for and it is not the restaurant.