The Fort Wayne Economic House Of Cards
Posted by Jeff Pruitt - 9/20/08 @ 11:57 am - Filed Under Local Politics
The global financial markets’ “house of cards” has come crashing down because they were greedy, operated without regulation, had opaque financial statements and didn’t make sound financial judgments. What we have being played out on the national scale could very well show up here in Fort Wayne in the near future.
Let’s step back and take a look at some of the decisions that have been made by our city leaders over the past few years and see if they sound like they are based on sound financial footing.
- Harrison Square - The condos are woefully behind schedule and the city has already said they will have to use 60% of the Jefferson Pointe TIF revenue instead of the 50% they promised. But that’s not the major problem as I see it. The hotel is the deal breaker here - HS would not exist without this hotel. As of today, we have heard nothing about the hotel but the financial projections that were used to sell the project were not realistic.
- Public Safety Academy - This was supposed to be run by a private foundation and become self-sufficient. Now the foundation has essentially disbanded and the previous chairman has suggested that Mayor Henry’s cronyism is to blame for the current situation. Currently the academy is floundering and is no where near living up to the promises that were made.
- Renaissance Pointe - This was the gentrification project that was supposed to help revitalize Southeast Fort Wayne. The project was as ill-conceived as any I’ve ever seen. Putting in $150k homes that are surrounded by $30k homes doesn’t make sense. In fact, local government had to step in because potential buyers couldn’t get loans for the properties because the appraisals were too low. Now that the real estate market has tanked the project is even worse condition than it was before. This project is a continuation of the failed mortgage policies we’re seeing on the national level - an expansion of home ownership, consequences be damned.
- Maplecrest Extension - On the outskirts of town we are going to build a few bridges and magically businesses will flock to the area helping the project pay for itself. This argument is so ridiculous I’m not going to bother arguing against it. At one point (months ago) I had a discussion with commissioner Nelson Peters regarding the project and the current economic doldrums we were experiencing (and still are). In a statement that caught me by surprise he said “well thankfully most economists think we’re through the worst of it”. I was shocked because I hadn’t heard any economist actually say that.
The common thread behind all these projects is the idea of public-private partnerships. That’s a fancy way of saying government-subsidized. And I don’t want to get bogged down in minor subsidies like $100k for street improvements or painting buildings. No, these projects all have massive subsidies behind them. Why is this level of subsidy necessary? Because the projects simply won’t work otherwise. That, in and of itself, should be a red flag to everyone.
These projects are being subsidized because they are too risky for private enterprise. The problem for Fort Wayne is that the federal government won’t come bail us out if these projects begin to fail. Local taxpayers will foot the bill if that begins to happen. We must stop these kind of projects immediately as we are already over-extended as is. Soon the Jefferson Pointe TIF slush fund will be completely used up and we’ll have no where to go but into the taxpayers’ pockets (i.e. Kitty Hawk).
Let’s get our government back into the business of government and stop playing developer. Government can lower taxes or abate development in the areas that need it the most but they shouldn’t become “partners”. In fact the partnership description is really a misnomer as we’ll be left holding the bag if things go south.
Right now local government’s economic deck of cards is teetering on the brink of collapse and if that happens we’re all going to be paying for it…
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8 Responses to “The Fort Wayne Economic House Of Cards”
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First, the Harrison Square Condo project is DEAD…. I said DEAD.. Now we can blame Lahman Brothers. I can not wait for that to be said by someone to the City Council… Please excuse me when I fall out of my seat laughing…. I hope I stop soon enough to hear some City Council members say they agree…. Then I will need a medic…
These kind of loans is in the stupid mix of what got AIG and Lahman Brothers bonds ratings killed. Which is what put them where they are….
The Public Safety Academy will be what I said when they built it. It will end up being the home of the FWPD and Fire Department.
Renaissance Pointe - Come on wouldn’t anyone who can afford such a house rush right down there to purchase one? This is one more Democratic “make good feel good.” That is what the S&L was inpart caused by. Fannie Mae and Freddie Mac followed that. We just don’t seem to figure out some things in real life…
“The common thread behind all these projects is the idea of public-private partnerships. That’s a fancy way of saying government-subsidized.”
“These projects are being subsidized because they are too risky for private enterprise.”
Except to point out that you are talking about a “house of cards”, not a “deck of cards”, you are absolutely correct about Fort Wayne.
Our national crisis is the result of using government might to force social-based lending by financial institutions to non-qualified borrowers. Combine the Community Refinancing Act with Fannie Mae and Freddie Mac (quasi-government companies created by ignorant politicians for the wrong reasons), mix in some illegal accounting, cronyism, and greed …you get chaos to be paid by taxpayers.
Anyone who has any business sense should realize that Harrison Square is doomed to fail. The misguided belief by the city that redevelopment is necessary to “revitalize” downtown condemns the effort from the start. Downtown has changed over the past 50 years and it is now a financial and government center. Reason exited with the proposition that downtown would be bettered by an unneeded baseball park, an unneeded hotel (to support an unneeded government-owned conference center) and unneeded, over-priced, unsaleable condos.
The police academy fiasco can be solved by turning that facility over to the county for use by the Sheriff, so lets get it done …two problems solved with a single decision.
If Renaissance Pointe is not 100% privately financed, actions should be implemented to sell off or abandon the city’s interest …the bleeding must stop.
The Maplecrest Extension is properly a government project and since it is not a “Bridge to Nowhere” …let’s get on with it lest we cry over the next 75 years that we failed to build a North-South corridor. When we get past this election all the exageration about our poor economy will stop. No historic economic downtown indicators have yet appeared, so we will be fine when “Its the Economy, Stupid!” disappears next month.
gadfly
Thanks for pointing out the error in regards to the house of cards. That’s what happens when I don’t properly proof these posts.
I really wish the only “common thread” to these projects was government foolishness about partnerships. Look closely and I think you will find another thread labeled “big political donors.” If the project is in the county, the thread will be red. In the City, it’s blue.
Jeff Pruitt,
I have to diagree with part of your opening paragraph:
I agree they were greedy.
I 100% disagree that they operated without regulation. They are an extremely regulated industry. The problem is the the regulation has proved ineffective. The regulation has proved ineffective becuase of Congress. Congress dictated that they lower their lending standards in order to promote home ownership. Consider that Lehman spent over 31 million dollars to Ernst and Young last year for an audit that gave them a clean bill of financial health.
They do NOT have opaque financial statements. Ten years ago they had opaque financial statements, that is no longer the case. Due to Sarbanes Oxley and the push towards fair value accounting these companies had to take large “write downs” as their portfolios de-valued. I am not saying their financial statements are perfect; however, they likely are fairly stated.
I certainly agree they did not make sound financial judgements.
Mike Sylvester
Mike,
The process by which credit agencies applied their ratings certainly wasn’t transparent and they were NOT regulated whatsoever. In fact they deserve a large part of the blame for the current crisis as they were giving positive ratings to bonds and other items that weren’t on solid financial ground.
The SEC investigated these agencies and you should read what they had to say - it will probably shock you.
Jeff,
I think the changes you linked to that the SEC proposed are good and I imagine you are 100% correct about regulating the credit rating agencies.
Mike
Jeff,
I agree with your assessment of all four projects.
Locally our elected officials have made some very poor decisions that we will have to live with for years to come.
Mike