The Renaissance Rip-Off (UPDATE)
UPDATE 7/21/09: Moody’s released an update the day after this post and it’s worse than expected:
Commercial real-estate prices fell 7.6% in May … The indexes are down 29% from a year ago and 35% from their October 2007 peak.
No word yet from the administration as to whether they are going to lower their offer for the Renaissance Square property based on the economic climate.
One reader asked for a better explanation as to why I feel the city (and now possibly the county) would be overpaying for the property if they paid $7.3 million. That’s a fair question, although the anecdotal evidence regarding its lack of tenants should suffice, let’s look at some data.
The most recent assessment, March 1, 2008, puts the building and land value at $7.2 million (plus another $1.1 million for other land although it’s unclear to me whether or not the city’s plans include that land). However, it’s important to remember that assessments are done on data 2 years old. So let’s take a look at what’s happened to commercial real estate prices over the past couple years:
Granted this is national data but Fort Wayne has not been immune to overbuilding in the commercial real estate market over the last decade. I think you can see where these prices are going - probably back down to the 2001 levels or worse which would be a 40-50% decline. In fact, the first quarter 2009 data shows prices are already down 25% nationally.
So ask yourself this - why in the world would local government spend $7.3 million for Renaissance Square when it’s likely already worth 25% less and probably going to fall another 25% before this crisis levels off. Add to this the fact that this building has had no serious private market tenants (or offers from what I’ve heard) for years and you start to see what a rip-off this truly is. Does anyone seriously believe that a private sector bidder would offer $7.3 million for this property in this economy?
Buy why not overpay for the building - after all it’s not the mayor’s money. It’s only your Community Economic Development Income Tax Money. And what better way to drive economic development than for the government to vastly overpay for a new city hall…
Constitution Fail
As much as I deplore the circus revolving around Supreme Court confirmation hearings, I thought it was important to highlight one exchange between Senator Coburn and justice nominee Sotomayor:
COBURN: Thank you. Let me follow up with one other question. As a citizen of this country, do you believe innately in my ability to have self-defense of myself — personal self-defense? Do I have a right to personal self- defense?
SOTOMAYOR: I’m trying to think if I remember a case where the Supreme Court has addressed that particular question. Is there a constitutional right to self-defense? And I can’t think of one. I could be wrong, but I can’t think of one.
This is an extremely scary answer to me. While I have no doubt that Sotomayor is an intelligent person, she appears to have a basic misunderstanding of our Constitution. Our Constitution, and democratic government in general, does not provide rights to the people. It is a document written by the people to define the powers granted to government. There is a big difference between those viewpoints.
The founders of this country, albeit every bit as hypocritical as current politicians, believed in unalienable rights that could not be granted or taken away by government. In fact there was much debate at the time as to whether or not to include a Bill of Rights for fear that it would be construed as an all-encompassing list of rights granted by government and not a list restricting certain government activity. In Federalist #84 Alexander Hamilton wrote:
Bills of rights are in their origin, stipulations between kings and their subjects, abridgments of prerogative in favor of privilege, reservations of rights not surrendered to the prince. Such was “Magna Charta”, obtained by the Barons, swords in hand, from King John.
[...]
I go further, and affirm that bills of rights, in the sense and in the extent in which they are contended for, are not only unnecessary in the proposed constitution, but would even be dangerous. They would contain various exceptions to powers which are not granted; and on this very account, would afford a colorable pretext to claim more than were granted. For why declare that things shall not be done which there is no power to do?
Sotomayor’s comments show that Hamilton’s fears were well founded. The real question at hand is whether or not defending one’s own life is an unalienable right. I’m not sure evidence needs to be presented on this question as most would simply stipulate it. However, there is ample evidence as can be found in our own country’s adoption of a Declaration of Independence. As first written by George Mason and then by Thomas Jefferson:
That all men are by nature equally free and independent, and have certain inherent rights, of which, when they enter into a state of society, they cannot, by any compact, deprive or divest their posterity; namely, the enjoyment of life and liberty, with the means of acquiring and possessing property, and pursuing and obtaining happiness and safety. (Mason)
We hold these Truths to be self-evident, that all Men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.
Given these historical facts it’s quite implausable, and scary, that a Supreme Court nominee could not honestly answer the question about whether or not a citizen has the right to self-defense - of course you do. The debate probably lies in the definition of self-defense. If say a President were to go and order the murder hundreds of thousands of foreigners because they allegedly had a nuclear weapon that could some day be used against him - is that self-defense?
My hope is that Sotomayor understands the historical underpinnings of our US Constitution, and the bedrock principles of democratic government in general, and simply didn’t want to provide an answer to a question she felt lacked sufficient details. Having said that, the simple and correct answer to Senator Coburn’s question should’ve been an emphatic YES.
Another reason the Federal Government should not bailout private companies
As you know I oppose all of the bailouts that have occurred in the last several years.
That being said those in Washington decided to bailout GM and Chrysler through a Federally funded bankruptcy. The taxpayers now own a large amount of both Chrysler and GM.
Chrysler and GM (Along with the Obama Auto task force) decided that in order to be more competitive they would have to shutter a large number of car dealerships. Due to state franchise laws it was going to be very expensive for them to shed these dealerships; however, with the assistance of the bankruptcy court both companies managed to start the process of shuttering dealerships.
Once again, this was done to make the car companies more viable.
This is important because the taxpayers now own them and if they continue to lose money then the taxpayers will likely be forced to inject more money into these failed companies.
President Obama feels strongly that Congress should not interfere with the decision to shutter many dealerships. In this instance I 100% agree with him.
Unfortunately Nancy Pelosi and House Democrats disagree and want to interfere with the process that MAY allow the car companies to eventually become more viable.
I have another problem with this vote before I get into the specifics of the vote. Why did Nancy Pelosi combine two items that are completely unrelated into one vote? I think it is because she is following the “politics as usual” approach in DC rather then fulfilling her campaign promises…
This bill passed yesterday with 219 yes votes; 4 were Republican and 215 were Democrats. This bill had 208 no votes; 170 Republican and 38 Democrat.
This illustrates another reason why the Federal Government should never bail out private companies. Congress is often unable to understand the decisions business have to make in order to survive.
Good grief.
Mike Sylvester
Bailout Blues - Policy vs Rhetoric
If you aren’t reading Rolfe Winkler at OptionARMageddon then you probably should be. Here’s an excerpt from a recent post regarding the wasteful (and harmful) way the government is using financial bailouts:
The primary argument defending bailout packages for banks and homeowners is we can’t let them go bust, it would be too harmful to the overall economy. No doubt it would be harmful. But what did we learn from GM? Primarily this: Writing blank checks to failed debtors is tantamount to flushing money down the toilet. That’s far more harmful to the economy. We build up more unpayable debt while accomplishing nothing. Better to spend the money restructuring those debts so that the business can be properly recapitalized.
This is what needs to happen with ALL of the country’s largest banks. Their busted assets need to be written down and their shareholders and (some) creditors need to be wiped out. Do that, and the financial system will emerge leaner and healthy. This will certainly involve government support, primarily via FDIC as it absorbs losses of received assets.
But that’s better than straight bailouts, which only keep dead banks walking. More money doesn’t make them any less dead…not until their balance sheets are fixed.
I couldn’t agree more. Unfortunately, homeowners, taxpayers and small business bear the brunt of this recession while Wall Street banking firms lose nothing - in fact they continue to unfairly profit at the expense of the afore mentioned parties.
I remember attending a speech by then-Presidential candidate Obama about racial and economic justice. I left there inspired enough to write what I feel was one of my best pieces here at FWP. Unfortunately, the economic policies of President Obama have not lived up to the rhetoric I heard that day from candidate Obama.
Until he comes to the realization that Treasury secretary Tim Geitner and Fed chairman Ben Bernanke are a huge part of the problem I don’t think this will change. Taxpayers will watch their wealth deteriorate at the expense of aristocrats in DC and Wall Street.
How Bad Is the California Budget Crisis?
If you want to wrap your head around exactly how bad California’s $26 Billion budget deficit is try this:
If California eliminated the salaries of all 235,000 state employees they still wouldn’t have a balanced budget.
Just something to provide a little perspective during our state and local government’s upcoming budget struggles…
H/T - Mish
Quick Thought of the Day
People are generally against tax increases, yet neighborhood associations continue to raise dues year after year. Balancing a budget through fiscal restraint is hard and doubly so when you have the ability and temptation to simply raise taxes (or dues)…
Roller Rolls Out the Bogus Renaissance Square Options
City Controller Pat Roller has now officially rolled out the bogus “other options” so she can continue the mayor’s meme that the only real choice is Renaissance Square:
Roller on Monday presented four other options considered for the Police Department: purchasing the Anthony Wayne Building for $5 million, plus $14 additional for renovations; several big-box commercial sites, which were checked out but were not in central downtown; a merger with county services in a new location, which was discarded because the city and county “could not meet mutually agreeable terms”; and constructing a new home for the Police Department, which would cost at least $22 million.
So what is the premium the city is willing to pay for being in “central downtown”? The current police station isn’t located downtown and it seems to being doing just fine. As I’ve said before there are numerous big box stores that could house the FWPD for millions less than the $14.5 million they are proposing to spend now.
Also, is nobody else curious as to why the county thinks they can build a new headquarters for the sheriff for $3.5 million but it would take the city $22 million to do the same? Granted the FWPD is probably larger but 6x larger? The truth is the city has not seriously considered any other option. They want to buy that building and they don’t give a damn how much taxpayer money they have to waste in the process. As the mayor himself said:
“Right now, the stars have aligned (for Renaissance Square)”
Eh Tu, Commissioners?
As I discussed in the previous post the mayor is trying to frame the Renaissance Square debate into their proposal or nothing which is ridiculous. But the mayor appears to be winning as the commissioners have now jumped on the bandwagon. I understand they’re in a tough spot and looking for a compromise but whether or not the city alone overpays for Renaissance Square or the city and county jointly overpay really doesn’t matter to the taxpayer. In the end, we get screwed…
Renaissance Square Bamboozle Continues
Mayor Henry has tried to frame the debate over Renaissance Square between doing nothing or paying $14.5 Million for a new location. His strategy is quite simple - he hopes the public will agree that the police staying in their current location is unacceptable. Then he wants you to think that the only other option is to dramatically overpay for the Renaissance Square property.
But this really is nonsense. This entire move is being proposed because the police want out of their current headquarters. However, the FWPD isn’t big enough to fill Renaissance Square so the mayor wants to move everyone. That is illogical. Last time I looked around there were numerous empty buildings (big box stores included) that were littering this city. Why must we move everyone into this overpriced behemoth? Why not just relocate the police?
And think about these numbers too. The county is looking at spending roughly $3.5 million to build a new headquarters for the Sheriff’s department yet mayor Henry claims it would cost ~$20 million for the FWPD to do the same. Does that make sense? Shouldn’t somebody, I don’t know say somebody from the local media, ask him about this discrepancy?
And to top it off Pat Roller reinforces the observation that the city has some of the worst negotiators around:
Roller said that if the city doesn’t buy the building by the end of October, it would have to put additional money in escrow for it and only has until the end of the year to lock in the agreement.
So we have to ram this down the taxpayers’ throats before we lose the deal of the century? Is she serious? Why the hell are we wasting taxpayer dollars on escrow for this building? It has no viable commercial tenants and it hasn’t for years. Do you really believe these years of vacancy, and facing what will inevitably be the nation’s worst commercial real estate market in history, that the city is going to have this building sold out from underneath them?
We’re watching this bamboozle grow from the ground up; the real question is can we stop it?
Buy Local is Back Again
Karen Goldner and Tom Didier’s buy local ordinance passed out of committee last Tuesday by a 7-2 vote and all I can say is that it’s about time. Last year the mayor undermined Goldner’s effort by sending purchasing director Jim Howard to the council table to argue against it. Now Howard says it’s different:
Now the purchasing department has help verifying that contracts and contractors meet the conditions they are held to by the city. That means the department can absorb additional duties under the ordinance.
Second, the ordinance doesn’t call on city government to register potential bidders and investigate their eligibility. Instead, the city would piggyback on state-maintained registration for the “buy Indiana” program. Besides reducing the work city employees must do to follow the program, Howard said, it also introduces local businesses to the process of competing for business with state government.
I have to wonder why these two issues couldn’t have been worked out last year when the original legislation was introduced? Honestly I think the mayor’s opposition had nothing to do with the items described above and everything to do with the IT contract that was being debated at the time.
While I still support this new ordinance I find it unfortunate that it does not cover consultants. In my opinion the city has always relied too heavily on consultants but if we’re going to spend the money it would be nice to throw the support behind good paying jobs here in Fort Wayne. This concern was one of the reasons cited by councilwoman Liz Brown for voting against the ordinance, and while I agree with Brown on this point I don’t think throwing the baby out with the bathwater would be the right move.
The other vote against the measure came from councilman Mitch Harper who was concerned that nearby businesses in Van Wert, who provide local jobs, would be penalized because they are located just across the border. He also opposes the protectionist message sent by the ordinance:
Harper expressed a concern that by jumping on a “buy local” train, Fort Wayne might contribute to a protectionist atmosphere in the U.S. and Canada. He said encouraging robust trading relationships with other countries is much more important to creating jobs in Fort Wayne than steering a bit more city business to Indiana firms.
I agree with Harper’s first concern and wonder if a redefinition of “local” could’ve helped alleviate this concern. However, this probably would’ve affected other portions of the legislation - particularly the portions Jim Howard described.
I could not disagree more about the protectionist concern. Globalization and the fake “free trade” policies promoted by the federal government the last 20 years have been a massive failure and have devastated Indiana and the Midwest in general. Local government is a consumer and should be allowed to make rational economic decisions when spending taxpayer dollars. It is completely rational to support local businesses in order to promote local jobs.
Of course there comes a point where the premium is too high and at that point it would be equally rational to spend the money out of state. So the debate in my mind is whether or not the premium we are paying is reasonable. Personally I think the premium is too low but it’s listed below for everyone to draw their own conclusion:
- 5 percent on purchases less than $500,000
- 3 percent on purchases between $500,000 and $1 million
- 1 percent on purchases of more than $1 million
- 5 points (out of 100 total) in evaluating responses to requests for proposals
