A recent letter to the editor referred to a legal judgment against GBT Realty. I was not aware of the judgment, but an article about the issue has arrived in my e-mail inbox.
The question asked was whether GBT is an entity that the city should place its complete faith in, as proposed in the city’s proposed deal with the company…
According to the July 25, 2005, article Judge rejects contempt deal in Target suit, GBT was found in contempt of court because the company ignored a July 2004 court order ordering the company to stop work on development of The Shoppes of Brentwood Hills (a 14-acre shopping center anchored by a Target store). The judge is quoted as saying it was “pretty breathtaking†that GBT president George Tomlin had told crews to keep working when confronted with his restraining order.
With that attitude toward a court order, it is reasonable to ask whether GBT can be depended on to honor the city Industrial Development Board’s proposed legal contract with the company…
I usually shrug it off when a newspaper quotes me in a way that I think does not effectively represent my statements, but some of the comments attributed to me in an article in today’s paper have only a vague resemblance to what I remember saying to a reporter over the telephone.
The article describes my answer to the question “Oak Ridge could lose workers when cleanup work at the former K-25 site is completed, possibly in 2010. What can the city do to help keep the employment base relatively stable?” as follows:
Candidate Ellen Smith said cleanup work at the K-25 site, which includes building demolitions, fits into plans to reindustrialize the property.
“Clearly we do need to continue the environmental management program,†Smith said.
But there are more serious problems at the Y-12 National Security Complex and Oak Ridge National Laboratory, she said. The sites have not been added to DOE’s cleanup plan, but doing so would help keep cleanup workers employed, reduce contractor costs and limit the potential for future environmental risks, Smith said.
Oak Ridge officials could continue encouraging federal officials to add Y-12 and ORNL facilities to DOE’s environmental management program, she said.
What I remember saying was roughly as follows:
Employment by Bechtel Jacobs and its subcontractors is already declining and is scheduled to continue to decline under current program plans for the Department of Energy (DOE) Environmental Management (i.e., cleanup) program.
Projects at the K-25 site, particularly decontamination and decommissioning (D&D) of facilities, received high priority in the current Environmental Management program because of the priority that was placed on K-25 reindustrialization, but similar D&D needs at the Y-12 and ORNL sites are not currently in the Environmental Management program’s scope. (I note that the article suggests that there has been no cleanup at Y-12 and ORNL, but that’s not true. Substantial progress has been made in addressing contaminated sites at both locations.)
It has been proposed that those Y-12 and ORNL projects should be added to the Environmental Management program’s scope. Funding those projects would help retain local jobs for the specialized contractor workforce that has been supporting the DOE cleanup program. At the same time, these measures would help reduce future environmental risks and would reduce costs (for monitoring, maintenance, and security) that currently must be absorbed in the budgets for ongoing operations of Y-12 and ORNL.
In response to the reporter’s follow-up question on what the City of Oak Ridge could do about this situation, I did say that Oak Ridge officials could continue encouraging federal officials to add Y-12 and ORNL facilities to DOE’s Environmental Management program.
Tim Holt has submitted a letter to the editor about a statistical analysis of shopping centers. This post is borrowed/modified from his to-be-published letter…A 1996 paper by by two university researchers, published in the Journal of Real Estate Research, examined the question: “How Critical Is a Good Location to a Regional Shopping Center?” The research used data from 38 regions containing multiple shopping centers and considered several primary variables believed to affect center’s success, including shopping center size in square feet, distance to the customers, and customer income levels.
A multivariate statistical analysis yielded the finding (surprising to the researchers) that a shopping center’s success was very strongly dependent on the center’s size and only very weakly related to distance from the customer. The study’s summary states:
The goal of this paper is to empirically measure the consumer utility trade-off between store location (i.e. distance to a shopping center) and retail agglomeration (shopping area size) in regional shopping centers. Using the Lakshmanan and Hansen retail expenditure model, our findings reveal that the distance specification is of surprisingly little importance in explaining retail sales. Conversely, agglomeration economies were of significant importance in explaining consumer patronage at regional shopping centers. The implications of these results is that smaller regional shopping centers may be dominated by large super-regional shopping centers with the smaller one or two anchor regional shopping centers unable to compete with the larger, many anchored super-regional shopping centers.
What this means for Oak Ridge is that (while additional shopping opportunities here would benefit local residents and increase sales tax collections) a moderate-sized Target-anchored shopping center in Oak Ridge (that is, Crestpointe) will never beat the giant Turkey Creek shopping complex at its own game. Oak Ridgers (and others) will still be drawn to the larger shopping center…
It is unrealistic to plan for the future with the expectation that a new shopping center that features some of the same stores as Turkey Creek will succeed in keeping Oak Ridgers away from Turkey Creek, or will attract droves of customers from Hardin Valley and Solway.
This is a partially written blog post that I filed away last October and failed to finish — until now.
At its October 2006 meeting, City Council extended both of the city’s lobbying contracts for more than a year — through the end of 2007. That same evening, Council voted to lodge a strong objection to the TVA land policy changes that were then under consideration.
I spoke against both actions, as documented in a newspaper article about the meeting (excepts below)…
From The Oak Ridger, October 24, 2006
Council approves lobbying contracts
Opposes Tennessee Valley Authority land-policy change
by John Huotari
Oak Ridge City Council members on Monday night approved renewed contracts with state and federal lobbyists, extending the contracts through the end of 2007 at an estimated cost of close to $200,000.
Council members voted 6-1 to renew and extend a contract with the city’s federal lobbyist, The Ferguson Group LLC of Washington, D.C. That company’s contract is worth $8,000 a month plus up to $500 a month in reimbursable expenses, pushing the maximum total value up to $119,000 through 2007.
Meanwhile, Council members voted unanimously to renew and extend a contract with Oak Ridge’s state lobbyist, Bill Nolan and Associates, of Oak Ridge. Nolan lobbies Tennessee officials in Nashville, and he is paid $4,650 a month, which works out to roughly $65,000 during the next 14 months.
City officials say The Ferguson Group has helped the city organize its funding and grant requests, and provided information about and support for pending legislation and federal programs…. …Oak Ridge resident Ellen Smith questioned the wisdom of paying $119,000 to a lobbying firm in Washington, D.C. “I’d feel better if we were spending a fraction of that money to help staff here,” she said.
Contrary to the impressions held by some Oak Ridgers (including another Council candidate), the Washington lobbying firm that the city employs is not addressing the city’s strategic interests with respect to the Department of Energy or complex legislative proposals. Instead it is focused on finding opportunities to insert grant funding for Oak Ridge projects (”earmarks” or “pork barrel”) into the fine print of appropriations bills. This work, which mainly has the effect of helping staff avoid having to apply for grants that Oak Ridge appears to qualify for (for projects such as greenways or connecting our city infrastructure to places like Rarity Ridge and the Horizon Center), does not require unique legislative expertise.
We are sending city dollars off to Washington, DC, for work that may not be needed at all and that easily could be done here at home — not only at lower cost, but by workers who would spend much of their income here in the community.
If the city is interested in reducing costs of city government, this lobbying contract is the first item to cut.
From that same article:
[The City Council] also unanimously agreed to send a letter to Tennessee Valley Authority officials, expressing concern with a proposed land policy and rejecting at least part of it.
Regarding TVA, city officials are responding to a proposed land policy that would restrict how the federal agency disposes of public land for private use. The policy — presented to TVA’s new board of directors in September — was developed after two controversial land deals involving local developer Mike Ross and Chattanooga developer John “Thunder” Thornton.
Officials say the proposed policy would eliminate the potential for residential and commercial development on the agency’s lands, and hinder industrial development. They said those changes run counter to TVA’s economic-development mission. “I don’t understand the motivation for moving in the opposite direction,” Oak Ridge City Councilwoman Lou Dunlap said. City officials question how the policy would affect potential development at the Clinch River Industrial Site in west Oak Ridge. “This to me … is an overcorrection,” Oak Ridge Mayor David Bradshaw said. “This suggested policy change is not in our best interest.”
Some Oak Ridge residents disagree, though. Smith, who is also Oak Ridge Environmental Quality Advisory Board chairwoman, said many residents believe the city’s quality-of-life is enhanced by having public TVA lands on local waterfronts. “There are citizens in this community who believe this is in the public interest,” she said. Some opponents to TVA land deals have suggested that land seized by the federal government from private parties should be returned to those individuals when and if TVA no longer needs the land. But, Beehan said, “We’re a couple of generations away from that.” TVA officials have placed a moratorium on major land actions while they review their existing policy. The public utility is accepting comments through Nov. 3.
As things happened, comments on TVA’s land policy were overwhelming in favor of maintaining publicly-owned lakefront lands for public use, and restricting residential and commercial development on the small amount of lakefront land that remains in the agency’s hands. The agency adopted a policy very similar to what was proposed — and neither the proposal nor the adopted policy actually prevents industrial development at sites such as the Clinch River Industrial Site (which was once the site of the Clinch River Breeder Reactor project).
I believe that the vast majority of Oak Ridgers who had any opinion on the issue favor the land policy that TVA adopted, contrary to City Council’s views regarding the public interest.
I’ve noticed this out of the corner of my eye on several recent occasions, but I finally focused long enough to be sure that I was seeing this correctly:
Westbound travelers on Hwy 95, approaching the interchange with Hwy 58 (where a right turn on 95 takes you to Lenoir City, while straight traffic takes 58 toward K-25 and Kingston) are greeted by a big silver sign (erected by CROET; similar to other signs around the ETTP) that indicates that the Horizon Center, Museum of Science and Energy, and Business District are all straight ahead.
Motorists who trust this sign will find themselves seriously misdirected, since a U-turn is the only reasonable way to get to any of those sites from that location. (The sign also directs people to turn right to get to ORNL; at least that part is correct.)
My guess is that this sign was intended for eastbound traffic approaching the same interchange, and that the sign intended for westbound travelers at this interchange is now greeting eastbound traffic with similar misinformation.  (I certainly hope this was not a deliberate effort by the sign installers to discourage people from shopping in Oak Ridge, sending them to the Kingston business district instead.  )
The League of Women Voters forum on the Crestpointe proposal ended before some (most, actually) of the audience-submitted questions could be addressed.
The LWV provided a list of the unasked questions, with the idea that the groups could provide and publicize our answers. It turns out that all of the unaddressed questions were directed primarily at the FOR (pro-Crestpointe) group, so the COR (”vote NO”) group cannot offer much in the way of answers… The public is being asked to provide $10.5 million without having some of the most basic information that should be provided on the project and its finances.
Here are the 22 unaddressed questions, with partial answers where I can provide them and additional answers and details furnished by site visitors:
1. What type of commitment, if any, has Target made to locate a store in Oak Ridge?
A – None that has been revealed.
Cracker says: The city has negotiated with GBT that Target will be a landowner in the project with a committed opening date before the city is committed to be financially involved. Target will be fully committed publicly and financially before we are obligated to participate.
2. In Decatur, Alabama, GBT’s shopping center development did not require 60 acres, nor did it include a SuperTarget, but did include Target. Please explain this situational difference.
3. Who will provide all of the sales projected for Crestpointe? What evidence supports this answer?
A (provided by Cracker) – The retailers project their sales. They know where their sales come from in various competitive environments and have coupon returns and credit card data to accurately project sales. For us citizens, the indication that they will make a profit by matching their products to our buying needs is when they sign a lease to place a store in our community. Stores like Target with a great history of accurate and profitable store openings is a great predictor for the success of CrestPointe.
Comment by Ellen: I agree that Target has a good track record and that Target would not locate here without an expectation of success. I am less confident that the other (as yet unnamed) stores in the proposed development have the same track record, or that they can be expected to remain for the long term.
Furthermore, if taxpayers are going to realize the benefits projected from this center, it is not sufficient for the stores to give their owners the investment return they expect. The city’s tax revenue projections depend on specific assumptions regarding sales; before plunking down $10.5 million in public money, the city ought to have some solid evidence that its assumptions are correct. We don’t have that evidence.
The independent analysis done for Waconia, Minnesota (see this blog post) estimated that the SuperTarget there would generate $225 per square foot in sales in the year 2010; meanwhile, Oak Ridge’s revenue projections assume $350 of sales per square foot (for that same year), based on average sales per square foot in the company’s stores.
One conclusion I reach from that: The fact that Target is willing to open a store here does not necessarily mean that they expect the store’s sales to equal Target’s national or regional averages.
A second conclusion: Target sales possibly could be lower than the city’s estimates by more than 40%. I’m not saying that they would be that low — I am saying that we don’t have the information we need to make a realistic estimate.
4. Why does the City of Oak Ridge maintain reserve funds? If they become depleted, how will they be replenished?
A (by Ellen): See #6.
A (offered by Cracker on May 22, added on May 29): The city maintains reserve funds for unexpected events……
Comment by Ellen: The city does maintain reserves, essentially as “rainy day” funds to cover unexpected public expenses. Indeed, we need to maintain a healthy balance in our reserves in order to keep a favorable bond rating. If the city chooses to spend its reserves to assist a private business, on the expectation that over time taxes from that business will provide taxes that offset the expense, the rainy day fund will not be available when we need it. In fact, earlier this year, Council discussed a concern that the city’s reserves are being depleted, and a committee recommended borrowing $3 million to replenish the reserves.
5. What is estimated sales tax, property tax, other revenue –After 5 years? –After 10 years?
A (by Ellen, added May 24): The City has published multiple analyses of this topic, using different assumptions regarding cost of money, new sales tax generated by the new shopping center, future property tax rates, and other factors. None of the analyses account for costs of municipal services to the shopping center.
The analysis that the City currently favors is particularly disturbing because it assumes that when the City borrows money from itself (even to give to a developer), it only needs to pay back the principal. The analysis significantly overstates “return” from the project by treating revenues that replace lost interest income as if they were totally new money.
Also see #6 and this earlier blog post on the cost of $10.5 million.
6. Does the City have the $8 million in excess funds? If not, how (and at what cost) will it replace them?
A (by Ellen, added May 24; last paragraph edited on May 29 to clarify confusing wording): At the LWV forum on Crestpointe, Mr. Jenkins had made a statement suggesting that the $8 million was not needed for any city purposes, and therefore was available to be used for the Crestpointe project. During the “Appearance of citizens†session at the very end of Monday’s City Council meeting, where the FY 2008 budget was approved, I asked where this $8 million could be found in the FY 2008 city budget or multi-year model, because I had been unable to find it anywhere.
In subsequent discussion with Mr. Jenkins, I ascertained that the $8 million is in fact the “nest egg†(my terminology, not his) established (ADDED for clarification on May 30: in the City’s debt service fund) as part of the financing plan for the high-school rebuild project. As I now think I understand it, instead of continuing to invest this money in financial instruments, the City proposes to use it for the Crestpointe project, confident in the expectation that future property taxes from the shopping center will replenish the principal amount and that future sales taxes from the shopping center will replace the interest that the money would otherwise earn, all in time to make payments on the bonds for the school project. There does not seem to be any “Plan B” to replenish this “nest egg” if Crestpointe does not yield tax revenues at the level that the City analysis assumes. No matter how optimistic you might be regarding Crestpointe, I think you will agree that it is not the kind of low-risk investment vehicle in which we expected that the school project funds would be placed.
Further, note that the City financial analysis that FOR is publicizing does not impute any interest on the $8 million borrowed from the funds for the school project. Thus, the stated “net gain” (or “return on investment”) to the taxpayers is inflated because this “gain” includes the money that we otherwise would have earned as interest on our own money. To estimate the true gain from the project, the City should only count the money that the City would not receive otherwise.
7. Why Crestpointe and not a different location in O.R. that will require less preparation for building, and much less city $ to subsidize it? Why should the city subsidize a development anyway?
8. To the “FOR†Side: Can you give us 3 examples of Oak Ridge businesses which have already been subsidized by the City and are now successful?
9. What is the relationship between the City’s and GBT’s negotiations on Crestpointe and the negotiations between the museum board and GBT?
10. It has been reported* that, of the approximately $90 million/yr of retail outleakage: $20 million is motor vehicles; $60 million is gasoline. How will Crestpointe address this >90% of the outleakage? [*Demographics USA 2005 and BEA 2003 (TPI)].
11. Why is the analysis assuming 400,000 sq ft at the start when you are now claiming only a 275,000 sq ft commitment?
On May 22, Cracker wrote: You are confusing timing with the project design. The project is committed for 400,000 square feet of retail space and a majority of that space must be open within the specified time parameters.
Comment by Ellen (May 29): The proposed conditions for city funding of the development provide that no funding can be disbursed until there are lease agreements covering 275,000 square feet. Although there is also a provision requiring 400,000 square feet of buildings, there are no provisions giving the city leverage to ensure that this space is leased or occupied. (There is a provision that the space must be leased and occupied in order for the Industrial Development Board to retain ownership, but the arrangement with IDB gives no apparent advantage to the developer – the agreement does not provide a reduction in property taxes.) Thus, although the project is supposed to be designed for 400,000 square feet and the city’s financial expectations are based on sales from that total area of stores, the city has no mechanism to assure that more than 275,000 square feet will be leased.
12. If property tax pays the mortgage what pays for additional fire protection, police, and road maintenance? How much is involved and what is the basis for that amount?
A: [EDITED May 22 to correct an error in the original version] The city has said that fire protection, police, and road maintenance will not increase the city’s costs. One source gives the cost of policing for a retail center at 42 cents per square foot per year, which would be about $189,000 on a center the size of Crestpointe.
Also note that “property tax pays the mortgage” only if you assume that we can “borrow” $8 million from city reserves and ignore the value of the interest that $8 million could have earned. See Bill Grimmell’s letter (”Crestpointe analysis ‘flawed, deceptive’”) in today’s Oak Ridger.
13. If sales taxes have to be shared with the county where the purchaser lives, how much would this affect the projected sales tax revenue for Oak Ridge?
14. It was stated tonight that there must be a Target as part of the deal. Previously, it has been stated that there must be a SuperTarget. Have the rules changed again? And who determined that a Target was the one store Oak Ridge must have? No one asked me!
A: Earlier city officials said that a Super Target would be an absolute condition for city participation in the project, but at the LWV forum only the word “Target” was used. Also, in the Thursday, May 17th, issue of the Oak Ridge Observer, Mayor Bradshaw said it didn’t matter whether the center was anchored by a “Target” or “SuperTarget,” as long as it was “a Target-anchored property” of at least 400,000 square feet.
Apparently the city’s self-imposed rules have changed (the size also seems to have been quietly changed from 450,000 to 400,000 square feet), but the official pronouncements do not acknowledge the changes.
I cannot answer the question about who determined that Oak Ridge must have a Target store.
Nationally, Target seems to be the hottest thing going in retail, and it appears that city leaders want to be part of its growth. A May 7, 2007, feature article in the Wall Sreet Journal reported that Target sales are growing twice as fast as Wal-Mart’s sales, and other retail chains are trying to copy Target, particularly by upgrading their design. (Apparently the changes people are seeing in the Oak Ridge Wal-Mart are happening everywhere.) Interestingly, the article quotes Target’s CEO as saying that just 20 years ago Kmart was “the monster” — that underlines the reality that retail is a volatile business, and today’s go-go company may not remain the industry darling for very long.
15. How many trees will remain between the 50-ft retaining wall and Illinois Avenue?
16. Is the County going to put in this project?
17. While the covenants on the Mall do restrict discount stores over 90,000 sq ft, these covenants do not prohibit the development of any other form of retail development. If all retail is put up on the top of the ridge then we will completely defeat any development in Central City. Mayor Bradshaw: Why have you chosen to abandon the downtown area?
A: At the forum, Mayor Bradshaw said he was tired of waiting for something to happen downtown.
18. FOR Question: If the Crestpointe/Target Bond is such a “slam dunk,†why don’t the “FOR†people pony up to their own ideas and provide their own money?
19. Has GBT offered to buy the downtown property? If so, what has been the response of the current owner(s)? If not, why not?
A (thanks to Jim Nelson): At the LWV forum on Crestpointe, a GBT Realty representative made a statement along the following lines: “We thought about making an offer on the Downtown property, but decided not to because of the Wal-Mart covenants.”
20. Why doesn’t the owner of the property bear some of the costs of the infrastructure? Who is the owner?
A: Nathaniel “Nat” Revis acquired the property through a business several years ago. The owner of record on the city’s 2006 property tax rolls was Revis Family LLC.
21. To FOR, then COR: Has the City contracted for a mapping of the land subsidence rates over the site of the proposed Crestpointe development, as now exists? If this site is appropriate for this development as a commercial project, why have no high tech ventures chosen to locate on this same site as promised with the Pine Ridge project of 5-6 years ago?
22. City reps keep referring to requiring “Target†to locate:
a. Have you changed your prior requirement that the deal contain a SuperTarget?
A (by Ellen, May 29): Yes, the City has quietly changed the requirement from SuperTarget to “Department Store”, “to be purchased by Target Corporation or their affiliated entity,” saying “Target or their affiliated entity will make the final determination on the size and type of store that will be constructed.” (Source: City “Exhibit A”, dated April 24, 2007.)
b. If Target can go elsewhere, why pay $10.5 million for the ridge?
c. Aren’t these retailers that could/would go to the mall?
A (by Ellen, May 29): Target is the only retailer that has been mentioned as a candidate Crestpointe that the Wal-Mart covenants that would be prevented from going to a center on the mall property. All other retailers that have been mentioned appear to be allowed under the covenants, and the owners of the mall property say these same companies are candidates for the shopping center development they would like to undertake there.
If you can answer additional questions from this list, please comment on this post! (I’ll try to add the information above. ADDED: Thanks to several of you for adding your answers and comments. See the comments on this post for several contributions from site visitors that I have not incorporated yet.)
For the benefit of voters trying to research the other candidates, I’ve added links to the other-candidate websites I am aware of (look under Other City Election Websites on the right).
See http://citizensoakridge.com/ for some analysis of the Crestpointe bond referendum issue.
 As I stated at Tuesday night’s public forum on the Crestpointe proposal (when I spoke on the topic of “site selection and planning”), Oak Ridge is trying to make a decision about spending more than $10 million in public funds on a development project that will have long-term effects on the character of our community, but we have not seen the kinds of siting studies we would expect to see if the city was merely approving a development with completely private funding.
There has been no Planning Commission review — in fact, the site is still zoned for industry and is designated for industry in the City comprehensive plan. The City and developers also have not given citizens a picture of what this center — in a prominent location — would look like when viewed from the rest of town. The image above, which I showed Tuesday night, is an amateur effort to simulate the shopping center’s appearance — click on the image to open a larger, more panoramic visual simulation. (This isn’t perfect. For example, I think the 50-ft retaining wall probably would appear higher than shown in these images. However, since the project proponents have not provided any visual depictions, we need to improvise if we want to understand the choices we are making.)
We also have not seen an independent analysis of the expected sales volume for Crestpointe (the city’s estimates are based on generic estimates of revenue per square foot in various types of stores — they do not consider the buying power of our trade area) and there is no professional assessment of the center’s likely impact on other retailers in the community (like the assessment done for the little town of Waconia, Minnesota). As with the visual simulation, if citizens want to understand how this proposal affects our community, we need to improvise our own analysis.
It is widely observed that shoppers like to shop where there are many stores to choose from. Promoters of this proposal say Crestpointe would increase shopping traffic to other Oak Ridge shopping areas. To evaluate whether this is true, consider the distance from Crestpointe to those other shopping areas.
The nearest existing shopping center to Crestpointe is the Kroger-Kmart center. The tiny version of a satellite image of part of Oak Ridge on the right (click for a larger version of the image) shows the two Crestpointe entrances and the K-K center in the lower left — driving distance between the two centers would be more than a mile. This is about the same as the driving distance between Home Depot and the old (now empty) Food City on the east side (upper right of image). That’s too far apart to have an effect on shoppers’ behavior. (There’s no point in talking about walking distance because it looks like it would be impossible to walk safely to Crestpointe. No matter how high gasoline prices rise and no matter how intent we are to reduce our effect on global climate change, shoppers at Crestpointe will arrive by car.) The distance from other shopping is a major reason (the other is financial return to the developer) why GBT Realty wants 60 acres for its proposed center — Target locates stores in many smaller centers that are near other retail, but if it locates in an isolated shopping center it wants that center to have a large concentration of other stores to ensure a critical mass to draw shopping traffic.
ADDED on May 26: Because someone has objected to the visual simulation, saying it does not show how this shopping center would be configured (see the comments about this post), here’s the conceptual plan (from the city’s January 29th presentation) that the simulation is based on. Note that it shows most of the stores lined up along the ridge on the side facing the city. (Note that the road on the lower edge of the picture, which would connect the development to Union Valley, was later deleted from the Crestpointe plan.)
The “Future of Oak Ridge” group is saying that the city’s $10.5 million input to the Crestpointe project will be paid back in just 15 years by property taxes on the shopping center.
That claim is not consistent with the City’s analysis, as presented in several different public venues and posted on the City website. That analysis shows a 20-year payback period, relying on a combination of both property and sales taxes. The FOR claim that the money can be paid back by property taxes alone is apparently based on a second spreadsheet analysis (attributed to the City, but not published by the City as far as I can determine) on the FOR website.
[ADDED May 16: At last night's forum, it was confirmed that this spreadsheet was actually prepared by Steve Jenkins, assistant city manager. I'm flabbergasted -- I thought we could depend on Mr. Jenkins for a professional approach to financial analysis.]
As near as I can determine, the 15-year “payback” from property taxes alone is based on several exceptionally optimistic assumptions (at least one of which I think is entirely unreasonable):
1 – The City issues bonds for just $2.5 million (but note that the bond referendum would authorize borrowing up to $6 million) and gets a very favorable interest rate of only 4.5%.
2 – The rest of the City input ($8 million) comes from “reserves”. This implies that the City has $8 million of spare money sitting idly in the public coffers for no particular reason. (I don’t believe the City has extra money lying idle. These funds surely are earmarked for another purpose — most likely the plan is to borrow from the “nest egg” that is being established for the high school rebuild project. If the “reserve” money used for this project is diverted from another purpose, it will need to be replaced…)
[ADDED May 16: Last evening, Steve Jenkins said that this is money for which the City has no particular plans, so he considers it to be available for the Crestpointe project. This is astonishing information in view of the repeated City pronouncements that the budget cannot support needed capital projects, such as a new senior center and a new preschool, and that even some maintenance of capital facilities is being deferred for lack of funding.]
3 – That $8 million of city money is essentially “free money” — it can be paid back to the public coffers with zero interest, with most of the payback delayed until the later years when inflation has reduced the value of the money. This is the assumption that I consider unreasonable. There’s no such thing as free money. Good accounting practice requires that when the City borrows money from Purpose A and uses it for Purpose B, it must account for the cost of that money by imputing interest on it. Stated another way, when we borrow money from ourselves, we deserve to pay ourselves back with interest. (After all, if we had not “lent” this money for this project, we could have invested it or used it for something else. See the comment above about the need to replace the money diverted from another purpose…) In the spreadsheets that the City posted on its own website, City staff correctly treated the entire $10.5 million as a loan needing to be paid back with interest. The interest on the $8 million is the main difference between the City spreadsheet and the spreadsheet on the FOR website.
[ADDED May 16: Astounding but true -- we learned last evening that the City staff does consider it entirely reasonable and responsible to treat the $8 million as "free money."
When an individual person lends money to a family member, as a personal favor the lender might allow the family member to pay the money back without interest, but most people who do that are fully aware that by forgiving the interest on the loan they are making a gift to the other family member. Evidently the City staff would like to make a similar gift to the Crestpointe project, using taxpayer money. Taxpayers should demand a full accounting for the value of that gift.]
4 – Property taxes increase 3% every year for the next 15 years. (That is sure to be an unpleasant surprise for taxpayers who have been misled to believe that Crestpointe would prevent their property taxes from increasing. Neither FOR nor the City has claimed that Crestpointe will keep property taxes from rising, but this is what some people believe they have been told…) [ADDED May 30th: It has come to my attention that the new spreadsheet also assumes that the combined city and county property tax rates in the first year would total 14% higher than they were last year. That assumption, which inflates the expected revenue numbers, would also come as an unpleasant surprise to many citizens!]
On the eve of early voting comes a League of Women Voters forum about the referendum for the Crestpointe bond issue:
Tuesday, May 15, 7:00 to 9:00 p.m.
Pollard Auditorium (on the ORAU campus, above the hill from the Oak Ridge Civic Center)
LWV’s announcement says “Representatives of Citizens Oak Ridge (COR) and Future of Oak Ridge (FOR) will discuss topics related to the referendum and take questions from the audience.”
ADDED May 16: I participated in last evening’s forum as one of the speakers representing the “Vote No” (COR) position.
This forum was videotaped. Reportedly it will be broadcast by BBB Communications on Channel 12 at the following times:
Friday, May 18th at 8:30pm
Saturday, May 19th at 8:30pm
Saturday, May 26th at 8:30pm
Friday, June 1st at 8:30pm
Saturday, June 2nd at 8:30pm
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