TOH revenue bonds: more deceit and giveaways
CH city staff and some council members are determined to build the Top of the Hill (TOH) project regardless of the financial consequences to the city. Until now, the primary financial issues have been the loss of city revenues. However, now the city is trying to issue debt to pay for some of the costs of the project. The debt is being justified because all TIF developers ask for and receive financial commitments from governments as a show of good faith in a project.
In December 2018, CH City Council authorized giving $1.8 million to the TOH developer, Flaherty & Collins, to help it get a construction loan. At that time, the city finance director certified that the money was in the city treasury; it was not. So the city spent the last year unsuccessfully looking for outside funding. And it still could not find treasury money.
On Dec. 3, 2019, City Manager Tanisha Briley proposed issuing $2 million in city debt in the form of revenue bonds. She presented these as “good news” because tax money cannot be used to repay them. She did not mention, however, that they are necessary because the city never had, and will not have, money to pay the pledge. She described the lack of funds as a shortfall. She also failed to mention that the city is giving away parking fees, which were the only possible source of TOH non-tax revenues. It will give the parking garage to the developer once it is complete.
Briley stated in January that the city has found a revenue source in the form of permit fees for TOH construction. What a change of tune. Early on, she justifed the project by saying TOH permit fees would help fill the city's coffers. Now Briley deceitfully argues that this is a painless way to pay the bonds. That is, the city is not losing money because it would not have received any permit fees if the project wasn’t being done. In fact, there will be pain. Permit fees that would normally go toward operations will be diverted to pay the bonds. Eventually, inflation will require more operating funds, and residents will face increased taxes or a reduction in services.
How can these permit fees possibly repay the bonds? They will be issued only during the two-year construction period, and are hardly an ongoing source of revenue. Briley estimates the total amount will be about $700,000—hardly enough to pay off $2 million plus service fees. She seems to have an alternative plan though: issue a series of bonds, each to pay the service fees on the previous one. Even with that scheme, there is no identifiable source of revenue to pay bondholders the principal when the bonds mature. The debt, therefore, could be endless.
Bond lawyers and creative accounts will find a way to issue these bonds within legal and accounting rules. However, the issue is whether the city should go into debt for a project that has no guarantee of being successful. (See University Square as an example of a poorly designed and poorly timed TIF project that failed.)
Briley said the city will not issue bonds to pay for new police cars ($22,000 each, through a state program) and garbage trucks ($100,000 each), because there are no revenues to pay for them. But she is actively searching for a way to issue bonds for the TOH developer. The $2 million of revenue bonds being directed toward TOH would buy a lot of equipment for our safety departments.
For an $80 million project, the money is a pittance for the developer. But it will have a significant short- and long-term effect on city services. This gesture of good faith [on the part of the city] will give money to a for-profit developer and steal money from residents. Please contact council members and ask them to explain the wisdom of this proposal.
Joan Mallick is a 48-year resident of Cleveland Heights. She cannot imagine living anywhere else, but is concerned about the direction the city is going in, in terms of viable economic development.