Monday, December 23, 2013

My Thoughts on CBE Funding

[Photo Credit: Lori Askeland.  Those are the holiday decorations on the lavender bush by Village Artisans.]
Sorry about the long, blog hiatus.  I'm going to try to get in the habit again of publishing my weekly emails here.  
Dear People:  Several people have thanked me over the past few days for my vote against bringing the CBE funding resolution to the next meeting, and people I care about have asked me to explain my position, so this email, at some length, explains where I stand right now and what happened between last Saturday when I said in my mass email that I planned to support the CBE funding, but with “concerns,” and this past Monday, when I voted no at the meeting.  (I will note that when I first drafted that email, I had written “misgivings,” and that stronger word was, at it turns out, probably more accurate).

It's basically my philosophical position--and as several people have noted, it is the Comprehensive Plan's position-- that development should pay for itself.  That's a long held belief of mine, which developed long before we moved here and started paying attention to local politics in Lawrence, Kansas.  Government support for economic development is too often a transfer of wealth from poorer people to the wealthy; Frank Goetzke, the YS resident who is a professor of Urban and Regional Economics at the University of Louisville, argues that such things are usually a mistake UNLESS the municipality has its own goals that such an investment will also directly serve, beyond economic development.

But, given all that had been invested up to this time, I was willing to say, ok, any position may have an exception; maybe there are other ways of thinking about this, and I hate to see the federal dollars lost and another building season gone by.  Frank is a self-described “free market guy” and I am more of a socialist at heart.  I also hate the idea of wasting the already expended effort, money, and time of many good and thoughtful people.  And I am aware that municipalities around here, everywhere, are wooing businesses with all kinds of tactics.  They are doing so not because they are foolish, but because they recognize that the only way you can keep costs of services down is to get some tax-paying, wage-generating businesses in your borders.   Some of the tactics are probably fine, but as with any investment, it’s easy to lose sight of the costs with which one is “buying” often elusive future money.

So I am wary of the “me-too”-ism that can make that "get businesses at all costs!" idea into a downward moving spiral that ends up costing a community so much that future benefits are canceled out.   But I'm also wary of the "we're different"-ism that can keep us on a course of becoming simply a retirement community, gentrifying, aging, losing diversity.  We really do need a plan to keep costs for residents down, services up; it is hard for low-income people to live here.  I am deeply aware of that.

And it's also reasonable to look at the last election as something of a referendum on this question: this was the issue that dominated debate, and the people who won were, effectively, in favor of it--those who staked out a position against it lost.  Kent Bristol points out that because interest rates are so low right now, particularly for municipalities, the annual costs of our initial investment will be less than 1% of our General Fund and, unlike private investors, we can think of this as a slow-return investment--we can be patient and wait 20 years.  Most private investors need faster turn around, have to think in terms of quarters, not decades.  That all speaks for government investment.
And let me state up front: First, I believe that the people who volunteer for CR have our Village's best interests at heart; this is a group of dedicated people really trying to make something happen that they believe will help the community survive and thrive, create opportunities. And, second, I personally am not swayed by the arguments about this as sprawl or by the concerns that something horrific like pornographers or drone-producers will end up in that space.  Karen is right: no business wants to put itself in a place where it will not be welcomed and may have to contend with pickets, etc.  Those are red herrings, in my view, and unpersuasive at best.

And let me further be very clear: I am not opposed to there being a business park on that site, at all.

The question is, should the infrastructure for this project be mostly publicly funded by the Village, which will necessarily also mean that the village must take significant responsibility for marketing the property?

On those grounds, then, it is ultimately my job to look at this as a long-term investment / reinvestment strategy, which governments can do (ideally from the Federal / State level--think of the railroads, the interstate system, etc.)  The reasonable argument that CR and others make is that we need to invest in ourselves and our economic viability; every investment has some risk--as does doing nothing, as does doing anything else.  

And let me say one more thing: I am deeply aware also that it's really easy to say "no," and there's an ego-boost in being critical.  Even better: saying "hell no!!" and fancying oneself as the truth-sayer in the wilderness.  This is a VERY seductive role for Yellow Springers, me included, and it's kind of how we like to imagine ourselves as a community. 

But the thing is: that's a very low-cost role to take on.  If we no-sayers are wrong, we've often lost nothing immediately visible, and have invested little.   If the plan goes ahead and works, we can celebrate the success and quietly disappear.   If it doesn't work, we can feel smug about being "right," and yet still have the option of doing nothing but throwing snowballs from the sidelines.

So as I have been thinking about this, I have worked very hard to be mindful of the seductive nature of that "party of no" position.  It's been deadly in Washington DC.  And that means thinking carefully about what alternatives I see as reasonable and available to us, that I would put energy into and advocate for.

And, finally, no one manufactured the time pressure here--the pressures are coming from the potential loss of the grant funding and the timing of the annual construction cycle, not from nefarious intentions by evil capitalists, or what have you.

Given everything above, I would argue that if this project offers a likelihood of payback, even on a somewhat long range, like 20 years, then it is a reasonable thing to do. 

So that means that we have try to assess the likely costs and the likelihood of payback of what is in some ways real estate speculation.  Diane's editorial in the News also strongly stated that we desperately need some better numbers to base our decision on, saying "$700,000 is a Lot of Money," and her arguments, after the long series of articles in the News, trying to get to the bottom of this investment, which I also read, gave me pause. 

It's widely recognized, even by supporters, that the numbers that the CR provided in their report from earlier this fall, are just not credible.  We have asked for better numbers in a variety of contexts, but they have not been readily forthcoming.

Then, having written my email on Saturday, saying I was supporting the project with "concerns" (originally "misgivings"), I was frustrated that it was only by late Monday that I found out that the initial investment / stake, with the costs of financing, is likely to be closer to $1 million.   This works out to $80K per year for 20 years, $120K per year for 10.  (See Manager's Report from Monday).

Even knowing that it will probably be not quite so much as $1M, and that the numbers were calculated on a "worst case scenario" basis, there's a distinct sense of cost creep.  Because, as Diane noted, that’s just the "up front" cost.  The people who have talked to me about this, even the supporters, have made it clear that they expect we'll have to offer tax abatements and/or other incentives for this site to get building jump started; if we don't, the project will likely languish.  And it's clear to me that we'll need to provide some kind of project management focus, so the $80K / year is just the beginning of the costs for us, let alone the time. 

(As an aside: While $80K per year is only a small portion of our General Fund, it is a good salary in this town, even with benefits included. It’s more than double what we pay all Council members combined, for all our work, even with the pay increase.  As a Council member, I do have to ask: Is this the best way, even a good way, for us to spend money for the next 20 years toward economic development?) 

And, frankly, our track record on this very project isn't great.  The design we have at length gotten approved by the Army Corps and ODOT looks problematic, particularly after Sarah Hippensteel Hall, of the Miami Valley Conservancy, recently spoke to us about retention ponds as horrible from a conservancy point of view.  It's really hard for governments to be supple. 

This isn’t about a personal attack on Council or CR; it’s structural.  For the reasons articulated by Richard Lapedes and Frank Goetzke and others who say: if you don't have your own "skin in the game" these kinds of projects have a way of languishing just due to the nature of governments, elections, and the many other central demands on our time and attention.  CR is a group of really dedicated people, but they are volunteers.  We on Council, meanwhile, are also dedicated but while we are the only group in town that can provide water, sewer, street repair, etc., other groups can do economic development--and often do it better because putting your own money down has a way of focusing your attention.

So cost creep concerns me particularly when it’s public funds.  But what about the other side—the likely benefits / return on investment?  The argument has been that it's close to impossible to get the numbers we need, particularly.  But two people are giving me some numbers, and they both are suggesting this is likely to be a bad idea--Bob Baldwin, a local, long-term real estate investor, and Dawn Johnson, who lives here and works in this field in our region.  Specifically, she is the the Warren County GIS Coordinator, and in that capacity is privy to most land developments prior to their approval and certainly upon their execution, and she works with Auditors to determine values of properties based on the geographic location, and she regularly with the Warren County Economic Development and Warren County Planning and Zoning. She is asking very specific questions along the lines of those asked for by Diane Chiddister, questions I don't have good answers for at this point.  Johnson seems to be providing data that we need to attend to, just based on work she's doing on her lunch hour. 

In particular, Johnson's numbers about local TIFF projects, which I would like further time and help to digest, don't look great, even with better siting (e.g., visibility from I-675) and better infrastructure (fiber optics in place) and an aggressive marketing strategy for those sites.   With all that in place, the Valle Greene sites have an estimated 165.91 years-to-recoup their costs.  I know that YS is different, that we have better coffee shops and restaurants for employees, etc., but are we that different--145 years different, for the kinds of projects for THIS site?  As someone who owns a small piece of commercial real estate in town, I have significant doubts. 

Of her years of work in Warren County, Johnson herself says, “I have never seen a community ‘grow’ its way out of debt--when its growth by way of debt driven subdivision, regardless of the type, residential, commercial or industrial. And I have seen communities grow without debt, by virtue of market forces.”

Then Bob Baldwin again reminded us that the CM building across the street had been built for probably around $9.5 million dollars (95,000 sq ft at $100/sf, a reasonable estimate) and was just sold for $700,000.  (We might have been better off buying that building with our $700K, frankly).   Moreover, the article in the YS News noted that the new owners are open to building a high bay space, to a business's specifications, for lease on that site, which already has infrastructure.  Shovel ready.  No government involvement.

And there are the moves by Roger Husbands to develop an impact hub, and the reservations of Todd Leventhal, also a local, successful business person, who said in a letter to Council: "I am all for giving a helping hand to businesses to locate here. Providing funds to fix up an old building or partition an existing building such as Creative Memories would make a lot of sense. Or work with Antioch College to invest in an incubator for new businesses in one of the existing buildings on their campus, would make a lot of sense. Even funding an apprenticeship program at the high school where students could be trained at current factories in the area for good long term paying jobs would be great for our community. But we must be realistic that in an entertainment and educational type of town that we have become, a new industrial park at the edge of town might not be the best way to spend our limited resources."

Given that there may be other similar places, such as the undeveloped parts of the Creative Memories site, for these sorts of businesses, and there are these alternative possibilities of economic development strategies, I guess I just have serious misgivings that $1M up front, plus whatever it's going to take to try to make this work, is ever likely to be returned, which means that we're likely not doing what this project is supposed to do: improve our budget's revenue-to-costs ratio.

And when I, personally, think about putting a lot of time and effort into this project, myself, and re-organizing our few government positions in our shoe-string organization around THIS economic development strategy, I feel exhausted by it, not energized.  I've watched us flounder for a long time on this.  So I feel it's unethical for me to give a vote of confidence for something where I'm thinking: other people better pick up the slack on this one, because I know with every fiber of my being that I, personally, won't have time /energy for it.  (There's another tendency in my beloved community, toward what I call "Conceptual Artist": we like to imagine great projects and then assume other people will do the grunt work.)
Finally, I am hearing significant concerns, again from people who are experienced in real estate, about the lack of a detailed business plan for the CBE (from the start), the lack of real estate professionals on the CR board, and many other details.  Serious people, with expertise I do not have, are telling me that, at the very least, it is absurd to go ahead with a plan that has never had a detailed business plan, and which lacks many more details about reasonable build-out time, exactly how the financing would be offset by taxes and when, especially if other financial incentives would need to be put in place, and other salaries paid to manage the process. 
Increasingly I simply believe that it is unwise for the Village to go into debt for this project, even if that means losing the federal grant.
That is where I stand today.  I am going to make my stance clear, and I am going to advocate that my fellow Council people reconsider their positions.

Yet, with all that being said, if this does go forward, I will of course do what I can to make it a success, which definitely means that I will demand that we get more details such as those I’ve mentioned above.

I will ask wise people to make a checklist of things we need to have before us.    Whatever I am asked to do as a member of Council, I will do, because if we do invest the money, I want us to get it back and then some; I want it to work.  I will seek to have people who do have energy and expertise for this project (not me) put in place to make it work. 

I definitely know that my position is likely less informed than it needs to be in the end—and probably should have been all along.  I am deeply aware that some people who I know and trust have looked at this same information have reached and come to the opposite conclusion--including people who spend a lot more of their time focused on these questions and issues than I do.  There may be things I have gotten wrong or misunderstood here. 

And, ultimately, I do not believe this is a make-or-break decision for the town.  It is not betting the whole farm or putting all our eggs in one basket--we can encourage other experiments too.  BUT it does represent a significant financial stake that will affect our other decisions and our ability to make other investments, so we need to make it thoughtfully, or walk away.  At this point, I felt I needed to send a signal that I'm feeling increasingly less certain that it is our best use of funds, so I voted no.   I am open and still listening to all sides, but my misgivings did reach a tipping point last Monday that I felt I needed to explain.