Last night the Salem Urban Renewal Agency board, which is just the City Council by another name, approved a $749,000 grant to T.J. Sullivan for his Park Front office building.
Nine days ago I called this "crony capitalism" in a blog post written after Sullivan's application came to light. Nothing I saw at yesterday's meeting changed my mind.
Here's a video of my testimony, which includes an interchange between Councilor Jim Lewis and me. I'll share the text of what I said at the end of this post.
My central points were based on two indisputable facts:
(1) The City of Salem web site says that the aim of urban renewal is “to spur redevelopment where it might not otherwise occur without public investment.”
(2) The Park Front building clearly was planned to be constructed without public investment.
So what bothers me the most about the 5-1 vote to approve what amounts to an unnecessary gift of public money to a private development is that none of the city councilors other than Tom Andersen were bothered by the disconnect between what urban renewal funds are supposed to be used for, and what they actually are being used for.
(Andersen voted "no" on the grant request; councilors Bennett, Dickey, Lewis, McCoid, and Nanke voted "yes.")
Here are my main Crony Capitalism Takeaways from the Urban Renewal Agency meeting.
T.J. Sullivan admitted that the only reason he needs the $749,000 is to be able to build two extra floors on his four-story building.
In his testimony, Sullivan went into considerable detail about the problems he encountered in getting a construction loan from Pioneer Trust Bank.
Given that Sullivan and his partners would only have a million dollars in equity invested in this $8.9 million building, and that only two floors had committed tenants, he said that it wouldn't be possible to get loan approval for the four story building he wants without a $749,000 grant from City of Salem urban renewal funds.
Sullivan admitted that he could have built a two-story building on his own. But Pioneer Trust wasn't happy with the appraisal, debt to income level, or occupancy percentage of his four-story project.
Well, for most businesspeople that's a problem they'd have to deal with on their own. Find more equity/investors. Work harder at recruiting tenants. Reduce the cost of construction.
But in Salem, urban renewal money isn't being used for the main intended purpose -- spurring private development that wouldn't have occurred without the leverage of public funds. Rather, Sullivan got a gift from the City of Salem that helps him construct a building that he said definitely was going to be built eight months before he applied for the urban renewal grant.
Basically, this is a public bail-out of a poorly-planned private project. Which is a pretty damn good definition of crony capitalism.
Calling the current condition of the old Boise Cascade property blighted is absurd.
Urban renewal money is supposed to be used on redevelopment projects in "blighted" areas. Years ago, when nothing was happening with the Boise Cascade site, that word would have fitted the property.
But after Mountain West Investment got a generous 10-year tax break to build the South Park complex, I've heard those apartments are fully occupied and commanding pretty high prices. Further, Marquis Companies got a similar $749,000 urban renewal grant for a rehab center as part of the deal Mountain West made when it sold part of the Boise Cascade property to the City of Salem for an expansion of Riverfront Park.
So that's two major de-blighting investments of public funds already made on the Boise Cascade property. Further, as I said in my testimony T.J. Sullivan's Park Front building is on a site bought from Marquis Companies. So the same piece of property now is going to get two $749,000 urban renewal grants.
This is ridiculous.
Like I said in my response to a question from Councilor Lewis (watch the video), I hate to sound like Donald Trump, but the City of Salem is making some horrible deals. Sullivan was planning to construct his building with private money until he learned about the "slush fund" of Opportunity Grants in the Urban Renewal Agency.
Councilor Andersen asked Kristen Retherford, the City's Urban Development director, why Sullivan couldn't get a typical $300,000 grant, and then apply for a $449,000 loan from urban renewal funds. The answer was that a loan wouldn't help him out with Pioneer Trust Bank, which wants to see more equity in the project.
Thus public funds are being used to subsidize a project that was too risky for a private bank to take on. The Salem city councilors didn't even discuss limiting Sullivan to a $300,000 grant, which would require him either to raise more money on his own, reduce the cost of his building, or work harder at finding committed tenants.
Again, this whole fiasco smells strongly of crony capitalism.
The Opportunity Grant program looks very much like a slush fund. When I was working on my testimony yesterday afternoon, I tried to learn what an Opportunity Grant was -- since the City of Salem staff report said this was the source of funds for Sullivan's $749,000 grant request.
I Googled "Salem Oregon urban renewal opportunity grant." Nothing. I did a search on the City of Salem web site and came up with next to nothing, just a reference to how $25,000 or less is available to renovate second floors in the downtown area.
This morning I emailed Kristin Retherford some questions.
Ms. Retherford, I’ve got some questions about Urban Renewal Opportunity Grants/Purchases.
In preparing my public testimony for last night’s meeting, I tried to find out about them. I Googled “Salem Oregon Urban Renewal opportunity grants” and came up with nothing. I then did a search via the City of Salem web site and came up with next to nothing — just a mention of downtown second floor $50,000 grants for artists and such, as I recall [actually, it is $25,000; I recalled wrong].
So where can I find information about the $6 million or so (now $4.5 million; can’t remember the exact figure) in Opportunity Grants that Urban Renewal offers. Who is eligible? What are the criteria? How does one apply?
Councilor Lewis said I or anyone else could get one if wanted. But this implies that people know about the Opportunity Grants. (Another question: what does “Opportunity” refer to? Meaning, what is the opportunity being taken advantage of?)
I noted that your staff report to the Urban Renewal Agency board mentioned information received from downtown property owners who have been identified in opportunity areas. Who are those people? I’d like a list of them.
Also, your staff report mentions an August 22, 2016 meeting of the Downtown Advisory Board where they gave guidance to the Agency board about how to use Opportunity Purchases funding. I looked for those minutes and didn’t find an August 22 meeting of the DAB. I looked through minutes of adjacent meetings in time and didn’t find much, if any, mention of this guidance as I recall. Please let me know at which meeting of the DAB this guidance was given, since there wasn’t an August 22, 2016 meeting of the DAB.
I’m planning to write a blog post tonight about the Park Front decision. I realize this is short notice to give you about my questions, but if you or a staff member could answer most or all of them today, that would be great. Otherwise, I can update the post when I get this information.
I haven't gotten a response yet. But Carole Smith had asked about this program and forwarded me a message she'd gotten from Urban Development Director Retherford a few days ago. I've read the message several times. I can't make much sense of it. I've boldfaced some confusing parts.
The Opportunity Purchase Fund is one of the projects identified in the 2011 Action Plan. This is for City acquisitions, or opportunity purchases. It is not a grant.
We have had funds budgeted last fiscal year and this fiscal year for an opportunity purchase/acquisition. The DAB [Downtown Advisory Board] identified several properties and the Agency authorized us to conduct outreach to the property owners and pursue and acquisition. We learned that none of the owners of the properties identified for possible acquisition were interested in selling them to us at this time. There were either other private sector parties in the process of purchasing them, or the owners had other plans.
Consequently, we realized that our funds budgeted for an acquisition would be better used as grant exceptions to make private sector downtown redevelopment projects feasible. The first such grant exception was to PDQ investments to construct 40 units of multifamily housing on Front and Court. The second request is the Park Front office building project. We expect to receive a request from the company that purchased the Wells Fargo site for improvements to the former Newberry's building, and we have one other party that has expressed interest in a grant exception.
So, to answer your first question below, the Opportunity Purchase is not itself a grant, but we are using funding that had been budgeted for an Agency opportunity purchase in order to fund exceptions to our regular grant program. I hope that makes sense. I'm happy to talk to you about it if it's not clear. In terms of marketing, as people have approached us with regard to our normal grant program, we have shared with them the process for requesting an exception to the $300,000 grant limit. These exceptions have to go to the Agency for approval.
Well, the $749,000 that Park Front/Sullivan got is called a "grant." But somehow it isn't really a grant, because the Opportunity Purchase fund isn't being used for purchases, but rather for what is basically a slush fund for people who are undertaking downtown redevelopment projects.
It bothers me that exceptions to the usual $300,000 limit can be handed out for no reason. This is why I continue to call what the Urban Renewal Agency is doing crony capitalism.
No information about these Opportunity Grants has been made public. If you're well connected or otherwise "in the know," you can talk to Urban Renewal staff and get a chance at free money. Otherwise, you've got to suck it up and do what private developers usually have to do: figure out how to finance a project on their own, or through the usual Urban Renewal channels.
Salem Community Vision has posted a video of Evan White's testimony at yesterday's Urban Renewal Agency meeting. Evan preceded me, and was considerably blunter about the crap being imposed on the citizenry. Watch it! Way to go, Evan.
Here's the text of my testimony, with added links:
I want to understand why $749,000 of public urban renewal money is being proposed to be given to the private developer of the Park Front building.
During your deliberation on this agenda item those of you who favor this proposal need to explain, in a clear declarative sentence or two, why you believe T.J. Sullivan’s funding request should be approved.
Because the facts show this doesn’t make any sense.
FACT 1. The City of Salem web site says that the aim of urban renewal is “to spur redevelopment where it might not otherwise occur without public investment.”
FACT 2. The Park Front building clearly was planned to be constructed without public investment.
In March 2016, more than eight months before Sullivan requested the $749,000, a Statesman Journal story said Park Front joined “a flurry of projects at the once blighted industrial park. Construction for the $8.5 million building will begin on a portion of the North Block parcel of the Boise site in summer 2016 and be finished by May 2017, said T.J. Sullivan.”
Note: “will begin.” Not “might begin.” And no mention of urban renewal money.
Also, a First Commercial Real Estate post pointed out that it represented Marquis Companies in its purchase of the North Block site for a rehabilitation facility. A portion of the site then was sold by Marquis to Park Front LLC.
FACT 3. Astoundingly, this same piece of Boise Cascade land has already gotten urban renewal funds to supposedly leverage its development.
In March 2015 Salem LTC Properties, a subsidiary of Marquis Companies, got $749,999 from the Urban Renewal Agency.
LTC Properties was going to construct a rehab center on part of the property, and an office building on another part. As noted above, the Park Front office building is on land bought from Marquis.
So this obviously is double-dipping into urban renewal funds for the same piece of property, and for the same amount: $749,000. Public funds already have been used to supposedly spur development of that property. It was ridiculous to do this once, and would be even more ridiculous to do this TWICE.
The staff report on Sullivan’s request says that the project meets urban renewal goals of removing blight and leveraging public funds with public investment.
But this is wrong.
As the Statesman Journal story said, this is “once blighted” property. Mountain West got tax breaks for the successful South Park apartments. Mountain West demanded, and got, $749,000 in urban renewal money for the Marquis rehab center on the southern part of the North Block.
Now Park Front LLC has bought part of that site from Marquis for its own office building. Park Front said it was committed to constructing that building eight months before it applied for another $749,000 in urban renewal money.
Forking out that money sounds like crony capitalism, especially since T.J. Sullivan said in his application letter that the money is needed because construction costs have increased — which is just a fact of doing business in a booming economy.