"If you can write an Urban Renewal story by tomorrow noon, I will run it in the January Business Journal."
This was the good news part of a reply I received from Bruce Taylor, publisher of the Salem Business Journal, after asking him via email if he was interested in a story about problems with the City of Salem's urban renewal agency.
I was pleased to get Bruce's positive response.
The bad news part was, I read his message about five hours after he sent it, having been totally absorbed until about 8:30 pm in watching the mesmerizing men's basketball game between Oregon and UCLA last Wednesday (Oregon beat #2 UCLA on a last second 3-point shot by Dillon Brooks).
By that time of night I was seriously under-caffeinated, so that left me the next morning to write the story. Coffee cup and I made the deadline, with about ten minutes to spare. Here's the result.
Download Salem Business Journal story (PDF file)
Most of the story is about the "crony capitalism," as I like to call it, associated with a $749,000 Urban Renewal Agency grant bestowed by the City Council (acting as the URA board) to Park Front LLC for an office building T.J. Sullivan is constructing on the old Boise Cascade property.
As noted in several previous blog posts (see here, here, and here), construction of the Park Front building was announced in March 2016 -- with no mention that this development was contingent on receiving a taxpayer subsidy via urban renewal funds.
Further, the reasons given by City of Salem staff for approving the grant make no sense, as I discuss in the Salem Business Journal story.
(I'll share it below, for easier reading by those who don't want to peruse the PDF file above or the online January SBJ issue.)
A few days ago, the Statesman Journal ran a story, "Incoming Salem mayor Chuck Bennett: 3 takeaways." One of the takeaways mentioned the Park Front project. And, me!
The push for downtown development: Bennett is a proponent of building up downtown Salem. This shouldn't come as a surprise, given he's been the downtown councilor for almost a decade.
The old Boise Cascade property is getting an update with office space and apartments. Forty apartments are set to fill the corner of Front and Court streets NE near Riverfront Park, bolstering housing made available already by the South Block complex along the southern downtown skyline.
The city this year approved $749,000 in urban renewal funds for the Park Front project at the Boise Cascade site and $740,000 for the 40 apartments along the river to PDQ Investments.
Bennett hasn't signaled he'll cut back urban renewal spending.
"I plan to continue the same kind of work I've done in the past, which is using our urban renewal funds," he said. "One of our top goals was having people moving downtown, so we'll continue to use urban renewal funds for that purpose."
Local blogger Brian Hines has called the granting of those funds to Park Front, a group including former councilor TJ Sullivan, "crony capitalism." Bennett pushed back against that criticism, saying, "This is a grant made available to meet a variety of changing circumstances as you develop at an old industrial site."
Well, let's look at the misleading statements by Mayor-elect Bennett in Jonathan Bach's story.
(1) The Park Front building doesn't include any housing or retail space. So the goal of "having people moving downtown" doesn't apply to the $749,000 Park Front grant. This is just an office building.
(2) The Urban Renewal Agency blew a chance to make an "opportunity purchase" that could have brought much-needed affordable housing to the north riverfront area. I talk about this at the beginning of my story. Bennett is well aware of this screw-up, but so far he has ignored it. So this shows the shallowness of his commitment to using urban renewal money to bring in more downtown residents.
(3) There really weren't any "changing circumstances" at the Park Front site. T.J. Sullivan testified that the main reason he needs a $749,000 urban renewal grant is that Pioneer Trust Bank won't approve a construction loan unless he has more equity in the project.
A secondary reason, according to Sullivan's grant application, is that he's encountered cost increases. Well, so have lots of developers as the economy has strengthened in recent years. It's important to keep this in mind:
Mountain West Investment knew what it was doing when it bought the industrial property from Boise Cascade. Marquis Companies knew what it was doing when it bought part of the property from Mountain West for a rehab center. And Park Front LLC knew what it was doing when it bought a portion of the Marquis acreage for an office building.
Well, let's make it, each of these companies should have known what they were doing.
If Park Front LLC encountered unexpected problems with the property it bought from Marquis, that should be Park Front's problem, not a problem for Salem taxpayers.
This is why I continue to call the $749,000 grant crony capitalism. It is basically a bail-out of a poorly-planned office building project that couldn't get a construction loan from Pioneer Trust Bank. There is essentially zero public benefit being gained from this bestowal of public funds upon a private developer.
To learn more reasons why, read on. Here's my Salem Business Journal story.
Officials at the City of Salem appear to have forgotten that the Organization Chart on the City’s web site shows “Salem Residents” in the top position.
I say this because investigations into two urban renewal projects have revealed disturbing missteps outside of the public interest by the Urban Renewal Agency, which is overseen by the Salem City Council acting as the URA Board.
One misstep was the City missing a valuable opportunity in 2015 to purchase a 3.88 acre property, with about 600 linear feet of frontage on the Willamette River, located at 901 Front St. NE in Salem.
This property, reportedly one of only four river frontage parcels identified within the Riverfront Downtown Urban Renewal Area, was special: flat and immediately developable once a warehouse/industrial use building was removed.
Unfortunately, the property has been purchased and is undergoing development by a private developer from Portland.
So there’s a lost opportunity for urban renewal funds to spur construction of needed affordable housing, along with associated social and commercial services that could have been integrated into the development.
Those in the know about this missed urban renewal “opportunity purchase” lay the blame on the City of Salem Economic Development Department (EDD) and Urban Development Department (UDD). Both departments failed to focus on the availability of the 901 Front St. NE site.
The property could, and should, have been purchased by the Urban Renewal Agency at a low price, enabling it to be developed for affordable housing and associated purposes.
My understanding is that the property had been identified, and the money to purchase it was already in the urban renewal budget, as of July 1, 2015.
The second Urban Renewal Agency misstep was awarding a $749,000 grant to Park Front LLC for construction of an office building on the old Boise Cascade property.
What’s most bothersome about this grant, which I consider to be crony capitalism, is that the City of Salem web site says the aim of urban renewal is “to spur redevelopment where it might not otherwise occur without public investment.”
Yet the Park Front building clearly was planned to be developed without public investment.
In March 2016 a Statesman Journal story said, “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 TJ Sullivan, a co-owner of Huggins Insurance.”
No mention was made of construction being contingent on receiving an urban renewal grant. Yet in late November 2016 Sullivan applied for a $749,000 grant from the FY 2016-17 Riverfront-Downtown Urban Renewal Opportunity Purchases Budget allocation.
Yes, the $749,000 to subsidize construction of a new office building was coming from the same Opportunity Purchases budget that failed to be utilized to buy the prime 3.88 acres of riverfront property.
Rather confusingly, Urban Development Department director Retherford explained the Park Front LLC funding in this fashion: “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.”
So after missing the opportunity to spend about a million dollars to buy the 3.88 acres for affordable housing or a similar purpose in the public interest, now the Urban Renewal Agency is funding “exceptions” to the usual grant program.
Which means, instead of getting $300,000 to help pay for the Park Front office building that was announced as going to be constructed without urban renewal funds, on December 12, 2016 the Urban Renewal Agency Board (again, the City Council by another name) voted 5-1 to give $749,000 to Park Front LLC — with the extra $449,000 coming from the “exception” made possible by a failure to use Opportunity Purchases funds for their intended purpose.
At the December 12 Urban Renewal Agency board meeting, T.J. Sullivan testified that he needs the $749,000 grant because he won't be able to get a full construction loan from Pioneer Trust Bank without that additional equity.
Sullivan said that Pioneer Trust was concerned about the appraisal, debt to cash flow level, and occupancy percentage of his four-story project. He admitted that he could go ahead with a smaller building without the $749,000 grant, but wanted the “full meal deal,” so to speak.
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 always 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 good definition of crony capitalism.
I’ve sent a message to City officials that says, in part:
“I am requesting that Mayor Peterson, City Manager Powers, Urban Development Director Retherford, and the city councilors who voted for (or against) the grant describe in a simple, clear, truthful, transparent fashion the reasons why this is (or isn’t) an appropriate use of Urban Renewal money, This should be done before a check is written to the Park Front developers to assure that the public fully understands why their City officials are spending $749,000 of taxpayer money in this fashion.”
An Urban Renewal Agency staff report contains seven criteria that the Park Front project supposedly meets. I told City officials that I disagree with the report. Here’s the criteria and my reasons for rejecting the assumption that the Park Front application complies with them.
Removal of blight. Developers of the old Boise Cascade property have already received a tax deferral for the South Block apartments and a separate $749,000 urban renewal grant for the Marquis rehabilitation center. This area is no longer blighted. The apartments are a success. The Park Front building is to be built on property bought from Marquis. Public funds have helped to de-blight the area. No further use of urban renewal funds is justified.
Leverage of Public Funds with Private investment. Construction of the Park Front building was announced in March 2016. As noted before, at that time there was no mention by Sullivan, or anyone else involved with the project, that construction was contingent on receiving urban renewal funds.
So there is no leveraging of public funds with private investment. The private investment was committed to many months before Sullivan requested the $749,000 grant to enable him to construct a larger building than Pioneer Trust Bank was willing to give him a loan for.
Increased Property Value and Tax Increment. Again, increased property value was going to happen without taxpayer money. There is no evidence that the $749,000 will generate property taxes in excess of that amount over, say, the next 20 years, especially given that Sullivan has said that a smaller building could be constructed without the urban renewal grant.
Connectivity between Riverfront Park and Downtown. I am not aware that this project will do anything to improve that connectivity. True, tenants of the Park Front building will be able to walk to Riverfront Park. But since no retail space or residential housing is planned for the building, there will be very little reason for anyone to visit Park Front unless they have business to undertake with a tenant of the building.
Job Creation. As noted before, construction of the building was announced months before the urban renewal grant was requested. Several floors of the building already have committed tenants. No evidence has been provided that a $749,000 grant will lead to any additional jobs.
Streetscape Enhancements. Very few people will get a close-up view of the landscaping planned for the Park Front building. It will be built in what amounts to a downtown “island,” since few people will want, or need, to cross busy Front Street to reach the building. Landscaping is a code requirement, so it is an automatic streetscape enhancement when completed.
Downtown Vibrancy. Park Front is an office building with no retail space or residential housing in an area of downtown that is difficult to get to. Park Front will contribute very little to downtown vibrancy.
Thus it is disturbing that Salem’s Urban Renewal Agency is throwing $749,000 worth of taxpayer money at Park Front LLC, which is constructing a new office building with very few public benefits, after missing a terrific opportunity purchase of the 3.88 acre riverfront property that ended up being bought by a Portland developer for $1,025,000.
That property could have been used for affordable housing, a much better use of urban renewal funds.
Hopefully, the three newly-elected members of the city council will join with other City of Salem officials in taking a close look at how the Urban Renewal Agency is being managed.
Which in my view is, not well.
Brian Hines is a Salem blogger and citizen activist.