Salem Political Snark

Disturbing facts revealed about $749,000 Park Front urban renewal grant

After making a public records request to the City of Salem for documents related to approval of the $749,000 Park Front LLC grant, and reviewing what I got, I'm even more disturbed by how this grant request was handled -- which relates to how Downtown Urban Renewal funds are being handled in general.

The easiest way to read this post is via an Adobe Spark web page I've fashioned. The images are larger on that web page, and copies of the documents are a bit easier to download and view. Just click below. Alternatively, scroll down and continue reading the post on this blog.

This is a lengthy post, so here's key "headlines" about the Park Front grant:

Park Front developer T.J. Sullivan wrongly asserted in his grant application to the City of Salem that 80 permanent new jobs would be created by the project. This should be grounds for the City Council revoking, or at least revisiting, approval of the $749,000 urban renewal grant, since the actual number of permanent new jobs likely is zero, or very few. 

It is clear that the Park Front building was going to be built with or without urban renewal funds, so the City of Salem's claim that public funds leveraged private investment with public money is false.

The Park Front developers said they plan to use the $749,000 to "add back" features of the building that they were going to leave out after construction costs escalated and Pioneer Trust Bank failed to loan them as much money as they asked for. So I continue to call this crony capitalism, since these are normal problems encountered by developers.

Approval of the grant by the City Council acting as the Urban Renewal Agency Board was rushed through by City staff before the end of 2016 so it wouldn't be considered by the 2017 City Council that would include three newly-elected progressive councilors.

In this post I'm sharing 20 public record documents that struck me as being of special interest. All of the documents can be perused in these two PDF files that I got from City staff.
Download UD records_Redacted
Download Untitled records_Redacted

(I've got to give a big thumbs-up to Urban Development Director Kristin Retherford and City Manager Steve Powers for approving a fee waiver of my public records request that I asked for because the request was in the public interest. Otherwise I was going to have to pay $407 for the documents.)

Some of the requested documents were considered to be exemptions to Oregon's public records law. Here's a cover letter I got that shows what wasn't given to me.
Download PR request cover letter 1-19-17

If you want to know the background of the Park Front grant, check out my previous blog posts about this issue:

More crony capitalism in Salem: $750,000 for T.J. Sullivan's downtown building
Urban renewal crony capitalism is alive and well in Salem (may it die soon)
Salem Business Journal publishes my urban renewal "crony capitalism" story

As you can read in the last Salem Business Journal post, I emailed the Mayor, city councilors, and other City officials, asking them to explain in clear and simple language why they approved or opposed the $749,000 Park Front LLC grant. Only Retherford replied, and at considerable length. 

(Below, in item #20, there's a public record document where Councilor Tom Andersen explains in an email to a citizen why he voted against the grant.)

I had a productive back-and-forth exchange of emails with Retherford, the Urban Development Department Director, but I still failed to understand the rationale for giving so much public money to a private development that was going to be built anyway and didn't provide any substantial urban renewal benefits.

So I submitted a public records request to learn more about how and why the Park Front grant was made. My misgivings about how urban renewal funds are being used by the City of Salem not only remained after I reviewed the documents, they were strengthened.

What follows is both geeky and fascinating.

The documents I'm sharing are listed in chronological order, with two undated documents at the beginning. Because some struck me as being especially disturbing, I've highlighted them in red. So if you don't want to look through all of them, these are the ones to focus on.

Retherford assured me that the Park Front LLC  grant was handled in a customary fashion. This probably is true. But "customary" doesn't mean "properly." My conclusion from delving into what still seems to be a case of crony capitalism is that the customary way the City of Salem is using public urban renewal funds needs to be changed.

(1) Undated message to T.J. Sullivan
Download Blog post file 14 PDF
This email from Sheri Wahrgren, Downtown Revitalization Manager, shows what Sullivan needs to do to get a $300,000 grant at the Urban Development Director's discretion. Later the amount was increased to $749,000, which required City Council approval (acting as the Urban Renewal Agency board). I include this document as background information.

(2) Undated message from Sullivan to Wahrgren
Download Blog post file 24 PDF
Here we learn the reason Sullivan wants a grant for the Park Front building. Construction costs have increased, and he wants $749,000 to "add back" some building enhancements. Is urban renewal money supposed to be used to enhance an office building that was going to be built with or without public funds? Should taxpayers bail out a private project that is experiencing cost overruns? I say NO. Also, Sullivan says that the building will be home to 80+ family wage jobs. These aren't being created, because my understanding is that all of the tenants already are located in Salem; the businesses are just moving to the Park Front building. 

(3) May 12, 2014 staff report regarding changes to Riverfront-Downtown Urban Renewal program.
Download Blog post file 16 PDF
This report describes how the previous smaller "rehabilitation and restoration" urban renewal grant programs came to be replaced by the larger "capital improvement" grant program that Park Front LLC took advantage of. Basically, previously urban renewal money was used to renovate existing downtown buildings. Now large grants, again, up to $300,000 at the Director's discretion, can be made for new construction -- in this case, for an office building that has no retail space, no housing, no (or very few) permanent new jobs, and no real public benefits.

(4) April 7, 2015 letter from Pioneer Trust Bank.
Download Blog post file 11 PDF
Early on, Pioneer Trust Bank told Park Front LLC that it intended to finance the development of their $8,500,000 building, with the requested loan being $7,225,000. This was before an urban renewal grant was applied for, another sign that Park Front was going to be built with or without public funds. I've argued to Retherford that it makes no sense to talk of urban renewal money "leveraging" private investment when that investment was going to be made anyway. The $749,000 grant given to Park Front really was a gift of taxpayer money to a private developer.

(5) October 28, 2015 email from Sullivan to Mark Becktel and Sheri Wahrgren.
Download Blog post file 18 PDF
This seems to be Sullivan's initial contact with City staff regarding an urban renewal grant. He says that he is closing on property on the North Block, hopes to break ground on the new building in May 2016, and anticipates completion in May 2017. All without urban renewal money, but he wants some. Wahrgren says they'd be happy to meet with him. To repeat, and I'm sure I'll be saying this again, Sullivan had bank financing, land, and plans to begin construction. So why should taxpayers fork $749,000 over to him?

(6) December 1, 2015 application by Sullivan for an urban renewal grant.
Download Blog post file 17 PDF
What leaps out at me here is that Sullivan affirms 80 permanent new jobs will be created upon project completion, However, what I've heard is that most (or all) of the tenants of the Park Front building, including Sullivan's own insurance company, already are located in Salem and simply are relocating to the new building. I've asked Retherford if her agency confirmed that 80 permanent new jobs actually will be created by this project. If not, Sullivan made a serious misstatement on his application and this should be grounds for revoking, or at least reconsidering, the grant.

(7) December 8, 2015 email from Sheri Wahrgren to T.J. Sullivan.
Download Blog post file 15 PDF
On the face of it, this is a City of Salem staffer trying to be helpful to an urban renewal grant applicant. But I included this document because it reflects the extremely solicitous attention given to the Park Front LLC folks. Wahrgren asks if she can help submit the documentation for Sullivan's grant request, and wants him to tell her if she can help in any way. I doubt most citizens who are paying for a permit, or whatever, get treated so nicely. In the public record documents I received, City employees seem like they're almost trying to throw $749,000 at Sullivan. In my view, they should have been asking tougher questions about his grant request, rather than trying to rubber-stamp it.

(8) January 11, 2016 email exchange between Wahrgren and Sullivan.
Download Blog post file 13 PDF
This is another indication of how cozily Sullivan was treated in his quest to get an urban renewal grant. Wahrgren says they will be "issuing a commitment early in the process so you have confirmation of funding." Weirdly, from my perspective, Wahrgren wants confirmation that Pioneer Trust Bank will lend Park Front the money needed to finish the project. Well, if this is the case, why should Sullivan get $749,000 in public funds if he already has what is necessary to construct the Park Front building?

(9) February 8, 2016 email exchange between Wahrgren and Sullivan. 
Download Blog post file 12 PDF
A month later, it appears that Sullivan is having difficulty finalizing a loan from Pioneer Trust Bank. Some language is redacted, but clearly other banks have been contacted. When Sullivan testified at the City Council meeting where his grant was approved on a split vote, he talked about how Pioneer Trust Bank wouldn't give him a full construction loan because the bank was concerned about several lending criteria. Yet throughout the grant application process, the City of Salem showed few, if any, qualms in granting Sullivan $749,000. 

(10) April 14, 2016 email exchange between Wahrgren and Sullivan. 
Download Blog post file 10 PDF
Wahrgren is asking some good questions, but she says the answers are needed to "prepare a funding commitment for Kristin's [Retherford] review/approval." So as noted before, every indication is that Salem's Urban Renewal Agency is eager and ready to give Park Front a grant. Sullivan says they are asking the bank for $8.5 million rather than $8.23 million because they are "looking to beef up the amount of glass and the landscaping." The difference is about $300,000, which happens to be the original amount Sullivan requested before the grant was upped to $749,000. 

(11) May 16, 2016 email exchange between Wahrgren and Sullivan. 
Download Blog post file 9 PDF
Sullivan assures Wahrgren that they intend to break ground on the Park Front project by the end of August or beginning of September, 2016. Again, he hasn't gotten the urban renewal money. But as noted before, this isn't necessary to go ahead with the building. It just is extra money, courtesy of taxpayers, that will enable some "enhancements" to the building.

(12) October 19, 2016 email exchange between Wahrgren and Sullivan.
Download Blog post file 8 PDF
By October, Sullivan and City staff have shifted from a $300,000 grant request to a $749,000 grant request made possible by using redirected "opportunity purchase" funds in the Urban Renewal Agency budget. Sullivan says that the additional $440,000 (which became $449,000) would be used to add features to the Park Front building. Meaning, he could construct the building without the additional public funds, but with the extra urban renewal money more features could be added. To which a lot of ordinary citizens would think, "Hey, can I get $449,000 from the City of Salem to add some features to the building I'm planning to construct?" Answer: No. 

(13) November 9, 2016 emails from Wahrgren to Sullivan, and from Retherford to Wahrgren.
Download Blog post file 1 PDF
There's a couple of interesting things in this document. First, Retherford asks Wahrgren to "follow up to see if this can go in January." I'm assuming this means the $749,000 grant application, and January (20127) refers to a meeting in that month of the City Council acting as the Urban Renewal Agency. In a subsequent document I'll show why this is important.

Second, Wahrgren gives advice to Sullivan on how to revise his funding request letter. She tells him what to say in defense of his grant application so it meets the criteria for awarding a $749,000 grant. Again, pretty darn cozy grantor-grantee relationship.

It reminds me of banks prior to the financial meltdown telling mortgage applicants what information they should put on their application to qualify for a mortgage. She also says to Sullivan that the entire $749,000 appears to be for add-backs to the Park Front building, but apparently Sullivan hasn't listed added-back features that total to that amount. So Wahrgren gives Sullivan advice to make his request letter look better. Once again, we see that this grant isn't necessary to construct the Park Front building, but just to add some niceties to an office building with no retail or residential space that is going to be built with or without a taxpayer-funded grant.

(14) November 9, 2016 email from Sullivan to Wahrgren. 
Download Blog post file 7 PDF
This is the Sullivan email that Wahrgren is responding to in the document above: "Let me know what you think of this letter and what I should change/add/edit." Look, maybe this will strike some people as fine, that the person requesting $749,000 in public funds is getting advice on how to frame that request from one of the people at the City of Salem in charge of giving out grants.

I'll just say that I applied for quite a few private foundation grants when I was the executive director of a non-profit health policy organization. What I remember is that I had to justify the need for the grant on my own. Nobody from a charitable trust or foundation told me what to say in order to get a grant. Yet City of Salem staff are doing just that for T.J. Sullivan -- who happens to be an ex-city councilor, a Chamber of Commerce vice-president, and chair of Mayor Peterson's Blue Ribbon Task Force on the Police Facility. I'm just saying, who happens. Maybe all urban renewal grant applicants are treated equally royally.

(15) November 21, 2016 email from Wahrgren to Sullivan, and his response.
Download Blog post file 6 PDF
Here Wahrgren asks Sullivan to fill in some blanks about the total project cost and the funding sources to meet that cost. Sullivan's answers are: Total Cost - $8,900,000.  Bank financing - $6,200,000; Urban Renewal Agency grant - $749,000; Owner Equity - $1,951,000.

We can compare this to the April 2015 figures (see #4 above) in the Pioneer Trust Bank letter where the total cost was $8,500,000 and requested bank financing was $7,225,000. So while the overall cost of the Park Front project only rose by $400,000, the amount willing to be financed by a bank fell by $1,025,000. Thus it appears that the Urban Renewal grant would be a substitute for money that a private bank wasn't willing to lend to Park Front LLC. Alternatively, Sullivan could have reduced the size/cost of the building, or raised more equity money to put into the project. Usually this is what a private developer would have to do. But in this case taxpayer funds were used to bail Sullivan out, which I call crony capitalism.

(16) November 21, 2016 email exchange between Wahrgren and Anita Sandoval. 
Download Blog post file 23 PDF
This document shows that City of Salem staff were rushing to get the Park Front grant approved before the end of 2016. In January 2017 three newly-elected progressive city councilors would be on the City Council, changing the balance of power. Sandoval, the Urban Development Agency Office Supervisor asks Wahrgren for a report to be written "like its final" "if you want this to be approved by the end of the year." Wahrgren replies, "That is my plan."

Illegal? No. Unseemly? Yes. Political games are being played, sort of like the reverse fashion of Senate Republicans refusing to confirm Obama's Supreme Court nominee in 2016. In this case, it is evident that City staff didn't want to risk new city councilors voting against the Park Front grant request, so the vote was taken at the very end of 2016.


(17) November 23, 2016 edited draft of a Retherford staff report. 
Download Blog post file 19 PDF
This document is intriguing for two reasons. (1) Edits were made on the first page to take out a previous mention that the Park Front site "has been available for redevelopment for many years because of the challenges and additional costs associated with the infrastructure and environmental costs of a brownfield site."

If this were true, which it isn't, an urban renewal grant might have been justified. But actually the acreage had first been bought by Mountain West Investment as part of its redevelopment of the old Boise Cascade property, and then the acreage was sold to Marquis Properties, which intended to build a rehabilitation center and office building on it. Marquis then sold part of the acreage to Park Front LLC.

So the site had already been sold for redevelopment twice before Park Front LLC bought it. How many times does redevelopment have to take place before the Salem Urban Renewal Agency considers it "de-blighted"? I'd say, once, but three times, as happened in this case, sure seems enough. Yet, the third sale still was viewed as justifying a $749,000 urban renewal grant.

(2) In line with the above, the second page talks about a determination by the Oregon Bureau of Labor and Industries that the Park Front LLC project is separate and distinct from the Marquis project, even though both are being built on the acreage that Marquis got another $749,000 urban renewal grant for. Technically this may be correct. But common sense argues that after an urban renewal grant has been given to deblight a property, it doesn't make sense to give an additional grant to Park Front LLC to redevelop the same property. 

(18) December 1, 2016 email from Sullivan to Wahrgren.
Download Blog post file 22 PDF
I find this brief email message from Sullivan irritating. He says about a possible delay in a City Council/Urban Renewal Agency Board (same people on both) vote on his $749,000 grant request, "OK, I would hate to wait for the new council come on line with this request pending."

Look, I'm a political junkie. I know that politics permeates goings-on at the Salem City Hall. But it bothers me that an urban renewal grant is being viewed as a political hot potato.

Sullivan, and by extension Wahrgren, appear to consider that the Park Front grant "potato" will be handled nicely by the 2016 conservative-dominated City Council, and are worried that the new progressive city councilors won't view it as positively. Call me overly idealistic, but I don't like the idea of urban renewal grants being made on the basis of politics. If the grant is justified, it should be acceptable to both conservatives and progressives. City staff shouldn't have rushed to get the $749,000 grant approved by the 2016 City Council at their last meeting in December. This was wrong.

(19) December 1, 2016 email from Wahrgren to Downtown Advisory Board
Download Blog post file 3 PDF
In this staff report Wahrgren claims that given the total project cost of $8.9 million, the urban renewal grant would leverage $10.87 of private investment for every $1 of Riverfront-Downtown Urban Renewal funds. But this makes no sense, since there is plenty of evidence (see above) that the Park Front building was going to be built with or without urban renewal funds. So there is zero leveraging of private investment given that it was going to be made anyway. Instead, the $749,000 was a taxpayer gift to T.J. Sullivan and his fellow investors that made it easier for them to add back enhancements to the building that they didn't want to make due to increased development costs.

(20) December 23, 2016  email from Councilor Tom Andersen to Jess Barton.
Download Blog post file 25 PDF
Lastly, City Councilor Tom Andersen explained why he voted against the $749,000 Park Front grant in an email to a citizen who was concerned about the propriety of giving this money to the developers. Here's what Andersen said, which echoes my own sentiments.

Hi Jess. This is what I have sent to others who have emailed me about this project.

I did so for many reasons, none of which relate to the insider allegations. The process was flawed; with misstatements from the beginning and a very late (11/21) application which led to a rushed decision; the project did not create 80+ jobs, it merely transferred them from one office building to another; there was no housing (I support these kinds of grants downtown where housing is created); it could have been structured as a loan and not a grant; the project would have been built without the grant, albeit at three stories, not four (so what - it still would make a profit for the developers); nearly 80% of the square footage of the building was going to be leased to business owned by the development group; and there are much better uses for the $$$.

I will continue to oppose projects of this nature and continue to support projects which bring residents to the downtown core and which could not be built without city support. This project did not qualify under any of these criteria.

Thanks again for your civic involvement.

Salem Business Journal publishes my urban renewal "crony capitalism" story

"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.

Urban renewal crony capitalism is alive and well in Salem (may it die soon)

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.