Concerned citizens opposed to the Americana at Brand project believe
its business terms unnecessarily give away valuable public assets.
Project proponents, who have not demonstrated a clear understanding
of these finances, may not know what they are getting or how much it
will cost. I, therefore, set out some of the more striking terms and
invite comment from proponents and opponents alike.
The March 29 "audit" shows $77.1 million of public funds for
acquisition, preparation and improvement of 15.5 acres of prime
downtown real estate. Since some of the 15.5 acres have not been
purchased, this is an estimate; as with past estimates for the
project, the cost may go higher. The figure is already understated. A
portion of a $48-million bond issue (secured by property taxes) will
be used for land acquisition; bond interest is $25 million. The
$77.1-million figure ignores the portion of the $25 million
attributable to the project. It is clear that the actual costs in
public funds will probably be in the $100-million range.
Of the 15.5 acres acquired with these public funds, 8.5 acres will
be given free to Mr. Caruso. He also gets four acres on a $1-a-year
lease for 95 years (essentially ownership). Finally, he gets free
ownership of the land under our 1.8-acre park for underground
parking; the public retains only the top four feet. Just 1.2
unencumbered acres, improved with public funds for pedestrian access
to Mr. Caruso's project, will be retained by the public.
History tells us that the 8.5 acres and the $1-a-year, 95-year
lease can only dramatically appreciate in value. The audit states the
public will share in the appreciation only if the project is sold
within 20 years. However, before we can take our share, Mr. Caruso
gets 78% of the profits. Next, from the remaining 22%, he is
reimbursed for each annual shortfall he may have experienced in his
preferred return of investment (ROI). (Audit figures for the expected
shortfall are in the Page 21 chart; they project a $1-million
shortfall.) Only then will the city share equally with Mr. Caruso in
the remaining profit, if any.
Finally, the environmental impact report states the city must
annually spend $900,000 for an additional Fire Department emergency
medical unit and the added annual cost for seven more police
positions. The audit fails to mention these yearly expenses.
That is what is coming out of our pockets -- what is Mr. Caruso's
investment? The Feb. 14 staff report indicates it will cost him $133
million to construct the center. This includes more than $11 million
of financing costs -- because obviously most, if not all, of the $133
million will be borrowed funds. Years ago, I worked closely with a
developer. Depending on the value of the land and his equity, he got
full financing of construction costs and a "land draw" (money in
excess of construction costs, which he could pocket or use as he
wished). When Mr. Caruso goes to a lender for a construction loan,
his equity will consist of his free 8.5 acres and the value of his
$1-per-year, 95-year lease on the four acres. On that basis, Mr.
Caruso may have none of his own money at risk; he may actually have a
"land draw." (So much for the argument that the land we are giving
away has no value). Until Mr. Caruso and his lender tell us the
amount he will borrow, there is a prima facie case that none of his
personal funds will be at risk.
Certainly security for the loan will consist of a trust deed on
Mr. Caruso's interest in the 15.5 acres gifted to him. The
Redevelopment Agency/Caruso agreement covers eventualities
surrounding the construction loan. Thus, in the event of a default,
it is possible that the ultimate risk will be borne only by the real
property purchased with public funds and given free to Mr. Caruso.
Given our city's checkered past with redevelopment defaults, it's
possible the taxpayers may be forced to rescue from foreclosure the
property we purchased and gave away.
There is a triggering provision for profit sharing between Mr.
Caruso and the city, but that occurs only after Mr. Caruso gets the
first $13.4 million of profit (his ROI). The audit states that the
provision will never be triggered; at Page 26, it shows a $1-million
shortfall in Mr. Caruso's ROI. The only other direct benefit to the
city is an estimated $360,000 a year due to Mr. Caruso's maintenance
of the 1.8-acre park and the 1.2 acres of pedestrian walkways that
service his project.
The city asserts a $3.1 million-a-year tax benefit (a $1.3-million
property-tax increase and $1.8 million in new sales taxes). No
increased property tax will go to the city's general fund. Using Page
16 audit figures, these revenues over 30 years will go: 56% to the
Redevelopment Agency (to repay bond holders), more than 18% to the
county and other public agencies, less than 1% to the community
college, 4% to the school district; almost 20% for affordable housing
and zero to the general fund. Until all redevelopment obligations are
paid, there is no benefit to the city's general fund.
The $1.8 million in new sales taxes is overstated. At Page 26, the
city's financial report ("Speer Report" in the EIR appendix) states a
$1.56-million increase by 2006 and $1.73 million by 2009; but it
states that close to 10% of the increase will be contributed by the
Galleria expansion. If we subtract this contribution, in 2006 the
project would only contribute $1.40 million of new sales taxes to
the general fund and in 2009 it will rise to $1.57 million -- barely
enough to cover the increased expense of the added ambulance service
and police protection required by the project. Plus, the report does
not consider that the current Rite Aid will remain part of the
project; and, because it is currently paying sales taxes, its sales
tax must be deducted from any projected "increase." While the Speer
Report does take account of taxes siphoned from surrounding
businesses, it does not consider the sales-tax loss, which also must
be deducted due to businesses lost to the city like Big 5, the Unocal
76 station and Just Tires.
Before voting on Mr. Caruso's Americana, each citizen should ask:
"Are these financial arrangements a prudent and responsible use of
public funds?" I understand that maximum profit is not
Redevelopment's goal and that public support may be necessary to
ensure the developer a fair profit. That is not the same as a
giveaway of valuable public assets to only handsomely enrich Mr.
Caruso. The question is not whether we should have a Town Center.
(When Mr. Caruso temporarily withdrew, the mayor said he received
nine unsolicited inquiries from developers interested in providing a
Town Center.) The question is: "Do we, the citizens of Glendale, want
a Town Center on these lopsided, giveaway terms?"