The city's Town Center numbers do not add up

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?"



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