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A partial review of "stuff" since my trip.

9/21/2015

Well, I’ve finally caught up somewhat from taking several days off for my road trip. It’s been a little tough. The work isn’t any harder, but it’s a young person’s game, I guess.

I’ve been trying to get caught up with news. There is some news that is a little unsettling. There will be a reprint of some Facebook correspondence from Rick Sheffield, Todd Gottel, and Michael Gallops at the end of this post. Many references in this post are made to these emails.

I was reading some Facebook commentary and a few things stood out. I noticed that a citizen posed a question on Facebook post regarding the application of funds from tax revenue.   Can you imagine that!??! A citizen has so much gall that they can ask elected officials how they and senior staff members are spending the citizen’s money. What a pain in the butt to elected officials!!   I know our teachers have taught us that that is the way it is supposed to work, but what do they know?    If I recall, it has something to do with a representative democracy.

Apparently, one of Larry Beckham’s newsletters triggered a lot of email or Facebook posts to City Council regarding application of funds. This led to posts on Facebook whereby three of City Council members opted to respond. The conceited indignity in which the Council Members responded to Mr. Beckham was childish, arrogant, and dismissive.

Let’s start with the lightweight commentary.
Rick Sheffield: Larry, the packaged liquor sales tax monies will go towards economic development and attracting businesses to our town, not building government as you suggest. I noticed that Todd Gottel just posted a great explanation, please check it out.

A couple of things bother me about this comment. First, its highly dismissive. The words, “please check it out,” are an order. His words, “a great explanation” are only Mr. Sheffield’s opinion. It is not my opinion (which follows). I think Mr. Sheffield’s comment is highly arrogant and conceited. He also seems to be easily satisfied with meaningless blather.

Now let’s take a look at the mayor’s comments. He posted two comments.

For the most part, the mayor’s first post was pretty much jibberish. Just about everything in this comment was already known by most people. However, it was probably good review. That doesn’t mean he was factually wrong. I agree with just about everything the mayor wrote. I agree that businesses locate in communities to make money. That’s the American Way, and I’m all for it. Do we complete with other cities? Of course. We have to give as much as any other community. UNLESS, our demographics are better. Demographics can be 95% defined as 1) how many people live there, 2) how much money do they make, and 3) what’s the area’s growth potential. These demographics are added to the cost estimates, which includes land.

The mayor writes, “Perceived land values in Rowlett also make it difficult to compete.”

Land values aren’t “perceived”………not for very long, anyway. If you are interested in a piece of land, you pick up the phone and call the owner. He wants paid a certain amount and you want to pay a certain amount. If you can come to a meeting of the minds, the land is bought. There is no perception. When demographics, costs, and access (location) are factored into the equation, only the city’s “cash or kind” contribution remains to be determined. If the city can give more in cash, or kind, than competitors, the proposed business will be coming to Rowlett, assuming all else was equal. Remember the words “or kind.” You’re going to need that understanding for the discussion about Michael Gallops comments, our Mayor Pro Tem.

Our mayor’s first comments were politispeak. Blah, blah, blah, and hardly the “great explanation” that mesmerizes Mr. Rick Sheffield. Oh, if you think I’m picking on the mayor, please see my post of August 23, 2015. I’m just fresh out of rose peddles to throw along “officialdom’s” path.

The mayor’s second post was a little different. First, he had the same dismissive attitude toward a citizen that Sheffield had. There is no excuse for that. Then, if he had stopped writing about the Homestead project after the first 10-11 sentences, he would have been fine. I agree with everything the mayor said in those sentences. Forgiveness of impact fees is not a city’s investment into a project. They generally aren’t designed for the developer at all.  Waiving impact fees help relax the start-up costs for the home builder. However, the Homestead (per lot) impact fee waiver was made to the developer…….not any builders. The fees were quantified and explained to City Council as per house. That methodology was a little bizarre, but okay if the cost savings were passed down to the builders. I was on City Council at the time. I was against any MARKETING aid for the Homestead developer. I was okay with the forgiveness of the sewer, water and road impact fees, so long at the savings were passed on down to the homebuilders. My reason was because I didn’t want to give this particular developer an unfair lot price advantage over any other developer wishing to develop in Rowlett. I did not mind forgiveness of impact fees to builders……any builders.....even in other subdivisions. The amount in question was about $3,000 per house. The developer only produces a, say, $50,000 product……a lot. The builder produces a, say, $250,000 product…..a house. A home builder is the better application of the impact fee waivers…….even tho it is not an “investment” of the city’s capital. Larry Beckham and I don’t agree on this philosophy, but it’s okay for friends to honorably disagree. I do not mind giving the developer some ad valorem tax abatement relief for reasonably short periods of time. My general rule of thumb was to: 1) Give relief during periods of marketing for up to three years. 2) For any projects creating jobs and tax base, I was okay with five year tax abatement. 3) For projects creating jobs, tax base, and sales tax revenue, I was okay with seven years of abatement.

A forgiveness of impact fees totaling $3,000 per house will earn the money back from ad valorem taxes in three years. Then, there is an unlimited number of years in which the city collects taxes on the house. I am okay with the city’s awarding of reasonable relief from impact fees. I am a little less forgiving on the awarding of “cash or kind.”

Todd continued on with his second posting of Facebook. Then the wheels come off. Todd refers to the “restaurant deal” downtown. I didn’t know it, but it appears the deal is dead. Surprise!! Surprise!! The only people I talked to, observed at city council meetings, and read on email that thought this was a good deal, were elected officials and staff!! How incredibly naive can they be??!! Every civilian I talked to thought the deal smelled. I wrote right here in this blog that someone should vet the deal and at the very least check out the probability of available financing. As an ex-lender, I wouldn’t have touched this deal with a 10’ pole. I called the mayor and protested. I could have saved time by talking to the nearest doorknob. The reasons are too many to go into here. Needless to say, no one checked crap. This was purely a deal where someone knew someone. Whoever led this deal into a City Council vote was a complete incompetent….or worse. At this point, we'll go with incompetent.

And…. Then the $50,000 land value popped up again. Rick Sheffield made reference to it first several months ago. When challenged about that number, he blamed the amount off to a member of “staff.” Rick Sheffield has a real estate license!! He’s not an appraiser, but his real estate knowledge by osmosis should have told him this was a horribly bad number. This was the citizen’s land……not the City Council’s. Every taxpayer in this town had an undivided interest in that land. It was ours!! The mayor made reference again to this same $50,000 land value in his second post below. Apparently, the $50,000 “value” is still alive and well. Folks, let me tell you, if one has a mental age of over 12 years old and an IQ of over 80, just a simple review of comparable land sales will reveal that the value of that land is well over $50,000. You can barely buy a house lot in Rowlett for $50,000, let alone a substantial piece of land in a revamped downtown area near a DART station. No one ever had it appraised. That should be law!! No one should ever sell or give away public land without having it appraised and being fully aware of the value of land in question. To not do so simply destroys any mathematical logic or analysis used in determining the acceptance of the deal. To not know the true value of the land is stupid. How can you know if the deal is good, or not? Our entire city staff and elected officials are really, really, stupid, or they were lying to the public to make their pitch to the taxpayer more palatable and fictitiously acceptable.   Okay....I will accept incompetent. Our mayor was either trying to hoodwink you, or he should try some other line of work other than real estate appraisal. Oh…..wait a minute…….Sheffield told us it was staff’s number…..therefore Council is exempt from bothering to verify such numbers to the public. My apologies. I thought the Council was the oversight committee for staff behavior. I guess staff prevails.

On the Terra Largo apartment project, I have a different problem. I don’t know what the city is giving them. It is probably my fault because I haven’t followed all aspects of this new development. I know, in general, I like it. I think it will be good for Rowlett, particularly because of its upscale nature. However, I am bothered about the entrance to Scenic Park. From what I understand, if a citizen wants to park his vehicle and walk along the shores of Lake Ray Hubbard on Scenic Park trails, that citizen must enter the apartment complex, which is private property, to access the park. People, this is a really bad idea. There should be public streets to public parking to access the public park. Private property should not be involved. If the apartment complex wishes to build an entry into Scenic Park because they are contiguous, that is fine. However, the public needs their own access and parking. What would happen if apartment management got into an argument with the city? Could they prevent the citizens from entering their private property, thus removing access to the park? Is there a common easement? Why should the apartment complex provide land for parking of Rowlett citizens? This should never be an issue. I think the city is ill-advised in trying to save a little money here. The public (citizens) need their own entry……and it needs to be nice…….not some cow path. I asked the mayor about this. His answer crossed my eyes. I think he said, “Trust me.” I have learned not to do that.

I have saved the best for last. After reading Michael Gallops post on Facebook, all I could do was stare at the monitor. My eyes glazed over. I didn’t know where to go.

Apparently, the Mayor Pro Tem thinks an investment in property can only be “cash.” That degree of sophistication in structuring a real estate deal is positively Neanderthal. Way up above, I wrote “cash or kind.” Remember? Well, let me give you an example.

Let’s say a bank was contemplating making a development loan to an apartment developer to build a $30 million project. Typically, a bank would want 20% down payment. That means about $6 million would be required of the developer. The developer then says, “I don’t have $6 million. All I have is the Hope Diamond to pledge as collateral.” The banker then says, “Oops. Sorry. I can’t do the deal.” Last I heard, the Hope Diamond is worth about $50 million. The Hope Diamond in this story is not “cash……but kind”. I have tabulated at least $11 million of cash or kind that the City of Rowlett is forgiving or spending to intice this developer to build The Villages of Rowlett. I don't believe I counted the moving of the Chamber of Commerce.

When I witness such complete misunderstanding of the principles of real estate investment structure, I am just stunned. Yet, Michael and others vote on our real estate supported tax base and our pocketbooks at nearly every Council meeting. The council meetings that we watch are after the deal making has been “scrubbed up” for presentation to the public.

Michael writes that Larry “just doesn’t get it." What an arrogant, egotistical, pompous remark to make to a valued citizen who works hard to produce a newsletter whose quality and content far exceeds anything Michael Gallops ever did for Rowlett.

Let’s look at Michael’s understanding of real estate investment. Michael says that Larry is wrong because Larry implies that all the investment made by the city to aid The Villages are in cash. Michael totally misses the issue. It is “cash” (very little) and “kind” (a whole bunch). Michael doesn’t have a clue how it all works.

Let’s compare any city to a bank. Any organization, bank, or city that is called upon to invest assets into a real estate transaction wants something in return. A bank wants low risk, interest income, and eventually paid off. A city wants new real estate in which to levy new ad valorem taxes, create some jobs, and maybe provide impetus for new business development and sales taxes. Their wants are different, but their strategy and disciplines are the same. The bank wants 20% down and a first lien on the property. They will loan the rest of the cash needed. A city isn’t in the lending business, so they do it a little different. The city invests land, off site utilities, forgiveness of impact fees, and some amount of tax abatement to enhance the arithmetic on the business plan. The bank takes these “contributations” by the city into consideration when “underwriting” the loan package. These contributions are considered as "investments" no matter what Michael Gallops thinks. The city just made the math so attractive to the bank, that the bank will loan the money. The bank gets the interest income, and the city gets the tax base………UNLESS THE CITY HAS GIVEN IT ALL AWAY. It will take the city over 65 years to recapture all the "cash or kind" that will be invested in The Village. Michael apparently feels that only “cash” is counted as investment in real estate. The fact is, as often as not, cash is not the investment. I have not done a survey, but my experience in hundreds of real estate deals suggest that more investments in real estate development comes “in kind,” not in “cash.” Most often, the required investment is land, however CDs, stocks, other land as additional collateral, boats, airplanes, and even the Hope diamond could be an investment package. Investments in real estate do not have to be cash. Michael will never read this. Would someone advise him?

Let’s look at another statement written by Mr. Gallops.

Michael Gallops You aren't getting it Larry - the numbers you're throwing out aren't CASH. They are waived fees, future rebates, etc. And if Ron has come up with $11 million for the Village of Rowlett he is simply wrong.

Well, let’s look at “etc,” above. What’s in “etc.?” Michael is a little unclear about that. I think Michael's "etc" is where my "kind" is. You must go into the archives and read my post of July 24, 2014. That post sets out the $6 million investment the staff is reporting to cost the Rowlett taxpayers. This apparently is what Michael thinks our investment is. Oh, Wait!!......Staff said the investment was $6 million. We have learned that it's not the job of City Council to verify or purge the numbers. A more exacting list is on the staff report submitted to City Council. The staff report, approved by City Council, states that the investment of Rowlett for The Villages is $6 million. This is the number that apparently Michael is saying is accurate. Remember the word “kind?” Much of that $6 million is 12 acres of land. Much more is paying back the developer for the installation of utility upgrades. These monies are paid out of “380 Grants.” Do you know where '380 grants' come from? The city’s checking account. In any event, Michael seems to be comfortable with the $6 million investment number. Well, I wonder what’s in his “etc” number?

I want to give you a homework assignment. I want you to look up and read three things. Please go to the City of Rowlett website and find the Agendas for City Council meeting. Look up the packet for the meeting on May 20, 2014, and find the staff report for The Villages of Rowlett. In that staff report, the $6 million investment is itemized for public consumption. This is apparently what Michael says is the right number and accuses Larry Beckham of “just not getting it.” This is not hard. Just do it.

Then, go to the right side of this blog and click on the archives for July, 2014. Scroll down to the post on July 26, 2014, to the post entitled “The Villages Deal (4). The cost estimate of the $11 million is there. It is legitimate and completely understood by anyone that knows real estate investment and structure. This is the number in which Michael said I was “simply wrong.” Of course, he pointed out where I was wrong, correct? He wouldn’t have a clue whether I was wrong or right. He had no countering facts or numbers. He was just being an officious ass.   Then, read the post on the following day, dated July 27, 2014. This will give you a summary and overview of the costs of the project. The mayor correctly says we have to invest in our future to grow our assets. I agree wholeheartly. However, he seems to put no limits of the gifts. For example, there is no one reading this post that will even be alive before Rowlett recaptures their investment made in The Villages of Rowlett. I don’t believe that thought every occurred to any of staff or council, except Debby Bobbit. She correctly said, and I quote, “It costs too much.” That said it all.

The officials above have just exemplified and demonstrated all that I have been writing about for the past one and a half years. I am tired of the poor reporting to the citizens. I am tired of numbers being cooked. I am tired of the stupid real estate management of our tax base. I am tired of giving away too much money. I am tired of the phony Cheshire Cat grins every time there is a photo opportunity. I’m just getting tired of not maximizing the best opportunity Rowlett ever had to move to the front of the class. I do not trust anyone from Rowlett tampering with our new addition called Bay View. The owner should erect crosses at every entry to ward them away.

Below are copies of the Facebook posts referenced above. Please read them and compare them to my comments above. In writing this post, I re-read many of my earlier posts. I wouldn't change much, if any. You have all been delivered good information in this blog. If you feel I am wrong somewhere, let me know. I will revisit the topic. If I am convinced I am wrong, I will write a full retraction. Take a look at Gallop's two posts below. They are pure conceit.

Below are the Facebook posts.

Rick Sheffield--
Larry, the packaged liquor sales tax monies will go towards economic development and attracting businesses to our town, not building government as you suggest. I noticed that Todd Gottel just posted a great explanation, please check it out.
Like · Reply · 2 · September 4 at 11:28pm · Edited

Todd Gottel--
Friends, I wanted to share some good news about Economic Development for the city of Rowlett. It's kind of a long post... I have tried to shorten it up as much as I could. Sorry... I could write a book on this! LOL!...

The City Council recently voted to earmark the portion of sales taxes generated from packaged liquor sales to fund economic development. I am not sure how much revenue this will be but I am told it COULD be several hundred thousand dollars annually once ALL of the stores are fully open and operational. Today, the revenue is minimal, because our first packaged liquor store open a month ago. If you remember packaged liquor was on the ballot in Rowlett this past May and passed by the voters with over a 70% approval rate.

One of the challenges we have had since I have been on Council and in the past is how to fund economic development. Cities all over the metroplex and state fund economic development in several different ways. Some have a private Economic Development Corporation that is funded by the city to attract new businesses. Others use a portion ($.01) of the total sales taxes generated to fund economic development. This, in many cases, adds up to millions of dollars a year. (This is in addition to other tax incentives)

Rowlett does not have either an EDC nor that $.01. Instead, our citizens voted over 30 years ago to fund DART ($.01 of our sales taxes) to fulfill our future transportation needs. To date, we have given DART over $90 million. That is money that we could have used to fund economic development. Instead, our citizens voted to invest in transportation for our future.

All that said, Rowlett is in a predicament. How do we fund economic development and compete with other cities? Trust me when I tell you companies generally don't move here because we are nice people. They locate here because they can make money.

I have heard from so many of you that you want more of your favorite businesses in Rowlett - Restaurants, shopping, grocery stores, and companies. These companies look at many factors like total population, median income, daytime population, access, land cost and other demographics. They also look at incentives - how much is a city willing to give them to come and locate there. Don't kid yourself... it's big business! One example: Rockwall paid $1M to Bimbo Bakery to locate there. Cash is given to help fund projects all of the time.

Rowlett is not so fortunate. Our incentives are somewhat limited and include more recognizable incentives like: sales and property tax abatements, impact fee waivers and land to name a few. Unfortunately, our city owns very little property.

The money generated from packaged liquor will provide another "tool" in our "tool chest" to help bring the types of businesses many of you have asked for to our city. This will allow us to better compete against our neighboring cities for the business. Since I have been on Council, we have lost many deals to Rockwall and Garland. In many cases, the incentives provided were better than we could provide. Now to be fair, its not all about the money. Location, land values and access are also critical elements of the deal. Perceived land values in Rowlett also make it difficult to compete. At the end of the day, it's a financial decision for the business and they are in the business to make the most money they can.

In turn, new businesses bring jobs, convenience to our residents and more property and sales taxes to our city. This is a good thing. In many cases a small investment on our part will yield great long term revenues for our community. This allows us to better fund our infrastructure, parks and other needs.

In closing, the sales taxes generated, albeit small (compared to other cities), from packaged liquor sales will give us a few more bullets in our gun, so to speak, to help attract new businesses to our city.

Like · Reply · 3 · September 4 at 4:51PM
Michael Gallops--
1. Those incentives were not cash as already explained in the mayor's post.
2. Let's do some simple math using your numbers Larry. Suppose we generate $300,000 in sales tax from ALL of the liquor stores that may someday be in Rowlett. Now, let's take that and share it evenly across everyone's utility bill. there are roughly 20,000 water customers in Rowlett. $300,000 / 20,000 = $15. What are you going to do with your $15 PER YEAR savings? 3. Alternatively, let's put that $300,000 in an incentive package that we offer to, I don't know, let's say, Kroger, so they can purchase the land from the very proud landowner who wants more for their piece of property in Rowlett than any other property owner.
You tell me - Kroger (or something better - maybe a corporate HQ, maybe a high end restaurant - the possibilities are endless)?
Or do you prefer the $15 per year?
Like · Reply · 3 · September 4 at 6:44pm
Todd Gottel--
Larry, I am surprised at your comments, and honestly your numbers. If you want to send an email, I can have staff respond with specifics. I try to only deal in facts, not general statements. The Homestead project as an example did have an incentive agreement. The agreement states we would waive some of the impact fees. It's not a $2M check Larry and you know that. If they do not build, they get nothing. As they build, they get impact fees waived per house built. We do not have cash to give. So, we provide incentives like impact fee waivers, sales and property tax abatements and land. The "parcels of land that we gave away" is not accurate either. That deal was predicated on them building and opening three restaurants. The value of the land ~$50K would be rebated if they completed the project before a certain date. It was estimated that they would spend over $1m to build one restaurant. On a side note that deal isn't going to happen. The property is back on the market so to speak. The Tera Lago deal is not $3m. The $50M project includes a new road and entrance to the Senic Ponite park. That cost alone is about $1.8M. Again, the developer is building it without the city bonding the cost. The agreement also rebating some of the property taxes generated. The net result is $350K increase in tax revenue to the city when the project is complete. Additionally, the hospital is expanding (doubling in size) and this was of key importance to the hospital so their employees would have some local living choices. And finally to your comments about the property valuations... The additional money collected is going to fund roadways/alleys, senior bus service, a dedicated person to help seniors at the community center and some much needed improvements to collapsing screening walls throughout our community.
Like · Reply · 6 · September 4 at 6:55pm

    Todd Gottel replied · 7 Replies

Larry Beckham--
If anyone doubts my numbers they are welcome to look at the following documents: City Council packet-Mar 5, 2015 on Homestead at Liberty Grove, March 18, 2014 City Council Packet -Terra Lago, May 20, 2014 - Village of Rowlett presentation. These documents can be accessed at the Rowlett.com web site. You also might want to read Ron Miller's blog at Rowlettramblings.com where he discusses how the cost to taxpayers for the Village of Rowlett jumped from over $6 million to over $11 million. His blogs on this subject are dated July 26, 2014 and July 26, 2015.
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Like · Reply · Remove Preview · 1 · September 4 at 10:28pm
Michael Gallops--
You aren't getting it Larry - the numbers you're throwing out aren't CASH. They are waived fees, future rebates, etc. And if Ron has come up with $11 million for the Village of Rowlett he is simply wrong.
Like · Reply · 2 · September 4 at 10:33p

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