Okay, now we start the good part. It's a bit cumbersome with details, but you need to hang in there so that you have the facts, not your best friend's opinion because it was overheard at the Tom Thumb store while standing in the check out line.
I have already stated that I like The Villages, or any similar project in downtown Rowlett. I have confessed that I don't mind contributing some "seed money" to get it off the ground. I was staggered because I think we (Rowlett Taxpayers) are contributing far too much money to the developer's kitty. However, even contributing too much money to the deal doesn't make me as upset as how this whole deal was presented to the taxpayer by Rowlett's "officialdom." It was a total deception regarding how much the taxpayer's cost would be. I don't even know where to begin.
I've already commented on poor writing skills that contributes to the confusion and lack of clarity of the subject matter. You can decide whether it was purposely contrived to confuse the issue.......or not.
Next, let's quantify some outside perimeters of the costs involved. It has been widely reported that The Villages is a $30 million deal. Being an ex-lender, I can say that typically a 20% down payment must be made toward any project that might need an additional loan of $24 million. Of course, the 20% would be $6 million dollars in cash or kind. Sometimes, the land that might be "free and clear" is all that's necessary to secure a loan. Depends on value of the land.
On page 6 of the staff report, it is mentioned that the developer would pay for infrastructure improvements in the amount of $2.4 million, however these costs would be refunded to the developer by the city from 380 Grant funds. (This info seems to be in error. Per other places on the staff report, the funds are really diverted from Impact Fees of $450,000, Existing Impact Fee Balance of $1,250,000, CIP funds of $700,000.....all totaling $2,400,000. Very confusing.). In addition, more confusion comes a few lines later when another $1,968,449 was being contributed by the city for infrastructure improvements from other city generated 380 Grants. Are there two cost line items for "infrastructure improvements?" The real mystery here is whether the $2.4 million and the $1.9 million is for the same work. It is not clear. Furthermore, another contribution is made in the value of 12 acres of land in the amount of $1,650,000. All these contributions total $6,018,449, just a tad over the $6 million needed for the down payment. These assets and 380 Grant funds are monies that belong to you. I presume these funds come out of items on the city's balance sheet. In fact, they would be monies that I presume would have been collected from other earlier taxable sources. If there was a secret war chest or rainy day fund, it might be gone.
So......what's all the above mean? With the $6 million taxpayer contribution, it means the city is making the developer's down payment. In my opinion, it is implied that the 380 Grant funds come from other sources. At the very least, it should have been explained that this is all Rowlett money. What's misleading is the fact that no funds are being contributed from any other source. If you read the staff report, it is almost comical. It reads like the writer is trying to tip toe thru the report without having to identify that the 380 Grant money is, in fact, Rowlett's money. In my opinion, the report lets the reader think the money is coming from somewhere else, anywhere else, but Rowlett......you know, Big Brother somewhere.
The above is bad enough, but there's more. First, another joke. A few lines below the above info in the staff report, there is a note that states that even though there will be 15 years of tax forgiveness, (valued at $225,000 per year for $3,375,000) it's "net present value equivalent of approximately $2,000,000." This is enough to make real estate analyst's eyes roll over in their heads. It's laughable. Net Present Value (NPV) is used in calculating investment income yields, not in cost estimating. I think someone entered it into this discussion to: A) show that they knew how to calculate an NPV, or B) try to make the cost number appear much smaller than it really is. One would be "showing off" for something that is not pertinent to the conversation and the other is pure deception. It's certainly a diversion. One's dumb, and the other is deceit. You pick.
So.......after two years taken to build the project and begin leasing, typically the project would then go on the tax rolls. The staff report then says for the next 15 years, the developer would pay $225,000 per year in real estate taxes. Then, the city would put that money into a 380 Grant fund.........and give it back. Remember our previous little school a couple of posts ago, in which I demonstrated how cap rates work? If I use the same 6% cap rate on the $225,000 funds saved from the tax rebate, there would be an additional $3,750,000 of value created for the developer that they otherwise would not have had. Rowlett gets nothing. This value will remain with the project for 15 years. Of course, the developer will sell the project before that. That extra $3.7 million will go in the developer's pocket.......not ours. There may be one redeeming feature. A presumably very reliable source told me that there was a provision in the partnership agreement whereby if the project achieved a certain value, the project would then go on the tax rolls. I asked this source what value had to be achieved before the project would go on the tax rolls......twice. I never got an answer. I asked a second presumably reliable source. I never got an answer. However, there is a "mechanical" problem with the income approach of appraised value with this provision. The project will be worth $3.7 million more while its off the tax rolls than it will when placed on the tax rolls. Therefore, the project would have to achieve $3.7 million more in value than the agreed upon amount, because the day it goes on the tax rolls, the value will drop by $3.7 million. That will certainly complicate the sale of the project. I doubt that anyone on Rowlett's "officialdom" ever thought about that. Pure inexperience.
Let's see. What else did you not get told about, or was under represented? There is still some yet to go, however this post is already getting too long. We still have to talk about "creeping" costs, costs that were not calculated in the staff report, and what it all totals before you get a clear picture about the total costs in building The Villages, as proposed. As stated earlier, it might be too late to renegotiate this deal, but we will sure learn a lot about what the Rowlett taxpayer is getting out of city hall regarding the nurturing of the tax base. You are going to have to decide on the quality and character of our leadership. Ultimately, you decide on what you get.
I will have some more cost analysis on the next post.
I have already stated that I like The Villages, or any similar project in downtown Rowlett. I have confessed that I don't mind contributing some "seed money" to get it off the ground. I was staggered because I think we (Rowlett Taxpayers) are contributing far too much money to the developer's kitty. However, even contributing too much money to the deal doesn't make me as upset as how this whole deal was presented to the taxpayer by Rowlett's "officialdom." It was a total deception regarding how much the taxpayer's cost would be. I don't even know where to begin.
I've already commented on poor writing skills that contributes to the confusion and lack of clarity of the subject matter. You can decide whether it was purposely contrived to confuse the issue.......or not.
Next, let's quantify some outside perimeters of the costs involved. It has been widely reported that The Villages is a $30 million deal. Being an ex-lender, I can say that typically a 20% down payment must be made toward any project that might need an additional loan of $24 million. Of course, the 20% would be $6 million dollars in cash or kind. Sometimes, the land that might be "free and clear" is all that's necessary to secure a loan. Depends on value of the land.
On page 6 of the staff report, it is mentioned that the developer would pay for infrastructure improvements in the amount of $2.4 million, however these costs would be refunded to the developer by the city from 380 Grant funds. (This info seems to be in error. Per other places on the staff report, the funds are really diverted from Impact Fees of $450,000, Existing Impact Fee Balance of $1,250,000, CIP funds of $700,000.....all totaling $2,400,000. Very confusing.). In addition, more confusion comes a few lines later when another $1,968,449 was being contributed by the city for infrastructure improvements from other city generated 380 Grants. Are there two cost line items for "infrastructure improvements?" The real mystery here is whether the $2.4 million and the $1.9 million is for the same work. It is not clear. Furthermore, another contribution is made in the value of 12 acres of land in the amount of $1,650,000. All these contributions total $6,018,449, just a tad over the $6 million needed for the down payment. These assets and 380 Grant funds are monies that belong to you. I presume these funds come out of items on the city's balance sheet. In fact, they would be monies that I presume would have been collected from other earlier taxable sources. If there was a secret war chest or rainy day fund, it might be gone.
So......what's all the above mean? With the $6 million taxpayer contribution, it means the city is making the developer's down payment. In my opinion, it is implied that the 380 Grant funds come from other sources. At the very least, it should have been explained that this is all Rowlett money. What's misleading is the fact that no funds are being contributed from any other source. If you read the staff report, it is almost comical. It reads like the writer is trying to tip toe thru the report without having to identify that the 380 Grant money is, in fact, Rowlett's money. In my opinion, the report lets the reader think the money is coming from somewhere else, anywhere else, but Rowlett......you know, Big Brother somewhere.
The above is bad enough, but there's more. First, another joke. A few lines below the above info in the staff report, there is a note that states that even though there will be 15 years of tax forgiveness, (valued at $225,000 per year for $3,375,000) it's "net present value equivalent of approximately $2,000,000." This is enough to make real estate analyst's eyes roll over in their heads. It's laughable. Net Present Value (NPV) is used in calculating investment income yields, not in cost estimating. I think someone entered it into this discussion to: A) show that they knew how to calculate an NPV, or B) try to make the cost number appear much smaller than it really is. One would be "showing off" for something that is not pertinent to the conversation and the other is pure deception. It's certainly a diversion. One's dumb, and the other is deceit. You pick.
So.......after two years taken to build the project and begin leasing, typically the project would then go on the tax rolls. The staff report then says for the next 15 years, the developer would pay $225,000 per year in real estate taxes. Then, the city would put that money into a 380 Grant fund.........and give it back. Remember our previous little school a couple of posts ago, in which I demonstrated how cap rates work? If I use the same 6% cap rate on the $225,000 funds saved from the tax rebate, there would be an additional $3,750,000 of value created for the developer that they otherwise would not have had. Rowlett gets nothing. This value will remain with the project for 15 years. Of course, the developer will sell the project before that. That extra $3.7 million will go in the developer's pocket.......not ours. There may be one redeeming feature. A presumably very reliable source told me that there was a provision in the partnership agreement whereby if the project achieved a certain value, the project would then go on the tax rolls. I asked this source what value had to be achieved before the project would go on the tax rolls......twice. I never got an answer. I asked a second presumably reliable source. I never got an answer. However, there is a "mechanical" problem with the income approach of appraised value with this provision. The project will be worth $3.7 million more while its off the tax rolls than it will when placed on the tax rolls. Therefore, the project would have to achieve $3.7 million more in value than the agreed upon amount, because the day it goes on the tax rolls, the value will drop by $3.7 million. That will certainly complicate the sale of the project. I doubt that anyone on Rowlett's "officialdom" ever thought about that. Pure inexperience.
Let's see. What else did you not get told about, or was under represented? There is still some yet to go, however this post is already getting too long. We still have to talk about "creeping" costs, costs that were not calculated in the staff report, and what it all totals before you get a clear picture about the total costs in building The Villages, as proposed. As stated earlier, it might be too late to renegotiate this deal, but we will sure learn a lot about what the Rowlett taxpayer is getting out of city hall regarding the nurturing of the tax base. You are going to have to decide on the quality and character of our leadership. Ultimately, you decide on what you get.
I will have some more cost analysis on the next post.
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