Cities: May 2010 Archives

This sort of thing never happens, right? Never, ever would a secretive group of private business leaders direct the redevelopment decisions of public agencies from behind the scenes. And if they did, well, we just have to trust that these business leaders know far more about urban development than the unwashed masses, as is readily apparent by the wealth they accumulated in completely unrelated fields of endeavor, right? We just have to trust that they have the best interests of the city at heart.

The OKC History Blog has an entry about a group of Oklahoma City business executives called Metro Action Planners and their efforts (of questionable legality) in the late 1970s to implement architect I. M. Pei's plan for downtown redevelopment. The story begins with Pei's return visit in 1976:

His summons to appear came from a new, informal group of downtown Oklahoma City business leaders assembled by the Chamber of Commerce to expedite implementation of his plans for the area.

The group - Metro Action Planners - was led by Southwestern Bell President John Parsons. The group had no office, no phone number, and no mailing list. And no vice presidents or directors were allowed.

Its membership was limited to CEOs, presidents and downtown property owners, and those who belonged included Charles Vose, president of First National Bank and Edward L. Gaylord, publisher of The Daily Oklahoman.

Behind the scenes, the group picked which retail developer would get a shot at building a planned indoor shopping mall:

In April [1977], the Urban Renewal Authority sought new proposals and got them from a local man, Bill Peterson, Dallas-based developer Vincent Carrozza, who estimated he could get the project done in six to 10 years, another outside developer, Starrett-Landmark, and Cadillac Fairview. (5)

While Carrozza, in particular, had no doubts about his project's future success, Cadillac Fairview's proposal was much more reserved in that regard.

The latter's proposal cautioned that there was "absolutely no certainty at this time that sufficient department store interest can be committed to ensure that the major Galleria retail can proceed in the near future."

But, Carrozza enchanted Metro Action Planners. The group, in fact, committed itself to raise $1.6 million needed to create a limited partnership with the developer to get the project going.

Before the end of April, 1978, Carrozza had his deal with local leaders.

Then everything unraveled when the developer asked for a favor from an official who, evidently, wasn't part of the in-crowd:

Oklahoma's attorney general launched a probe in August of 1980 to determine whether Carrozza, urban renewal and Metro Action Planners had restrained trade by creating an informal building moratorium downtown to enhance possibilities that the Galleria project would be successful.

The Metro Action Planners, it had turned out, had approved a moratorium on downtown building in October 1978. The following year, Carrozza had contacted an Urban Renewal commissioner, asking him to seek a second moratorium from the group. At the time, Carrozza was finding it difficult to find financing for a second office tower he was building on the Galleria site.

The commissioner - Stanton L. Young - declined to carry out Carrozza's request, and was not implicated of any wrong-doing.

Neither, curiously, was anyone else.

But while the attorney general's investigation went nowhere, the damage to this super-powerful group of downtown leaders had been done.

Metro Action Planners abruptly disappeared from the downtown redevelopment scene.

So much for corporate commitment to the free market. This shadowy group choked off downtown development to clear the path for their favored developer, who (by the way) never completed his project. The land -- most of a 2 x 2 superblock -- continues to sit mostly empty. The new downtown library was built on the northwest corner of the site.

But I'm sure this situation was peculiar to Oklahoma City, and powerful, private groups have never steered the actions of Tulsa's urban renewal agency, and if they did, I'm sure it was for our own good.

The daily paper has an appalling story about tenants in several Tulsa apartment complexes going without central air conditioning because of the complexes' owner's bankruptcy, which is tied to the previous owner's default on mortgages and alleged non-disclosure of said default:

In a subsequent lawsuit in the same court, RC Sooner Holdings alleges that the bankruptcy was filed because the previous owners of the apartments, the development family behind the SpiritBank Event Center in Bixby, sold eight apartment complexes to RC Sooner Holdings without telling the buyer that the properties' mortgages were in default.

"We were duped," said Gorguin Shaikoli, vice president of Delaware-based RC Realty, which previously managed the properties for RC Sooner Holdings. "We thought we did all the due diligence."
Lawsuits, defaulted loans

Additionally, RC Sooner Holdings alleges that RemyCo, The Remy Cos., Home Realty Ventures and six members of the associated Remy family acknowledged that they were in default on their loans to Fannie Mae, a government-sponsored enterprise that buys mortgages from primary lenders, and agreed to pay $1.8 million in forbearance -- meaning to hold off on collection of the debt -- one month after selling the properties and transferring the loans to RC Sooner Holdings.

The lawsuit notes that Fannie Mae did not become aware of the transfer in ownership until January.

Fannie Mae, alleging that the sale of the apartments without its knowledge was a breach of the loan contracts, has also filed eight lawsuits in Tulsa County District Court against the Remys and the legal entities they created to own the apartments.

The lawsuits seek full repayment of the $28.58 million remaining balance on the eight loans.

As the story notes, the Remy family was behind the development of Regal Plaza and the Spirit Bank Event Center in northern Bixby. Regal Plaza was developed with the help of a sales tax rebate -- the city would pay the developer 1% of retail sales from the complex over the first 10 years. Tim Remy was also involved in a proposal for a retail development on the south bank of the Arkansas River in Bixby, called South Village, which likewise would have been assisted by a sales tax rebate. If the development didn't happen (and so far, it hasn't) or failed to bring in city sales tax revenue, the developer wouldn't get any of the money.

Bixby wisely chose incentives that didn't put the taxpayers at risk. Other cities have foolishly fronted money for developers and found themselves stuck and out of luck when the development flopped for one reason or another.

The Remy family of companies seemed to be the image of a healthy, progressive, successful real estate development and investment company. (For example, see this Journal Record feature story on the Remy Companies from 2006.) Regal Plaza was innovative for a suburban retail development (although it doesn't work as well as a pedestrian-friendly environment as it could have). It now appears that much of that success was built on a foundation of sand.

Whether their financial problems are rooted in dishonesty, hubris, the national economy, or some combination of the three, the Remy situation should be taken as a warning to local governments contemplating public-private partnerships. No matter how solid the private partner appears to be, structure the deal to put all the risk on the private partner. Don't stick the taxpayer with the bill.

It's a story from February 1, 2010, but I just saw it this week, via Troy Sappington on Facebook: a story in the London (Ontario) Free Press that prominently featured comments from Tulsa Mayor Dewey Bartlett Jr on police salaries and layoffs. The story was part of a series entitled "Protection at What Cost?: An occasional series examining the soaring cost of emergency services.

Three years after they're sworn in on the force, in some cases with little more than the minimum high school diploma and 12 weeks' training, London police officers get a base salary that tops $80,000.

That wouldn't surprise other police and firefighters in Ontario, whose salaries are closely tethered by unions that demand it and police boards that often give in.

But south of the border, jaws drop.

In U.S. cities where there are more murders in a month than London has in a year, police are surprised when told how much police are paid here and how that has changed so quickly over time.

"It's really a death spiral," said Dewey Bartlett Jr., mayor of Tulsa, Okla., where senior officers max out at $62,783 US.

Bartlett, too, deals with police unions and did so last week without an arms-length police board or provincial arbitrator to get in his way.

With Tulsa facing a budget crisis and needing to cut $7 million from its police budget, Bartlett gave cops a choice: Agree to a 5% wage cut and rollbacks or he'd lay off 155 officers -- nearly 20% of the force.

The police association said no.

Last Friday, police administrators were preparing pink slips.

"In this part of the country, unions aren't a way of life. (The police association) was selfish and greedy, rather than what people expect of a police officer," Bartlett said.

What wasn't said in the story was that similar cuts were required from other city departments. The Firefighters Union made a different choice than the FOP, picking pay cuts over layoffs.

The story goes on to look at the pros and cons of high police salaries in London, where a "three-year officer is paid nearly 2 1/2 times more than a typical London adult," and the disconnect in Ontario between those who set police salaries and those responsible for setting municipal budget priorities.

MORE: Stephen Malanga in the Spring 2010 City Journal on the role of government employee unions (teachers', public safety, and SEIU) in California's budget crisis.

On my recent business trips to Wichita, I've been staying at a hotel that provides a free copy of the local paper (75 cent newsstand price), which I've been reading over breakfast each morning. It's fascinating to see the parallels and differences between Tulsa and Wichita. Over the next few days I'll be going through my stack of clippings and sharing some items that you, too, may find interesting.

From the April 25, 2010, Wichita Eagle -- Wrestling takes loss on tourney at arena:

Intrust Bank Arena made a profit, but the Kansas State High School Activities Association took a loss on the state wrestling championship in February, officials say.

The association's leader said recently that the Class 6A and 5A tournaments would not return because the venue is too expensive. But Friday, he said talks with arena operator SMG remain open....

Arena general manager Chris Presson confirmed Friday that the arena made a profit on the tournament but would not say how much.

[KSHSAA executive director Gary] Musselman said arena rent and expenses cost the association $75,767. He said the association ended up with a net loss of $44,980....

Last year's event at the Kansas Coliseum brought in $23,852 for the association.

The tournament drew 6,693 people -- including premium seat holders whose tickets did not count toward the association's paid attendance, according to arena officials. Gross ticket sales were $50,500.

Paid attendance at the Coliseum last year was 6,348. Gross ticket sales were $56,985....

Records from SMG to the county show that two sporting events in February -- the wrestling tournament and a Gravity Slashers freestyle motorcross show -- brought in $142,890 in gross building income.

SMG did not make a breakdown available.

While it raised the money for the arena through a 30-month 1 percent sales tax, the county says it cannot share some financial details with the public. Its contract with SMG includes a confidentiality agreement.
SMG does share with the public such information as number of performances and event days; net direct event income for categories of events; net food, beverage and merchandise income; other net income and gross building income.

It does not share net profits or losses for individual events.

Assistant County Manager Ron Holt said he went to the arena to view SMG's full financial reports for January and February, the reports it sends to its home office. But because he was not allowed to take notes or make copies, he was not able to provide the figures.

A few things to note:

Premium seat licenses means more money for the arena owner and operator, but for the event promoter it means less revenue from the same number of spectators. At Tulsa's BOK Center, what events are included in the premium seat price?

A 17,500 seat capacity may be wonderful for the rare event that requires it, but it's a financial burden for an event likely to draw a smaller crowd, and for a city the size of Wichita or Tulsa, that's going to mean most events.

Despite the novelty of the facility (Intrust Bank Arena has only been open since the first of the year), the event drew about the same number of fans as last year.

SMG runs arenas in Wichita, Tulsa, and Oklahoma City. At what point do they start tweaking event bookings among the three cities to maximize their bottom line, without regard to the interests of the individual cities they serve? Should we expect to see a less impressive lineup in Tulsa just before their contract is up for renewal in Wichita?

SMG's contract with Wichita limits the amount of financial information available to decision makers and the public at large, information that was previously available for publicly owned, publicly operated facilities. Does Tulsa have the same deal?

MORE: Here is Tulsa's contract with SMG for the BOK Center and the Tulsa Convention Center (3 MB PDF). That's a searchable and smaller version of this original scan on the Tulsa City Council website (12 MB PDF).