Norwalk: The West Ave. Three Card Monte
It is always disheartening to see government officials playing with “bonding” money as if it has no repercussions to the tax payer. Like all good tales of irrational exuberance, the history of using tax dollars to fund private development for economic development is checkered. The basic law of economic development is that no one knows what the future holds, and today’s bright shinning retailapalooza is tomorrow’s blight of empty store fronts.
So we have Mayor now chasing the queen, following Seligsen’s 3 card logic of how the bonding money will be paid back. Parking revenues? Haven’t we all heard that one before?
SoNo, before Alex Knopp decided that Norwalk should plunge into developing a parking garage decided to fund that construction by selling land and parking revenues. The move turned out to be quite the economic disaster in SoNo, as the large municipal moving to increased parking fees created a cascade of expenses that ended up coming our of taxpayers who now paid twice for the privilege of parking in SoNo. Remember the pledge that taxpayers shouldn’t be subsidizing parking? Of course municipal taxes didn’t go down. And it isn’t the maritime garage that is operating in the black, its the parking fees collected on all the other lots that subsidize its operation.
Mayor Richard A. Moccia vigorously rejected that taxpayers would foot the bill.
“This is going to be paid back by the developer … with a special assessment on top of the normal property taxes by the property owners” within the redevelopment area, Moccia said. “And parking revenues, we’re studying them as best we can. We’re getting outside counsel again. The importance of (hiring) Robinson & Cole is to ensure … a special services district, taxing district, whatever you may call it, may work. And that’s their expertise.”
“I’ll say it one more time: Taxpayers’ dollars are not being put at risk,” Moccia said.
Using bonds for a real esate deal, at a time when the Federal Reserve is concerned about real estate bubbles and credit meltdowns, seems like odd timing. From the developer’s perspective it makes perfect sense. Why leverage other people’s money that he can’t get when he has a compliant government to do his bidding. Who wouldn’t take that deal?
For the deal to work, rosy projections have to be sold, just like other “sure things.” Meanwhile Walmart’s same store sales have been flat if not down depending on the quarter you examine, and Macy’s has been stuggling to find shoppers.
It took a calculated risk in 2005 when it bought those May nameplates — venerable names such as Marshall Field’s, Kaufmann’s and Filene’s — and replaced them with the Macy’s brand a year later. Macy’s executives wanted to build a national retail brand that could benefit from economies of scale and coast-to-coast advertising initiatives. They figure they couldn’t lose with one of the nation’s most recognizable department store names. But in the markets that lost the local store names, shoppers responded with fewer visits. Sales at hundreds of stores went flat.
Most analysts agree that consumer spending has slowed, and when you look at surrounding issues; double-digit increases in consumer loans that are 90% past due, credit card debt deemed “uncollectable”, and revolving debt overall, you get the feeling that the economy is headed for a rocky time.
But it’s a truism that you don’t build projects based on gloomy projections, you build them based on optimism. And there’s plenty of optimism going around with the idea that Norwalk can sustain three major developments simultaneously while many indicators show that demand is weak for added retail in the area. Even the economic engine of Stamford is having trouble filling open retail locations in Stamford Mall, another development with paid parking that should be a giant red flashing warning sign that all is not well with the spending economy in the area.
If retail is the canary then a hard look at office and residential should be warranted, because the three legs of the mixed use developments are all wobbly. The office vacancy signs on Westchester ave. should give pause to the demand for large scale office buildings, but closer to home the corporate trend is downsizing to smaller space, just look at Virgin Atlantic.
So looking at rosy projections, as the developer shuffles his financing cards is not the best way to figure out what the real impact to the tax payer will be. Looking at the worst case scenario would likely be a better forecaster of outcomes. And its this worst case scenario that the developer is banking on. If the redevelopment project was such a sure thing, if the market demand for the project was there, the developer wouldn’t be seeking a binding deal to finance part of the project. He’d be hoarding all the profits, as any good capitalist would do.
The city could do the right thing when faced with a three card monte financing deal that sounds too good to be true. Walk away, because as most card players know, the dealer/developer holds the advantage.
source: The Hour, Committee OKs legal help for West Ave. project finance plan, By ROBERT KOCH, September 18, 2007
