On the Steven Tanger Performing Arts Center (GPAC)
At the Greensboro City Council meeting on December 4, 2012, then Council Member Trudy Wade made a motion to put a voter referendum concerning the GPAC on the November 2013 electoral ballot.
The minutes quote Wade saying “whatever happens, the people are going to be left paying the bill if everybody else does not come through with the funding. If the people have to put in $10 million or $70 million, they still deserve the right and we promised them that in the beginning.”
The GPAC referendum didn’t occur, yet it appears Greensboro’s taxpayers may end up paying more than the $30 million City Council eventually authorized.
On February 19, 2013, Zack Matheny offered, and City Council approved, a resolution stating that the city would not allow any municipal funding “until the GPAC Task Force is able to confirm that they have obtained binding commitments for … private contributions for the GPAC.”
To date, it is unclear if the city has legally binding donor commitments on all $35 million of pledged assets. No one at the city seems to know where all the money actually is or what it’s invested in. Nor do they have a detailed time line showing how it’s supposed to flow in over a 10-year period.
If a large percentage of the pledged money is invested in equities or bonds and financial markets fall, or if interest rates rise from their current low levels, it is uncertain if the pledges will appear without havinig a detailed understanding of the status of the underlying assets.
At a Council work session on February 25th, the Greensboro Community Foundation’s (CFGG) Walker Sanders’ suggested that less than $5 million of the pledged assets are currently under foundation control and ready to be spent on the project.
The city has committed about $11.3 million to real estate purchases for the facility. On Sept. 3, and again on Sept. 17, Council voted to give David Hagan, who serves on the CFGG’s board, about $586,000 in taxpayer funded commissions for purchasing GPAC properties.
This despite the City having four realestate brokers on staff who could have purchased the properties.
The City-provided GPAC Frequently Asked Questions list asks “What guarantee does the City have that those funds will be received?” and answers by stating “… the Community Foundation will provide a “Letter of Credit” to the City, prior to the start of the project … The Community Foundation will, in effect, obtain a line of credit from a bank at an agreed upon interest rate. The donors will pay the bank’s line of credit back and the Community Foundation will be responsible for the interest charged.”
Now it seems the Community Foundation wants to do what investors tried with the city-owned Bessemer Shopping Center deal, only different. That group’s plan was for the city to give up the land in exchange for the developers putting up about $2 million. One of the problems with the proposal was that it looked like the investors wanted to get their portion of the money from an equity loan using the City’s gift as collateral. The group’s plan appeared to secure a taxpayer-owned shopping center for free and then borrow from the equity instead of actually putting up any cash.
CFGG is now suggesting a scheme whereby a jointly owned GPAC is used by a non-profit without assets as collateral to obtain a loan to pay for construction costs before the pledges actually appear.
My reading of the proposal indicates that Greensboro’s taxpayers will be on the hook for shortfalls of donor commitments, as the non-profit co-owner won’t have enough money to cover principal and interest payment defaults. If the City doesn’t guarantee the private sector pledges with more than the $30 million the City has already committed, the lender may be able to foreclose and acquire the property.
Councilmember Mike Barber said about five to 10 percent of pledges for philanthropic projects like GPAC end up not materializing. Ten percent of $35.4 million could mean another $3.54 million or more for Greensboro’s taxpayers to supply.
“There will be approximately $35 million in private money utilized-that’s good. If these contributions fail in any %, we ask others to step up, and some will,” Barber wrote on March 3.
I believe the current deal requires Greensboro’s taxpayers to guarantee the donor money and interest on the loan. CFGG appears to offer little financial commitment up front, other than functional control via board members of a separate non-profit.
A “Tanger Center Fact Sheet” from the city states: “As currently written, the MOU [Memorandum of Understanding] provides the City with a first ownership transfer right and option to the Nonprofit. …In the event the Nonprofit does not want to own the center or no longer exists, then the City Council could consider providing a secondary ownership transfer right and option to the CFGG.”
This means that if another stakeholder funded and stacked City Council appears, the Community Foundation could end up owning a $65 million facility tax and debt free. Five Council votes within the 50 years the agreement is in place could make this a reality.
If the city commits to make up donor shortfalls without prior possession of the binding commitments, or knowing where the money is, or what it’s invested in, or what asset return assumptions and projections are involved, and without a clear understanding of how the private donors are going to conjure the loan interest payments on top of the $35 million already committed by the private sector, then I believe Greensboro’s City Council and some staff may have violated their fiduciary duties to our community.
If taxpayers are to be on the hook for donor commitments and loan interest negotiated by the Community Foundation, the City’s finance department needs to underwrite the deal to assure Greensboro taxpayers’ best interests are represented, especially if hypothetical asset return projections are involved.
If Greensboro’s City Council encumbers taxpayers with what would most likely be more than the $30 million already committed to the project, the potential consequences and risks should be disclosed. !
GEORGE HARTZMAN, President of Hartzman Fiduciary, intends to leave others better off for his having existed. georgehartzman.com Twitter; @ghartzman. Please send news tips to hartzmancpe[at]gmail.com