Lincoln County Commission Gets a TSPLOST Blast

In June 2012, Georgia’s proposed Transportation Investment Act, called TSPLOST all over the state, was being debated before coming up on an election ballot.

The Lincoln County commissioners were drooling over the new tax money. They didn’t like this message.

The words of warning were played and replayed on Lincoln County’s cable television network which reaches nearly every household in the county.

The election was held and the people of Lincoln County turned TSPLOST down despite the support of the elected officials and the Chamber of Commerce.

Home rule died with the TSPLOST vote.

Unraveling Rick Allen Before His Time

By: The Arrowflinger

This is your Many Arrows Moment for Tuesday, June 18, 2013

If last Friday Morning, between 7:00 and 8:30 AM, US Congressional District 12 candidate Rick Allen didn’t feel like a mouse between two cats, he should have.

Rick was on the Talk of the Town Show in Augusta with Renee and Doug to promote his newly-announced candidacy for that 12th District seat now held by the despised, at least in Republican circles, John Barrow the Democrat.

Renee and Doug are probably just plain giddy about the $6 million that the Republican Congressional Campaign Committee is said to be spending on that race. That is a lot of wampum for the media in good old Augusta, Georgia, with Renee and Doug figuring to receive a generous portion.

Before we start calling Rick the $6 million man, there is the not small matter of a primary to be fought and won. Talk of the Town figures to be in the thick of that mix on the way to Allen’s coronation as the GOP nominee……and in the flow of funds, first from Allen then from the RNCCC.

The feline grins around him will be seen in every media outlet on Augusta for the next 14 months. A poor mouse could get plumb frazzled to death being bandied and toyed with that long! Allen was on WGAC with Austin Rhodes the previous week, unwitting that the boys of Beasley were sizing up his wallet too.

Overturning Stone – rival John Stone- should be easy. What can go wrong? To the radio talkers, Rick will be more fun unraveling than a ball of yarn.

Stay tuned to Talk of the Town as this story develops Monday thru Friday from 7am – 9am streaming @ www.iTalkUS.com. And Live on 1230 AM!

Turn on the Austin Rhodes Show from 3 to 5 PM on WGAC AM 580 and FM 95.1.

Who knows, one day an Arrowflinger might call in.

TAF

Mission “Impossible” In a Slum

Originally posted September 18, 2013

The Augusta City Commission on Tuesday, September 17, 2013 heard the following raucous presentation, followed by a heated discussion. Full text follows the video.

 

Mayor Copenhaver and Commissioners:

Thank you for allowing me to speak tonight in opposition to designating the Downtown Business District a SLUM.

When words no longer are required to carry their true meaning and devolve into meaning the opposite, all men and women should shudder, for in that immoral state what is the meaning of right and wrong?

Let’s look to the Department of Community Affairs Guideline on how to do Urban Redevelopment in Georgia. It cautions against this Commission surrendering all of its Redevelopment Powers to an Authority, but this resolution breathes life back into a body possessive of those powers. It says there needs to be public and private input gone missing in these proceedings. It says beware conflicts if you have a DDA. It says the redevelopment district can be a single parcel, not requiring over 1000 of them in 595 acres. It cautions on the use the broadened power of eminent domain and the power to single out individual landowners for reward or punishment. It says the redevelopment plan is easily changed so you can start with a small district to fund the municipal building with tax exempt bonds, then expand it. These DCA guidelines have neither been followed nor met in myriad ways.

When you allow words to lose meaning, you allow debate over their meaning to obscure that which is a real public menace. The people rightfully fear monsters hatched in the dark will go on to feast – on them – in the dark. The DCA guidelines shine light on the process, so why not insist that they be met?

Questions about this resolution are legion. Is it responsible to fund unlimited debt service with SPLOST revenues that have not been approved yet? Won’t the net result force funds from 99.8% of the rest of Richmond County into this district? Can’t a much smaller Opportunity Zone be created? Can you recapture powers of the Urban Redevelopment Agency? What is afoot with using the very different Redevelopment Powers Act in a coterminous TAD that is so secretive?

Pictures are said to be worth a 1000 words and the Mayor will hold me to about 550, so let me conclude with 2 pictures. Here you see me with my most important client, my mother.

She was confronted with a county overlay zone that singled her property out for restrictions that would have gutted the value of her commercial site. One commissioner, 2 planning commissioners and staff said it was a DONE DEAL with one opining that her land should be acquired by the county for a park. She looked to be all alone until other property owners were awakened.

The people of Augusta are in similar peril. Arrogance around property rights exhibits ignorance of how deep and wide the concepts of fairness and “do unto others” hold our world together. Here you see how the Communist Chinese had to yield to it when elderly homeowners refused to surrender to the government.

The ability under Augusta’s charter to pass any outrage at any time with 6 votes coupled with this SLUM resolution would leave them with no hope.

Flush “SLUM” and let’s banish the much over-used word “Impossible” from describing Augusta. Let’s do it now, do it with conviction and do it together.  Nothing is impossible to those who demand honor instead of a SLUM.

 

Dear Arthur, Tipped Balls Hurt

Originally posted March 12, 2013

Are the Falcons underestimating the Atlanta City Council?

By Al Gray

As University of Georgia grads know, an untimely tipped ball tantalizingly close to the goal line can kill championship dreams. The Atlanta Falcons have executed a well-orchestrated plan over the last two years to carefully plan and execute the win of a free $1.2 billion new stadium. Now the weakened opposition is down to an unlikely, untested, last line of defense called the Atlanta City Council. Its members were spectators suddenly called into a game with no advance preparation. Only a disaster can stop the Falcons now. Surely a bunch of city council members can’t muster anything heroic. Everything has been so perfectly played that half of the backfield has been cloaked with invisibility.

Political maneuvers bail out GWCCA, get Falcons to first and goal

Moments after the opening whistle in 2010, the Georgia World Congress Center contingent on the team realized that they had a huge problem. If they fully surrendered stadium operations to the Falcons, not only would GWCCA be giving up $20 million a year in hotel motel tax funding (Consultants’ numbers lead to totals of $1.2 billion over 35 years), it would be giving away $15 million a year in net income on a successful Georgia Dome operation. If someone only looked at the financials there could be trouble. A worse problem was the $2 million to $3 million in GWCCA overhead that the Georgia Dome has been absorbing for years. Then someone realized that money is fungible and that the Atlanta Convention and Visitors Bureau (ACV partnership with GWCCA could be used as a conduit to shift costs equivalent to those then covered by dome operations. In 2011 the team got a new 1% hotel motel tax passed worth $6 million a year to expand the ACVB’s marketing of events in the World Congress Center and elsewhere. About $4 million of the new tax appears on the GWCCA’s 2012 FY financial statements. That might have tipped some people off, so GWCCA’s Frank Poe proclaimed, truthfully enough, that the new tax was not going toward stadium construction. The contract between ACVB and GWCCA was modified in 2011 uneventfully. The cost shift will be a handy tool.

The series of plays in the General Assembly enabling the Falcons takeover extended the hotel motel tax and, just last week, killed a conservative bill strengthening right to work laws that would threaten the “community investment” now needed to have any chance at victory in Council chambers.

Another saving grace in the potential damage to GWCCA’s finances is that Georgia governor Nathan Deal, who has had a major role in the stadium negotiations, and GWCCA’s Frank Poe, now 62, will probably be retired before the harm to GWCCA becomes known in 2018. $15 million Dome annual net income contributions might be too great a loss to overcome, necessitating a state bailout.

On first down –

Tipped Ball  #1 – Public costs are not capped at the $200 million advertised according to City’s and GWCCA’s own documents that are posted online.

The Falcons negotiators, gold dome allies, and GWCCA facilitators have stayed remarkably on message that public funds are only $200 million, while the Falcons will be paying $800 million of construction costs. When the deal with Atlanta Mayor Kasim Reed was announced on Thursday, March 7, the press release said “The public contribution for stadium construction is capped at $200 million.” Maybe the Mayor thinks the council won’t mind that the legal summary says

 “Budget/Contributions: Estimated $948 million, comprised of….. Public Contribution: $200 million net proceeds of the HMT Revenue Bonds”

The legalese says the $200 million is an estimate, not a cap and puts stadium borrowings on the same funding stream that a Citi consultant projected would produce bond proceeds of $360 million. Even more critical is that those funding assumptions are terribly conservative, given the extraordinarily lower interest rates are available to Atlanta than the 4.15% rates used  and that Hotel-Motel tax revenues are currently up 7.49% over last year.

Second Down –

Tipped Ball  #2 –  No one is explaining a $612 million cash gap in Hotel Motel tax funds ($211 on a debt funding basis) over the “$200 million cap” and fully funded O-M accounts (which are being ignored as a public contribution)

A key Citi presentation of June 2011, secured by agraynation.com, was integral to the planning of the stadium agreement. This agreement used the 2.7% annual growth rate in H-M tax revenues and it showed the debt service required at then-existent rates for $360 million in debt. If the debt is reduced to $200 million, where debt is to be “capped,” it leaves $612 million in cash outlays unaccounted for, or $210 million in estimated bonding potential. These public funds are being pretended out of existence.

The legal summarycontains this bombshell about the extra funds: “City would agree that all HMT revenues not required under the Funding Agreement to provide for the payment in full of the HMT Revenue Bonds (including appropriate reserves) shall be deposited with a separate GWCCA HMT Fund Custodian, where such funds shall be applied to pay for any costs relating to the construction and operation of the NSP, as provided in the HMT law.”  In other words, excess funds can go into stadium construction that are over and above the $200 million cap.

 Third Down –

Tipped Ball  #3 –  The $186 million that the Atlanta agreement puts into “other event staging” through FY 2051 is to make up for the much, much higher costs the Falcons plan on charging as stadium managers than GWCCA did, isn’t it?

This one might tip off the public and Atlanta City Council thatStadCo will be responsible for the cost (to be identified) of providing its staff and other support that historically has been provided by GWCCAThey might awaken to the fact that Falcons costs as stadium manager are required to be built into all GWCCA events, GWCCA legacy events and Atlanta hosted events – events that now account for nearly 60% of Dome attendance! There are indications that Dome legacy events might be “not on economic terms” after the Falcons take over. Having to allocate $186 million to “other event staging” to make the existing venues and events viable reveals a controversial truth about the contract – the GWCCA won’t be staffing the stadium and will have to pay the Falcon’s cost structure, which may be considerably higher. (GWCCA’s consultant having already predicted 20% (after tax) ticket price increases and 44% concession price increases) Having to inject $186 million to make your own events “economic” after the Falcons take over isn’t a surprise to Atlantans?

Fourth down, Arthur, but don’t sweat it –

Tipped Ball #4 The Falcons only agree to pay that which the public contribution cannot be “maximized” to cover, not $700 or $800 million.

The Atlanta agreement says,All NSP costs in excess of the Public Contribution to be paid by StadCo” (the Falcons). Worse it says this about handling of funds when the bonds are sold in August 2013: “Invest Atlanta shall issue the Hotel Motel Tax (“HMT”) Revenue Bonds and StadCo shall establish an account into which its contribution will be deposited. ” This doesn’t even set an amount or a requirement that any money be deposited by the Falcons, only that an account be established! Beyond this, crafty lawyers restricted Falcon responsibility to “NSP Costs” which are established by a maximum price. The trouble with this is that an increase in the “maximum price” (which can change throughout the project) is not necessarily a change order for which the Falcons are responsible.

******************

Expect the great Falcons special stadium team to pick up the tipped ball and run in for the score. The officials will push the ball carrier across the goal line. “Whatever it takes” is the Georgia and Atlanta politicians’ motto.

After the victory is scored, the Falcons can proceed into the construction phase of revenue enhancement, where the next $50 million to $100 million in public funds lay waiting.

Why not make the full agreement open for public scrutiny instead of just the legal summary? Why not make this process easier on all concerned and just ante up another $250 million that is perfectly justifiable under sound strategic planning and will make this project palatable to the public?

Another $250 million from the Falcons remains a bargain, Arthur.

 

-AG

 

Update: The Atlanta City Council has since voted to approve the Flcon’s New Stadium Project

Point Blank Video: The Art of a Finely Feathered Nest?

Originally posted March 7, 2013

Point Blank on agraynation.com is an irreverent point of view at events in and around the state of Georgia, including Augusta, Atlanta and the public policy meaning of it all to a perhaps-slightly-addled refugee of the late, great American middle class.

Today, in Point Blank, the topic for consideration is the haste with which the Georgia World Congress Center Authority and the City of Atlanta look to be pursuing a bad deal for the taxpayer.

 

The Falcons Rookery Project

Falcon’s Rookery Project

Originally posted March 7, 2012 at 12:05AM

by Al Gray

Over the last 2 years the Georgia World Congress Center Authority and the Atlanta Falcons Management have negotiated a Term Sheet for the construction and operations of a new stadium whereby the WWC relinquishes its 39.3% hotel motel tax funding stream, management of the stadium, and the Georgia Dome, which is to be demolished.

Agraynation.com saw this $1.2 billion transaction as an opportunity to kill 3 birds with one stone:

The first objective was Public Service for the City of Atlanta, who was handed this project after it grew too hot for the State Legislature to handle, in evaluating the Terms.

A second goal was demonstration of the Aurelius Principle employing a multidisciplinary approach which uses the other party to a transaction’s own documents to present a counterargument.

Evaluation of the Falcon’s Claim that the team was spending $700 million to the public’s $200 million.

This site compiled a restatement of the sources and uses of funds for the project after securing a key document that was missing from the GWCCA’s stadium development web page.

The detailed report, which features link to the source GWCCA documents and consultant reports was posted on the Agraynation.com site for inspection.

The Conclusion? The Falcons might spend nothing for the $1.2 billion stadium because the H/M tax stream, would exceed $1.2 billion over 35 years and could be borrowed against for as much as $650 million. (Key omission is out-year revenue stream, as alluded to by Atlanta Business Writer Maria Saporta and AJC columnist Tim Tucker.) Seats rights that GWCCA is giving up pitch in another $150 million to $200 million, and other revenues ceded by Atlanta and Georgia make up the rest.

Coming up –

In POINT BLANK, we take an irreverent look at the benefits to Falcon owner Arthur Blank’s net worth, followed by

A Well-Orchestrated Trick Play? – a look at how the GWCCA seems covered against an otherwise suicidal Term Sheet that they agreed to.

Legal Twigs in a Falcon Nest – a look at Term Sheet Trick Plays and ways to shift costs to the public

Finally – White Flag Negotiators Serve Whom?

Agraynation.com – A public service site brought to you by Cost Recovery Works.com, where the Aurelius Principle now serves clients, after 30 years in development and implementation at ever-higher levels of business and government.

Falcons’ Rookery Nearly Perfected?

Birds’ offense scores a $1.17 Billion Stadium for Free, GWCCA gets a Safety, Deal Hangs on a Thin Reed

By Al Gray

February 25, 2013

 

Dear Arthur Blank:

Contracts, commonly dismissed as mere tools, can become art forms. Under your Picasso-like direction, the Falcons’ negotiators of terms to build a new stadium with the Georgia World Congress Center (GWCCA) had delivered the workings of a masterpiece. The deal exhibited the key elements of the art form in carefully extracting more profits than the other parties would ever recognize without help. The agreement approached genius in getting the GWCCA to make it so lucrative. Now that plan has been punted over to Atlanta’s Mayor Kasim Reed by Georgia Governor Nathan Deal. Can you still pull this off? Absolutely!

The situation is perfect, too. The World Congress Center owns the existing Georgia Dome, where your Atlanta Falcons have contracted to play through 2017. With that lease expiring, the Congress Center and city are anxious about the future of their complex. Insuring that the Falcons stay downtown is of paramount importance to the politicians.

A key Citi presentation obtained by agraynation.com completes a trail of cost estimates and studies posted by GWCCA that show that the Falcons may have to pay $43 million or less for the $1.17 billion stadium.

Please forgive the brashness in barging into your team of artisans. This author was initially seeking to provide pro bono services to the Atlanta City Council and the State of Georgia, but multidisciplinary techniques grounded in documents can assess either side of a major transaction like this one. The evidence has been gathered and in this instance has shown how masterful the Falcons’ team has been in negotiations! Here is the scorecard on their effectiveness.

Hyperlinks appear in blue to the supporting documents.

Sources of Funds

Description

Amount

Debt Funded by GWCCA Contribution of Hotel/Motel Tax & Seats Rights

 

State/local Bond Proceeds from Hotel/Motel tax in Initial Years*

$359,985,041.00

State/local Debt backed by GWCCA Seats Rights Contribution, primarily Private Seat Licenses.

$150,000,000.00

State/local Funding from Leveraging Excess Hotel/Motel tax into Subordinated Debt (If not used for financing, as much as a nominal estimated $246 million is designated by the Term Sheet for stadium maintenance and future improvements)

$178,271,016.90

Total GWCCA Contribution

$688,256,057.90

 

 

State and City Funds

 

Sales Tax Rebate on Construction Materials

$30,000,000.00

Land**

$24,500,000.00

Atlanta Infrastructure Costs

$53,000,000.00

Total State of Georgia and City of Atlanta Contributions

$107,500,000.00

 

 

Enterprise Debt/Equity supported by Revenues Ceded by GWCCA

 

New Debt backed by Stadium Naming Rights surrendered by GWCCA to Falcons, over the first 20 years reduced to present value

                    $73,324,149.00

New Equity backed by Food and Beverage Rights donated by GWCCA to Falcons, over the first 20 years reduced to present value

                      $55,579,705.00

Total Funds from GWCCA Contract Rights Ceded to Falcons

$128,903,854.00

Public-sourced Funds Total

$924,659,911.90

 

 

NFL G-4 Funds Program

 

Advance from NFL

$100,000,000.00

Grant from NFL

$50,000,000.00

NFL Loan

$50,000,000.00

Total Funds from NFL G-4 Program

$200,000,000.00

 

 

Funds to be provided by Falcons out of current finances and operations

 

Falcon’s Funding to meet Estimated Project and Financial Costs

$43,017,265.10

Total Funds from Existing Falcons’ Operations

$43,017,265.10

Private-sourced Funds Total

$243,017,265.10

 

 

Total Sources of Funds

$1,167,677,177.00

 

Uses of Funds

Description

Amount

Total Construction, Site and Land Costs*

$1,032,000,000.00

Retirement of Georgia Dome Debt*

$60,000,000.00

Atlanta Infrastructure Costs

$53,000,000.00

Debt Service Retirement Account, Cost of Issuance, Underwriters’ Fees*

$22,677,177.00

 

 

Total Uses of Funds

$1,167,677,177.00

 

*The total funds shown on the Citi presentation, $359,985,041.00, less Dome debt retirement of $60,000,000.00 and Debt costs of $22,677,177.00 ties to the $277,307,864.00 shown on the BSG Sept. 2012 report (cites the Citi report) containing the $1,032,000,000.00 total funding and cost figure.

** Land is not shown as a Use of Funds item, as it is included in the $1,032,000,000 project cost total.

Of course this is just one opinion, although one has to believe the negotiating team will find the documents most familiar. It can be imagined here that they would find some holes to shoot in this analysis, but there are more supporting arguments for it than can be recited here.  It would be a boat-load of fun to participate in a city council meeting for a debate over the basic concepts.

On Wednesday February 20, the Falcons and GWCCA artisans of this transaction were heard before the Atlanta City Council saying that the football club was funding “$500 million to $700 million” of the new stadium project and that the public would be pitching in $200 million. That PR seemed to be working pretty well for enough of the Council to be willing to pass the new arrangements, whatever those may be. The Council seemed resigned that this is a “done deal.” Atlanta should get a better deal – to the tune of $250 to $400 million – but will it?

From this vantage point in the pine woods of east central Georgia, it looks like the Falcons are well on their way to getting $1.12 billion from the public and the NFL. All that is left is for your football club to come up with the other $43 million. Thanks to the lawyers and certain “options” in the Term Sheet, last minute funding “waterfall” diversions, and looseness of the scope between what the Falcons are providing and the public is furnishing, massaging at least another $43 million should be a cakewalk. Getting a $1.17 billion stadium for free should top anyone’s business career!

Getting this agreement, or a similar one, signed, sealed and delivered is job one. Once that is done, the Falcons Special Teams in Program Management can take to the field and shift another $100 million or more in costs over to Atlanta. Hire a savvy program director who knows how to play this game with the same gutsy aplomb which the Term Sheet negotiators used playing theirs. Winning coaches have winning strategies from start to finish. Winning projects do much the same.

After the stadium is built, more $hundreds of millions can flow from operations and costs shifts. Those opportunities are another article for another day.

Vigilance builds victory. The Falcons have been vigilant. Any owner would be proud.

 

-AG

Originally posted February 25, 2012 at 10:40 PM

 

The author is President of Cost Recovery Works, Inc. a firm focused on delivering superior returns for clients undertaking major projects including local governments searching for cost recovery in large construction, maintenance, entertainment venue, and other large contracted efforts. Clients and employers have included 9 Fortune 500 Companies, with 5 more served under subcontracts. Mr. Gray has been working on a pro bono basis for the Augusta, Georgia Commission since January 2012 in a comeback effort from early retirement, finding that stresses on local governments foster growing prospects for multidisciplinary cost recovery approaches. A foray into public policy is an opportunity to further multiple objectives, including public service.

Unraveling Rick Allen Before His Time

By: The Arrowflinger

This is your Many Arrows Moment for Tuesday, June 18, 2013

If last Friday Morning, between 7:00 and 8:30 AM,  US Congressional District 12 candidate Rick Allen didn’t feel like a mouse between two cats, he should have.

Rick was on the Talk of the Town Show in Augusta with Renee and Doug to promote his newly-announced candidacy for that 12th District seat now held by the despised, at least in Republican circles, John Barrow the Democrat.

 Renee and Doug are probably just plain giddy about the $6 million that the Republican Congressional Campaign Committee is said to be spending on that race.  That is a lot of wampum for the media in good old Augusta, Georgia, with Renee and Doug figuring to receive a generous portion.

Before we start calling Rick the $6 million man, there is the not small matter of a primary to be fought and won. Talk of the Town figures to be in the thick of that mix on the way to Allen’s coronation as the GOP nominee……and in the flow of funds, first from Allen then from the RNCCC.

The feline grins around him will be seen in every media outlet on Augusta for the next 14 months. A poor mouse could get plumb frazzled to death being bandied and toyed with that long! Allen was on WGAC with Austin Rhodes the previous week, unwitting that the boys of Beasley were sizing up his wallet too.

Overturning Stone – rival John Stone- should be easy. What can go wrong? To the radio talkers, Rick will be more fun unraveling than a ball of yarn.

Stay tuned to Talk of the Town as this story develops Monday thru Friday from 7am – 9am streaming @ www.iTalkUS.com. And Live on 1230 AM!

Turn on the Austin Rhodes Show from 3 to 5 PM on WGAC AM 580 and FM 95.1.

Who knows, one day an Arrowflinger might call in.

TAF

The Bounty Trace to Magnolia Trace

Originally posted on CityStink
Friday, September 21, 2012
Evans, GA
By Al Gray
The author, Al M. Gray is President of Cost Recovery Works, Inc., a provider of Cost Avoidance and Cost Recovery for America’s leading companies, businesses and governments desiring Superior Returns.
The fury in and surrounding the Columbia County Commission Chambers on December 6, 2011 sizzled and seethed. Citizens packed the room and the overflow could have surrounded the building. An incongruous and unwelcome subsidized housing development, to be known as Magnolia Trace, was coming to their midst. The county commission had invited the intruder in. The Georgia Department of Community Affairs (DCA)was funding it. The only notice had been the real estate closing and starting of the building permit process. Revelations that the project’s limited partner, Affordable Equity Partners(AEP) of Columbia, Missouri, had – through subsidiaries, related entities, and PAC’s – liberally provided campaign donations to Georgia’s governor, lieutenant governor, speaker of the house and local state legislators added to the combustible mix. Capping it off later was the discovery that the county attorney also had worn the hat of closing attorney for the developers.
Inside, the commission chairman, three commissioners, and that county attorney were stoic, but their white faces and knuckles spoke fear.  Their position was one of relative comfort juxtaposed to the District Three commissioner, a man inopportunely appointed to the offending Department of Community Affairs board (albeit after DCA had approved the tax credit funding to AEP) and who had voted for the county’s resolution to endorse the project. His business had been picketed, his phone ceaselessly chattered, a local talk radio show with 60,000 listeners was hostile, and real pressure was on. He was beet red and seemed to be near break down.
An epic meeting ensued that concluded an hour and a half later with the commission engaging an outside attorney charged with seeing whether there were avenues to void the deal.  It was a fig leaf and seen that way. The project was too carefully planned and orchestrated for citizens to have a realistic chance of canceling it. After all, Affordable Equity Partners boasts of its long history of doing tax credit projects in multiple states and its role in encouraging states to provide the tax credits.  From the company website: “By forging strong relationships with key government entities, AEP ensures a secure and favorable investment environment for our investor partners.”
Who Done It?
The first stage in the development and investment process for a Low Income Housing Tax Credit project is said by AEP to be this: “A developer of an affordable property will admit AEP as its limited partner..” This portrays the circumstance of a group of local property developers gaining control of land, then engaging the AEP companies to structure the deal as a LIHTC financing. Who are the principals behind Magnolia Trace? They are hidden by the LLP structure, so that remains a mystery.
The birth pangs for this project came when an AEP entity named Peach Way Holdings LLC obtained an option on March 24, 2010 to purchase the land. Later the option would be exercised by Magnolia Trace LLP. Immediately the process began to submit an application to DCA for tax credits used to finance the project. Peach Way Holdings was the first entity publicly involved out of an AEP interconnected stable of companies who are very adept at carving out a lucrative niche.
Extraordinarily High Costs Meet a Stunning Reversal
The Magnolia Trace project was so astonishingly lucrative that the DCA staff initially refused to approve the application on December 14, 2010 (click link to view document) based on that fact and a host of other financial criteria. “Total development costs for this project are over $10 million dollars which translates into almost $141.24 (author used round numbers) per square foot. A similar project had total development costs of only $7,561,982. This translates to almost $2.5 million more of total development costs.”, DCA wrote. Despite having slammed the numbers as entirely too high and the applicant being barred from updating or modifying anything upon appeal, DCA  approved the credits for MagnoliaTrace in a letter dated March 14, 2011 (click link to view approval document) .Incredibly the approval notification letter has a DCA documents date stamp of January 7, 2011, 66 days before the document was dated!
A need to call upon AEP’s “strong relationships” within government to gain approval before December 31, 2010 lay in the expiration of a key contract with Peach Way Financial Services. The vaunted “genuine advocacy for both developers and investors” worked wonders to speed approval, evidenced by what looks like an obvious post dating episode, over a period interrupted by Christmas and New Years.
Who might Magnolia Trace LLP/Affordable Equity Partners have called upon for help in this time of emergency? Lt. Governor Casey Cagle’s campaign got $882.50 from AEP going back to 2008. Sister company Capital Health Management Inc. gave Cagle another $10, 453.50.Capital Health Management in October 2006 had given $40,000 out of the $40,500 total of The Fund for Georgia’s Future (Filer # NC2006000414 ) who gave Cagle another $10,000 that same month. Capital Health Management in 2008 gave a whopping $100,000 to The Fund for Georgia’s Future, who dispersed it to a raft of legislators. and the Republican Party.
Capital Health had also given the campaigns of Speaker David Ralston $5,000, Senate Majority Leader Chip Rogers $5,500 and Nathan Deal $6,300. Another PAC that AEP contributes to, albeit not as the dominant contributor, is the Committee for Affordable Workforce Housing (GAHC-PAC – Filer NC2008000070). This PAC gave another $6,100 to the Deal campaign in September 2010, $1000 to Ralston in December 2010, $5,973 for Deal in December 2011,  and $3,000 for Cagle in March, 2012.
Nearly $200,000 in campaign funds wins friends. In this case did it reverse a project rejection and move a date?
Magnolia Trace under construction
 A Masked Partner?
The DCA application process requires disclosure of all related and controlled entities. Peach Way Financial Services, LLC , the Development Consultant, seems to fall within this category, as William A. Markel, Executive Vice President of AEP, is listed as Peach Way’s Agent for its business registration with the Georgia Secretary of State with the listed mailing address in Missouri coinciding with AEP’s office address. However, in the tax credit application filed with DCA, Peach Way Financial, the project Developer Consultant, was listed with an Atlanta address and was reported to  “not have an identity of interest with any other entity in this chart.”  *(Click here to view Magnolia Trace parties document). It is noted that the “identity of interest” question applied to each and every entity in the chart.
A side note is that Peach Way Financial Services, LLC  is shown to have filed its business registration with the Secretary of State for 2011, when the application process remained in play, but is reported to be in a state of noncompliance for 2012. According to its contract, Peach Way Financial Services gets fee payments in 2012 from Magnolia Trace.
“Inefficient financial structure”
Before Magnolia Trace LLP’s sudden change in fortune, DCA had written this about the project: “….the financial structure is not an effective or efficient use of DCA resources.” What might be the reason that the “financial structure is not an effective use…?” Could it be that multiple layers of AEP affiliated companies produced the $2.5 million more in costs cited by DCA?
Arguably the largest money tree in the AEP stable is that the tax credit financing process allows “AEP’s ability to insert an experienced affiliate into every step of the tax credit process provides added security to AEP’s investors.” With Magnolia Trace, Peach Way Holdings secured the land option. Magnolia Trace LLP became the owner.  MACO Development Company, LLC is the Developer. AEP itself is the State and Federal Limited Partner. MACO Properties, LLC is the Managing Partner. Peach Way Financial Services LLC is the Development consultant. Fairway Construction Co. Inc. is the General Contractor. Fairway Management is the management company. All are related and most stood to gain fees, directly or indirectly.
How much  of the $2.5 million excess cost that DCA objected to might be found in having so many AEP companies involved? The land acquisition and construction ‘costs’ totaled $6,986,826, or a whopping $100 per square foot. The total development  ‘costs’ of $10,152,634 were $145.45 per square foot. Of the roughly $3.2 million difference, fees, overhead, and profit of the AEP stable of companies were about $2.1 million, or 66%.
A Lot More than A Trace of Money
Once a subdivision is complete, the AEP companies begin to draw management fees from leasing operations. Magnolia Trace will join 17 previous AEP company developments in Georgia. Projected management fees to be generated from the Martinez complex are estimated at $1,160,885.
The approved tax credits were $1,065,849. If the DCA’s figures and objections ifrom December 2010 are correct, the excess of tax credits over the norms would be about 25% or more than $250,000.
Magical Words to an Auditor’s Ears
The application contained the language “Certification of Actual Cost” and the authorizing provisions in Chapter 42 of the tax code preserve the rights and capabilities of audit before the tax credits are issued. This could prove providential in protecting state and federal tax revenues, as there are new homes for sale in similar neighborhoods for sales prices in the low $70’s per square foot. Upon audit can the $145 per square foot price supplied by the AEP companies be sustained?
The larger question is whether anyone will ever be allowed to audit this transaction.
Summary

 

Citizens of suburban, Republican Martinez, Georgia got an unwelcome subsidized housing project courtesy of unknown developers. If there is solace in this story it is that Martinez county commissioner Trey Allen got the Department of Community Affairs to reform its policy so that future locales will be notified beforehand of low income projects. The politicians got nearly $200,000 of campaign donations. The AEP stable of companies look to have secured a backdated approval of a project that DCA deemed excessive on the way to winning more than $1.5 million in development fees, $1.1 million in tax credits, and $1.1 million in management fees. Along the way, one entity looks to have been undisclosed as a related party and has fallen into noncompliance with Georgia’s business registration unit.
The identities of the parties who launched this controversial project will be hidden behind opaque partnership structures, while a cash-strapped state government sees its revenues drained, not only by very lucrative tax give-aways, but also by layered on costs that the state agency found to be excessive.
Can this really be government by and for the people?***
Al Gray