Tag: Cost Avoidance

Double-crossed at the Doubletree, Augustans Got a 22% Property Tax Increase

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When your humble flinger of arrows climbed into his pickup truck one afternoon in the late summer of 2010, it was not dreamed that the trip was worth $4 million to $5 million to the people of Augusta Richmond County, Georgia, yet it was.

The Georgia General Assembly had empaneled a Tax Reform Council, chaired by former Atlanta Olympic Games chairman A.D. Frazier, and charged it with recommending a tax reform plan. Earlier, in 2008, the legislature had wisely rejected disgraced House Speaker Glenn Richardson’s G.R.E.A.T. (Georgia Repeal Every Ad valorem Tax) plan, but still held the notion of “tax reform” dear, spurred on by the Georgia Traditional Manufacturers Association and others. Manufacturers wanted relief from Georgia’s sales-tax-exemption-limiting “Direct Use” requirements. Agricultural interests wanted sales tax relief, too.

The Tax Reform Council met in cities across Georgia. The meeting in Augusta came within 3 weeks of a furious Republican Party runoff for governor, which diverted attention from what was at risk. The Council convened at the Doubletree Hotel on August 30, 2010. A number of presenters had prepared remarks which were posted on the Tax Council website. This writer had not come to speak, but rose and gave an impromptu talk in opposition, based upon the enormous revenue loss that appeared to be in the making, including a critique of surviving elements of G.R.E.A.T. A sitting member of the Georgia House of Representatives, Don Parsons, was not paying attention enough to catch the name and dismissed the talk as uninformed.

The frightening thing was that the Tax Council withheld its report, despite promises it would be published in November, until the start of the 2011 session, and the stated intent was for the plan to rocket through the General Assembly for a straight “up or down” vote.

The Augusta presentations included one that tipped off how draconian the sales and use tax losses would be for Augusta. An email to a key member of the Augusta Commission warned of the losses. Another to an organization promoting the bad tax deal laid out the reasons that killing it in 2011 were good.

Taxreformwarning_Page_1Tax Reform 2011 Killed_Page_1Lobbyists didn’t care.

The Augusta Chronicle reported, “Twice panel members asked how to replace the revenue from new tax breaks such as elimination of the inventory tax. John Krueger, senior vice president of the Georgia Chamber of Commerce, replied that he hadn’t polled his members about that.

“To be honest, I really don’t have an answer to that,” he said.”

The next year tax reform returned and passed. Not one of the location legislative delegation voted against it, not even “conservative” Representative Barbara Sims or Senator Bill Jackson. Just as night follows day, the tax losses hit Augusta Richmond County so hard that in 2014 the Augusta Commission had to pass a 22% property tax increase to compensate for them.

The Augusta Commission got the blame, but the damage was clearly inflicted by the General Assembly, with the local delegation going right along with it.

The sales taxes given up were were being passed on to purchasers of the manufactured goods outside of Augusta, Richmond County, and now are being replaced by your property taxes, if you live in Augusta-Richmond County. The manufacturers were not likely to leave Augusta over taxes they had been paying for years, and “tax reform” means that new businesses won’t be paying new taxes, either. Theories and subsidized jobs excited the politicians, but this was a DEAD LOSS to the people, if one looks at the only thing that counts with revenue – CASH FLOW!

The entire progression of events might not have turned to the public’s favor, but it was a wonderful chance to demonstrate how The AURELIUS PRINCIPLE works to identify millions of dollars of savings to clients who might just be interested in saving those millions rather than paying them out. Cost Recovery Works, Inc. has used these techniques to stunning effect for clients many times, and the tax reform participation showed how they work to potentially effect tens of millions in savings.

Millions of dollars in savings come from projects like this one – Just not for the poor, tax-besieged citizens of Augusta.

Thank your politicians.

RW Allen’s Guaranteed Money Pits

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IMG_4374Owners like to use a contract delivery method called “Design Build” when they don’t know what the heck they are building, don’t want to take the time to design it before bidding it out, or have a site with too many unknown conditions.  Since they don’t know these things they put a fig leaf of protection against unlimited costs called a “Guaranteed Maximum Price” or GMP. Even in commercial or industrial construction, supposedly knowledgeable in cost controls and with fewer unknowns, GMP contracts are a challenge to administer, because the assumptions the contractor gives in quoting a GMP generally last only days or weeks. Owners would be better off with a pure cost-plus contract with great controls, but the owner’s internal politics command at least a fiction of a fixed price.

Imagine trying to catch a butterfly in a windstorm – that is how elusive the “guarantee” becomes.

In government there is no better money-hemorrhaging device than these contracts, hence perhaps GMP should automatically be understood by citizens as being “Guaranteed Money Pit.”

The City of Augusta, Georgia loves to squander money using GMP contracts, having thoroughly embarrassed itself with the things. Augusta built a $30 million Convention Center across land the city didn’t own, and then had to pay for it with Kitchen Equipment added by change order to a “guaranteed” price, spent about $50 million on a Municipal Building Remodeling that was supposed to cost $20 million, mostly covered by another GMP contract, and built houses in the Laney Walker district with maximum-price, not to exceed contracts that never were adjusted to actual cost.

There were only three finalists selected by Augusta for the Old Green Street Library remodeling, and two of the three had “Allen” in their name. The low bidder who didn’t have “Allen” in its name and who bid on the whole project in its bid, with a Guaranteed Price for all of the work, somehow didn’t get the award. RW Allen, LLC was awarded the work on a piecemeal basis, destroying any figment of a guarantee, in this writer’s estimation.

John Allen, nephew and contributor to Congressman Richard W. Allen, is a principal in the Allen-Batchelor firm, which was also on the finalist listing.

District 8’s Wayne Guilfoyle said it best, “If all three firms are proposing this project, the following including the proper scope, met the required schedule and fully capable of completing the RFP, why are we selecting the highest bidder?” Then later Commissioner Guilfoyle said, “So we’re approving something we don’t have a clue, only a partial.”

It must be nice to be RW Allen, LLC, and to have Augusta push you into yet another money pit where nothing is guaranteed but more profits.

Augusta Sales Tax Program Management Contract Extension

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Augusta’s Sales and Use Tax-funded project management firm was up for contract renewal. After behind-the-scenes support of the commissioners, the contractor reduced the contract price by about $184,000.

A Tax Recovery Yarn

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How a multidisciplinary review of an already-negotiated sales and use tax exemption package, including analysis of equipment purchase orders and contracts, produced $millions in additional savings.

This effort required study of the technical data and vendor operating manuals, knowledge of sales tax exemptions and application in a “direct-use” state, understanding of how tax codes were input to produce tax accrual reports, and taking the initiative to appeal that which had already been established.

The Aurelius Principle to Success, Money and Power

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Looking at major projects, programs, and government regulations with a multidisciplinary approach produces astounding success that can be leveraged up to unlimited heights in a once-in-300-year socioeconomic and political upheaval.

Along came the Aurelius Principle and things might be changed forever.

Falcons’ Rookery Nearly Perfected?

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

February 25, 2013

By Al Gray

 

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.

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. (Editor’s Note: Cost Recovery Works is no longer in business, as of December 31, 2020.)