ANOTHER CLEVELAND $1 BILLION BOONDOGGLE

May 11th, 2016

roldo chart 160511a

How desperate in the early 2000s was the Cleveland Establishment to get a new convention center and thus shoot for the 2016 Republican Convention?

As desperate as anyone could possibly be. Mouth-wateringly.

However, to squeeze out new revenue for a convention center—atop the huge mounds of money already spent on sports venues—posed a problem. Even for our Big Boys. How to get the dough.
They wanted it so badly. And not from themselves, of course.

How can we add another tax, the corporate leaders had to ask themselves. Certainly not by going to the voters.

It would take the skill of making a pool table shot that slams one ball that clinks another that bumps a third, then caroms off a fourth. And finally goes in the pocket.

Clumsy maybe. But a score.

You may remember that Tim Hagan with thoughtless Jimmy Dimora came to the rescue with an added sales tax—the most regressive tax of them all—in 2007. Peter Lawson Jones, the third commissioner then, voted NO.

To hell with a public vote!

It seemed not so consequential. It was only a quarter percent. Sales tax up to 8, however.

The County not only built a convention center, doomed to lose money, but a Med Mart (now called the Global Center for Health Innovation), which isn’t doing what it was originally claimed to do. In any way.

Clevelanders were suckered by the med mart proponents and the hapless media. The scare tactic was that other cities, including New York City, would beat us to the punch. Must hurry. They’d build a medical venue before we got one. Since, of course, no city has followed Cleveland.

But now the County has added to its downtown complex—a 32-story, 600 room hotel to cost some $270 million, not counting costs of some $18 million for underground work to access parking.

Now look what that decision has wrought upon Cuyahoga taxpayers. Here’s the sales tax increase take, lately always rising:

roldo chart 160511b

Rounded off that is some $375 million already. With 12 years to go on the tax, (now rising above $50 million a year) that would add conservatively some $600 million for a total of some $975 million, very close to $1 billion. It could easily go over that as sales tax revenue increases as prices of everything go up.

A BILLION DOLLARS!

Tim got the ball rolling with his friends from Chicago at MMPI.
MMPI is gone. But not empty handed.

Because here’s what else MMPI walked away with as I reported previously:

  • $333,333 a month for 30 months or $10 short of $10-million.
  • $83,333 in “supplemental rent” for 30 months or $2,500,000.
  • $12,000,000 for a “developer” agreement payment.
  • $4,000,000 in construction cost reserve.
  • $1,354,730 for “operational expenses” (July-October).
  • For a total payments through October, 2013, of $29,854,730.

    Add the $3,000,000 final payment to get them out of town and you have a neat cost of $32,854,730. Hagan’s friend didn’t come cheap for a firm that should never been in town.
    Further, the urgency of our public officials to get this up and going is contradicted by the fact that other cities have avoided this public investment.

    Heywood Sanders, professor at the Universwity of Texas San Antonio and author of the recent book “Convention Centers Follies,” in an e-mail notes that other cities, New York and Nashville, dropped plans for a similar medical mart. But not only that, he says, “The New York and Nashville proposals were to be privately-financed.”

    Sanders says further that the convention figures here are vastly overstated.

    “It’s not at all clear that there is any substantial demand for the kind of healthcare trade mart proposed by MMPI, then or now,” he writes.

    Sanders writes of the promises, “MMPI’s eventual goal is to attract 60 medical trade shows and 100 smaller medical conferences to Cleveland every year—10 percent and 5 percent, respectively, of all such events in the country. That, (MMPI) estimates, would mean 300,000 visitors to Cleveland, spending $330 million a year in the city.

    “That would mean 300,000 annual new convention attendees, each staying in Cleveland for more than 3 days, or some 900,000 annual hotel room nights.

    “For 2015, the center reported generating just under 83,000 room nights,” Sanders notes.

    Far below expectations.

    In a recent article Mark Naymik of the Plain Dealer starts by writing:

    “A yoga studio. A comic-book show. A hotel sales office. A college classroom. A meeting space for free lectures on medical history.”

    These are examples, he writes, of “how our medical mart now dubbed the Global Center for Health Innovation, has been used in the past year.

    “Not what you were expecting? Me neither.”

    Some 85 percent of the facility is filled but that could be somewhat misleading as some pay below market rate, some not at all and other publicly subsidized.

    Naymik writes that in 2014 earned $360,000 on leases, 48 percent below its goal.

    The med mart has had two directors already in its short life.

    I suggest the Hagan tax will lead to three heavy losers for Cuyahoga County: The Convention Center, the Global ‘med mart’ and the Hilton Hotel. All owned by the County via the sales tax hike.

    Clevelanders were suckered by the lure of the med mart proponents and the media. The scare sale was that other cities, including New York City, would beat us to the punch. They’d build a medical venue before we got the chance. Since, of course, none have followed Cleveland.

    The County has added to the downtown complex a 32-story, 600 room hotel to cost some $270 million, not counting costs of some $18 million for underground work to access parking.

    More than $1 billion in projects doomed to lose money. Cost taxpayers even more.

    But those are not the only socialist dealings of local government. They built stadiums and an arena—and turned them over to private interests.

    Again Hagan—the most odious politician of this era—played a central role in these gifts to the wealthy.

    Let’s look:

  • First sin tax (15 years) $240 million.
  • Second sin tax (10 years) $135 million.
  • Third sin tax (20 years) $240 million expected.
  • Gateway overruns bonds: $163 million thus far with years of annual bond payments to go.

    Tax exemption for sports facilities: Untold millions as Progressive Field, Quicken Arena and Browns Stadium pay NO property taxes on the structures. This will cost over time hundreds of millions of property tax dollars.

    This doesn’t include cost of Browns stadium with costs voted at $213 million in the 8 percent parking fee; $36 million expected in increased admission taxes; and $18 million in car rental fees. Nor does it count $42 million borrowed for Gateway parking garages or $13 million for the walkway from Tower City to Gateway. Or interest payments.

    This is to say nothing of serving these special interests. For example, recently I asked how much police protection the city of Cleveland provided the sports venues earlier this year—34,000 hours! (Mayor White promised in writing 50 officers at the baseball stadium with attendance of 35,000 or more and 41 officers at Q arena for large crowds.)

    The generosity to these wealthy interests mirrors the Roman Empire. Give them circuses.
    Of course, now Mayor (forever?) Jackson wants a half percent (to 2.5) increase in the city payroll tax—another regressive tax on working Cleveland.

    They just don’t stop.

    ADDENDUM:

    A bit of history as reported by the County in its financial documents:

    During 2009, the County entered into an agreement with Merchandise Mart Properties, Inc., MMPI Cleveland Development LLC (Developer) and Cleveland MMCC LLC (Operator) for the development and operation of the Global Center for Health Innovation (Facility). Global Center for Health Innovation is an integrated facility for a permanent exhibition hall for medical devices and equipment as well as a temporary exhibition, tradeshow and conference facility and back of house functions.

    During 2010 the County purchased land for the GCHI site. The County subsequently leased the purchased land to the Developer for $1 annually. This lease meets the definition of an operating lease under GASB 62 “Codification of Accounting and Financial Report Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements.” At December 31, 2014, the carrying value of the land is $37,912,642. The County entered into a project funding agreement with the Developer to provide funds, through a loan from the County, for the planning, designing, financing and constructing the Facility. The total project budget of $465,000,000 includes sources of $343,350,000 in Economic Development Revenue Bond proceeds and a contribution of non-bond proceeds from the County. Under the terms of this agreement, the County will reimburse, advance or directly pay the construction costs of the Facility. The Developer will make monthly payments of $3,000,000 through 2027. The County entered into a lease agreement with the Developer for the Facility. This lease meets the definition of a capital lease under GASB 62. The County will make monthly lease payments of $3,333,333 through 2027. As of December 31, 2014, the book value of the capitalized leased assets was $435,249,910. While the Facility was under construction, the County subleased the Facility to the Operator in exchange for the Operator maintaining the asset in lieu of rental payments. The Operator is to operate the Facility solely as a convention center and medical merchandise showroom, including setting the rates. This operating lease expires in 2027.

    During 2013, the County determined that it is in its best interest to terminate its relationship with the MMPI Parties and to transition operation and management of the Global Center for Health Innovation and the Cleveland Convention Center to a new operator. On December 27, 2013, the County entered into a sublease and operation agreement with the Cuyahoga County Convention Facilities and Development Corporation (the Corporation) a discretely presented component unit of the County. The Corporation is to operate the Facility solely as a convention center and medical or health industry showroom/office/educational facility and any legally permitted activities that are reasonably associated therewith, including without limitation trade and consumer shows, including setting the rates. This operating lease expires in 2027. During 2014, the Corporation assumed the loans payable and lease receivable from Merchandise Mart Properties, Inc. The Corporation paid $19,821,470 during 2014 leaving a remaining balance of $341,404,335 as of December 31, 2014.

    By Roldo Bartimole…

    2 Responses to “ANOTHER CLEVELAND $1 BILLION BOONDOGGLE”

    1. Garry Kanter says:

      They lie and get away with it.

      Every time.

      That’s Business As Usual in Cuyahoga County.

      I saw the head of the RNC host committee speak last week.

      He explained how they learned from two failed attempts to get a national party convention that having these facilities was necessary for the region to get the convention.

      So that’s what they did.

      No matter what lies they had to tell or the cost to taxpayers.

    2. Mitchell Paul says:

      This story not being told by local journalists… The recent stories about United Way ceo Bill Kitson resigning are ludicrous in thier incompleteness. Also MARK Hogan tech vp was recently fired for stealing computers… Used to work for city at airport.. And school district… And Cleveland city council…

      Big time lag from discovery of thefts.. To firing… To calling police (reluctantly) and now almost 4 months later no indictments…. Bizarre protection racket running at highest levels.
      Also these thefts…

      Alert the future prosecutors of these crimes overlooked… Deliberately by the perps pimps.
      That group includes journalists and editors,nonprofit leadership and elected officials.

      More lies from Plain Dealer… Here is the problem they won’t discuss. Protecting Armond Budish… : weco fund was a former cleveland microlender[nonprofit ein #34-1439659 if you wish to look up the public 990 irs forms every charity submits]that closed mid 2012. Spread the gospel of Wealth Education and financial literacy. The charismatic and brilliant PHD certified financial planner has hundreds of millions of assets in her trusts and investments according to her website. Elisabeth Plax also has Armond and Amy Budish investments according to the New York times also ms Plax is frequently on Armond Budishs tv show Golden Opportunities [oppurtunities to defraud the elderly i am afraid]. Elisabeth Plax should be able with such great credentials be to answer the following problem regarding the stolen 45,000$ she was resposible for as the president of weco funds board of trustees. United Way gave weco fund two grants totalling over 157,000$ in 2012. ….that same year weco fund claimed 112,000$ in income from grants!!!!! Elisabeth Plax has not denied to me that she has stolen these funds! Now it gets even more interesting as one might suspect United Way might be concerned about the missing monies…they knew about. from Bill Kitson ceo of united way”i do remember this situation,we stopped funding immediatly upon my understanding there was a problem with the agency. While it is fair to ask what happened to the money,it is unlikely we will ever find out” That is assured if no one looks …and the Plain Dealer and other news organizations will NOT LOOK. United Way also failed to report the thefts. United Way claims to carefully track the grants they make to make sure they are properly spent…an obvious lie. Also a huge amount of bad loans were made….probably made with no intention of repayment to coconspiritors. Please some real journalist look at this huge fiasco being hushed up to prevent embarassment and prosecution of these powerful theives!!

      The latest 990 report from United Way if filed yet(it’s on website, not yet on guidestar) in section 6 checks no if there was a problem significant diversion of assets… Monies were stolen. Michael HEADON has not responded to email… Or Bill Kitson who has admitted the diversion… Why not call it theft

      http://www.cleveland.com/metro/index.ssf/2016/02/united_way_leaders_confident_a.html

      These are Lee Fisher and Ratner Miller protected entities…. Rich Democrats stealing from the poor…..

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