What is not impressive is the city of Sparks acting as the bonding agent to insure RED Development doesn’t go broke building the project.
The city of Sparks, in keeping with the newest form of corporate welfare to sweep the nation, the government/private sector tandem team known as “redevelopment,” is using the city’s good credit to effectively co-sign on the loans needed to float the project.
When you consider the whole project is expected to cost around $1.2 billion – count on overruns thanks to extensive government involvement – and the city’s typical yearly tax revenue is about 10 percent of that, the risks for the city are huge.
“I’m really worried about this. Every time I turn around, there’s a different tax number.” So stated City Councilman Mike Carrigan, who recently voted no on yet another bond sale.
City Councilman John Mayer expressed similar concerns and noted yet another reason a caution flag should be waving madly: “It seems to me like the citizens of Sparks are taking the risk and RED Development is not.”
Mayer hit the nail on the head, and his no vote was fully justified. The reality is that RED Development is going to win no matter what thanks to the city in effect using its own good faith and credit as collateral for the loans RED is using to finance the work.
As anyone who has ever paid attention to the danger of being a “co-signer” on a note knows, in too many cases the original party defaults and the nice-guy co-signer gets stuck picking up the tab. While this may be a long-shot concern in this case, the amount of tax money needed to cover any bad debt could be astronomical in a worst case scenario.
Assuming the economy does not further sputter and stall, the likelihood that Legends will progress seems good, but is that something the city should gamble on with the taxpayers’ money? The reality is that the mayor and his five councilmen are merely surrogates, and the money they are using as promissory guarantees will certainly not come from their pockets if things fall apart. Ultimately, you the taxpayer is the co-signer the Shylock bonding agent will hunt down for his pound of flesh.
Of course, as Mayer noted, the RED people will assume all of the profit. The money made will not be shared with the city, even though the risk is shared. In short, it’s a poorly thought out trade agreement (definitely not a quid pro quo) with the city basically guaranteeing that if RED’s project does not work out as planned they can walk away practically risk free while the overly generous city pays off the defaulted loans that RED used to fund the project.
RED, no doubt a group of sharp folks, also know the city cannot say no when they come with their hand out. Like a bank trying to protect its initial loan by issuing new loan after new loan, once the city gets caught in the powerful stream of financially backing a $1.2 billion project, there is no turning back. RED has them over a barrel, and Sparks will be hard pressed to say “no” when RED demands further guarantees without running the risk of a possible project shut-down for lack of fluid capital.
Mayer and Carrigan were defeated by the mayor and two other councilmen, so here we go. Welcome to the savings and loan business.
Copper Canyon was touted as a smaller version of Legends, and it recently went into receivership. At a courthouse sale this past Thursday no one even bid the minimum, $37 million, to buy the project and get it back on track. Nothing is ever absolute. The city should not be doing what rightly is and has been historically done exclusively by the private sector.
Banks are lending institutions; city governments are not.
Ira Hansen is a lifelong resident of Sparks, owner of Ira Hansen and Sons Plumbing and his radio talk show can be heard Monday throught Friday from 3 to 6 p.m. on 99.1 FM