Friday, March 29, 2024

City Center II finances need realism

The people of East Lansing need to face the truth. City Center II was a huge financial mistake by ambitious officials that has cost us millions. We have no choice but to cut our losses rather than throw good money after bad and drive the city to the verge of insolvency.

In May 2009, City Council voted unanimously to borrow $5.495 million in Bond Anticipation Notes, or BANs, so the Downtown Development Authority, or DDA, could purchase properties on Evergreen intended for a City Center II parking ramp. These BANs come due on April 1, 2012 and will need to be refinanced. The properties were bought for about three times their worth and have a 2011 assessed marked value of $1,535,400. Selling them in the current market is not an option, since the city would need to come up with the difference to what is owed on the BANs — money it does not have.

Officials want to borrow $34 million for the parking ramp, for a performing arts theater in City Center II and for assorted infrastructure and Brownfield expenses. They hope to pay off these bonds with new taxes (tax increment) on City Center II (about 70 percent) and parking revenues (about 30 percent), according to the “debt service schedule” from Baird & Co., obtained through FOIA.

This is extremely reckless real estate speculation. To pay off the bonds, City Center II must be completed and financially successful. No one with the slightest sense of fiduciary responsibility would risk $34 million on a public-private project with Strathmore Development Co.

All the lies, excuses, phony reassurances and cover-up cannot hide Strathmore’s disastrous track record of foreclosures, unfinished projects, walking away from limited liability companies, staggering losses of “other people’s money,” unpaid taxes, unpaid contractors and a debilitating mezzanine financing mortgage on most of its City Center II properties.

The least bad option for East Lansing will be to refinance the BANs for the balance due, continue to rent out the Evergreen properties to cover part of the costs and spread the losses over 25 or 30 years. Maybe if the economy improves, better options will become available.

No one wants to see the blight that has been caused by the pursuit of City Center II left as is. But the reality is downtown is full of empty offices and storefronts, and there is no need for more condos or another city-owned theater. It might take years before one or more developers with sufficient financial resources will take on a more realistic redevelopment project or projects, such as affordable student housing.

I take no pleasure in delivering bad news, especially as new revelations are showing East Lansing in worse financial trouble than previously known, financial trouble that has been exacerbated by the costs of other money-losing ambitious projects. But wishful thinking only leads to disaster. We can survive the losses from refinancing the BANs. We cannot survive a write-off of $34 million.

Eliot Singer, East Lansing resident

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