Perez: The Numbers Add Up

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by Paul Bass | Dec 8, 2010 2:08 pm

(22) Comments | Commenting has been closed | E-mail the Author

Posted to: Business/Labor/ Economic Development, City Hall, Downtown, The Hill

Paul Bass Photo When he saw that the deal makes New Haven money in just two years, a fiscal watchdog made a key decision to back a plan that will remake a chunk of downtown and reverse a half-century of urban renewal.

That watchdog is Hill Alderman Jorge Perez (pictured above). As the longest-serving member of the Board of Aldermen, as a banker, and as an independent voice known for challenging administration plans, he can play an influential role in delaying major proposals or enabling them to advance, especially when tax money is at stake.

Perez played that role this week in embracing Downtown Crossing, a $140 million plan to fill in the Route 34 Connector (aka the mini-“Highway To Nowhere”) and transform it into an urban boulevard with bike lanes, safe pedestrian crossings, narrower streets, and a 10-story, 400,000 to 500,000 square-foot biotech-oriented office building called 100 College Street.

“This is a good deal,” Perez declared after a City Hall press conference cum celebration Wednesday. “It’s going to create jobs and increase our tax base.”

Perez’s was initially skeptical about OKing the project. His questions and desire for more information helped delay approval of a $16 million federal grant the city won to fill in the highway so the rest of the project could be built (with private money).

Then City Hall convinced Perez that the city’s stake—up to $6.5 million in bonded matching dough—would easily pay for itself, create hundreds of new jobs, and pour millions of new tax dollars into government coffers. Perez was sold. And Monday night the Board of Aldermen voted 24 to 1 to approve receipt of the grant. That means officials can get started drawing up agreements and filling in the highway.

The DeStefano administration gathered key players (pictured) to Wednesday’s press conference both to celebrate the approval and to discuss next steps. They said they hope to ink the fine-print grant deals with federal and state officials by mid-2011, start filling in the highway in late 2011, then have developer Carter Winstanley start building 100 College Street in 2012. That work all involves the first block of the project, bounded by College Street, Front Road, George Street, and Legion Avenue. The plan eventually calls for the mini-highway to be filled in all the way to State Street.

After the press conference, Perez explained how he came to become convinced about the numbers, and developer Winstanley and Yale Medical School Dean Robert Alpern discussed what the city can and can’t 100 percent count on at this point.

“No Guarantees In Life”

Among Perez’s original stated concerns: Burdening the taxpayers at the time of a looming fiscal crisis. The city faces an estimated $57 million budget gap next year. Citizens have demanded—and official have agreed—that taxes not be raised to fill it. But to accept the $16 million federal grant to make Downtown Crossing possible, the city would have to borrow up to $6.5 million.

This past week Controller Mark Pietrosimone gave aldermen a breakdown of how much that would cost in interest per year and how much tax revenues the project would bring in. Click here to read the memo.

Perez noted that the city wouldn’t be selling the bonds to fund the project until late in 2011. It wouldn’t start paying for another six months.

Here are the numbers provided by Pietrosimone. First the worst-case scenario, based on a five-year bond. (The city doesn’t usually bond for five years; usually 10 or 15.)

In the first year, 2012, it would have to pay $1.5 million in debt service. Carter Winstanley—whose development company is buying the land to build the new office building known as 100 Church Street—would pay a projected $412,500 in new real estate taxes that first year. So the city would lose $1.129 million that first year on balance..

But beginning in the second year, the annual debt service would drop slightly, while the city would collect at least $1.65 million in real estate taxes and over $100,000 in personal property taxes. That number jumps another $3.75 million per year in years 2015 and 2016 when the building allegedly comes online, meaning the city would already be $4 million ahead after debt service. Plus, that doesn’t count a spike in personal property taxes generated by equipment used by businesses at the project.

The second scenario offered by Pietrosimone was for a 10-year bond. The third scenario covered a 20-year bond sale at 4 percent interest. It showed the city paying $902,200 in debt service in 2012, and netting a $489,700 after taking in property taxes. It shows the city netting $1.3 million by the second year, $5 million by the fourth year, and $4.97 million by the final year.

Perez said those numbers convinced him the project made sound fiscal sense.

One holdout alderman, Darnell Goldson of West Rock, argued Monday night that the city should have demanded firmer financial guarantees from the developer—back-up in case the project gets stalled or abandoned, the way development projects sometimes do.

Perez countered Wednesday that several unique factors make this deal less of a gamble: Winstanley has already been filling office buildings in town, to the tune of one million square feet. He has especially had success filling his biotech complex at 300 George St. because of its proximity to Yale Medical School. The new Downtown Crossing project is but a block away.

Perez said he also is confident that Winstanley already has tenants lined up or nearly lined up to make the project work. Earlier, during the press conference, Winstanley spoke about how, unlike in other some cities and states where his company works, New Haven has a strong demand for commercial office space. Yale Dean Alpern spoke of how the med school has been adding 25 to 50 professors a year—who in turn spawn one or more support jobs each (secretaries, tech)—and plans to continue expanding.

In addition, New Haven’s not, at least at this point, offering tax relief to Winstanley. It’s not offering money to help him build his building—only to prepare the infrastructure (a filled-in mini-highway) to enable him to build.

“There are no guarantees in life,” Perez said. “Tomorrow’s not written in stone. I may not be alive tomorrow. That doesn’t mean we don’t look at ways to build our tax base.” The alternative to pursuing promising proposals for growth, he said, would be to raise taxes or make even deeper budget cuts than those on the horizon.

“Complete Deal Not Negotiated Yet”

Indeed, while Winstanley and Alpern spoke optimistically about their plans Wednesday, they didn’t offer many guarantees.

Winstanley said after the press conference that he has been in conversations with potential tenants already. He declined to name them or to say whether the medical school is one of them. He said 300 George St. is 95 percent full; same with his building at 25 Science Park.

He was asked if he’s anticipating getting any tax breaks form the city on the new building.

“The complete deal has not been negotiated yet in terms of whether there’s a tax phase-in,” he said.

Dean Alpern said he couldn’t commit at this point to having the medical school take space in the new 100 College Street complex. “It’s a great location for us,” he said. “There will be a lot of intense discussions in the next month or two” about locating there. “We’re always looking to expand.”

That’s assuming the medical school continues to have the dough. Alpert noted that a new Republican-led U.S. Congress is being seated in 2011. “We’re going to be looking for signs in January” about the fate of National Institutes of Health and general health care funding. “If they maintain funding” the medical school has every intention of continuing to expand, he said. “If they [Congress] do something draconian with budgets,” the outlook is less clear.

Alpern said the med school has 2,000 faculty members backed up by 3,500 other employees, such as secretaries, nurses and technicians. He said Yale-new Haven Hospital also often creates spin-off support jobs for professors who do work there, too.

He said during the press conference that Downtown Crossing will help Yale lure more faculty here. Right now, recruits like downtown New Haven as a place to live and go places at night. They don’t see the medical school area that way. Part of the idea of Downtown Crossing is to knit back together downtown with that end of the Hill, the area now separated by the moat that is the Route 34 Connector Mini-Highway To Nowhere.

Comments

posted by: streever on December 8, 2010 2:37pm

One should note that the crowd (at least the ones most prominent in the photograph) are the hard-working people who have been making the Route 34 project happen. Great work!

As I had expected, Elicker & Perez were correct about the (near) immediate benefits of this plan. That prime commercial real estate has sat stagnant since the late 50s is criminal, and I am glad that the problem is being reversed.

posted by: Catch 22 on December 8, 2010 2:46pm

Folks-

Hundreds of email churned out to get any living creature to attend this press conference and no more than 40 folks showed, as to be expected all were City employees. Also, what is Jeorge Perez getting for hopping back into DeStefano’s back pocket??

I know but can’t say just yet, stay tuned.

posted by: Darnell on December 8, 2010 3:46pm

No disrespect to my esteemed colleague Ald Perez, but the numbers always seem to add up until they n longer do. They added up on the Coliseum development, until they no longer did; they added up on the College Square project but no longer do; and probably more importantly, they added up in this current budget, until they remembered that the BOA passed a budget with an $10 million deficit.

So much for adding up.

I hope my doom and gloom concerns about this project are wrong. I will now be the loudest cheerleader for this project, because it MUST work, or the taxpayers of New Haven will be royally you-know-what.

posted by: FacChec on December 8, 2010 4:30pm

Yes, this is the same Perez who as president of the BOA sold to the BOA the development of the Grove street garage ....to taxpayers saying the numbers would add-up. Well guess what, they didn’t.
Moreover, the Grove street garage is still feeding from the city’s general fund to the tune of $250K per/yr. since it’s completion.

The city’s debt is at 510MM and counting, while at the same time the debt service is 65MM, with 60% going towards interest and 40% to the principal yearly.

So Jorge, please show us how the budget numbers of today match up with your projections for this project in the next three years, while at the same time the Mayor is projecting a 302MM deficit.

You said the following:

In the first year, it would have to pay $1.5 million in debt service. Carter Winstanley—whose development company is buying the land to build the new office building known as 100 Church Street—would pay a projected $412,500 in new real estate taxes that first year. So the city would lose $1.129 million that first year on balance, if you trust the numbers coming from the city controller.

Excuse me, but,...What..??

[Editor’s Note: The Grove Street deal was struck before Jorge Perez joined the Board of Aldermen in 1988.]

posted by: streever on December 8, 2010 4:50pm

Editor: you allow catch22 to state that Perez is involved in corruption?

Catch22:
Most people can’t get out of work to go to a press conference. I assure you, the community is extremely glad this is happening, even if we can’t skip out on our job to attend a press conference.

Goldson:
the numbers have consistently added up when Carter Winstanley is involved. Yes, other developers have failed, but to date he has delivered.

[Editor: Thank you for pointing this out! We try carefully to avoid people making any assertions like that on the site. Here’s why we let this comment in: We didn’t read it as suggesting at all that Jorge Perez is involved in corruption. We would not publish a comment that we felt did that, about Jorge or anyone else. Rather, we felt it was fair comment for readers to speculate about the deals and trading and alliance-shifting—completely legal, often out in the open and above board, subject to fair debate—that go on in real-world politics and government. I agree with you, David, that this is tricky territory. And we remove comments that people feel we shouldn’t, because we try to be on the safe side and not allow unsubstantiated allegations and smears and personal attacks to creep into the discussion. We definitely make mistakes sometimes; it’s not an exact science. So that’s just an explanation of our thinking here. Thanks for trying to keep us honest!]

posted by: visitor on December 8, 2010 5:14pm

To “Catch 22”

... it is an amazing feat to reclaim city streets that have been ruined by the highway, thanks and kudos are in order for all that were involved in making this happen—residents, and yes, the administration!

posted by: nfjanette on December 8, 2010 6:09pm

The driving (pun intended) motivation for this project has little to do with some philosophical reversal regarding the Rt 34 connector project and everything to do with the city desperately trying to get the one developer that appears to have bottomless pockets what he wants. As a pro-business kinda guy, I support good investment and development choices, but the problem with this project is that - to the new-urbanists foolish delight - it will wreck traffic flow westward from the connector and, combined with the opening of Gateway, may produce unprecedented traffic jams in that part of the city. Hundreds, if not thousands of idling and slowly moving vehicles in that area during rush hour does not make for what I would call a “livable city”. The connector should be allowed to continue under the new development to provide two lanes for westward traffic, in essence the same idea as the current plan to allow one lane direct access to the parking garage. Designing a building with traffic tunnels is hardly a new design challenge.

posted by: Ellis Copeland on December 8, 2010 6:18pm

Streever—the mission of NHI is clearly to cheer-lead whatever comes out of City Hall. Not surprising since it is entirely funded by the local elite

posted by: The Terminater on December 8, 2010 7:53pm

This is really brilliant. A press conference to hype a real estate deal conceals the real news. This is the city faces a $57 million budget black hole next year. Taking an average salary of $60,000, and with benefits this would $100,000 for the average city employee. That means 570 jobs will go. The city employs about 4000 people, so 1 in 8 or 12% will lose there jobs. It will probably be many more. It means cops, firefighters and teachers will no longer be working. If you iclude the businesses that depend on them well over 1,000 jobs will go. You’ve got to give it to Johnny Boy, he’s superb. He didn’t even say there’s the bad news and theres the good news. Perez is 100% correct. The numbers do add up.

posted by: Jonathan Hopkins on December 8, 2010 9:16pm

nfjanette,
The amount of traffic, 20,000-30,000 cars per day, that currently uses both the at-grade portion and the below grade portion of Route 34 was supposed to require this level of infrastructure:
http://photos-h.ak.fbcdn.net/hphotos-ak-snc3/hs194.snc3/20155_1227086952403_1085910074_30558267_7182383_n.jpg
However, the state ran out of money during construction and the program was put on indefinite hold. Today, the amount of traffic that was supposed to be accommodated for with a limited access highway AND frontage roads is actually accommodated for with only the frontage roads since the highway was never completed. Under the logic you used in your post, this fact would be impossible. How could the amount of traffic that demands a highway and frontage roads be accommodated for only with frontage roads with traffic lights, and intersections? People adapt, they use different routes, they move residence, they look for jobs in different locations, they bike, they use transit, or they just simply put up with the extra 15 seconds at a couple traffic lights.
This Downtown Crossing project is planning on keeping the highway right of way, which means that, at worst, people’s travel time from the bridge over the railroad tracks to the boulevard will increase by a couple minutes. People will adapt. Hopefully, the DOT can get on top of this and provide infrastructure that make alternatives to driving a viable option.

posted by: Charlie O'Keefe on December 8, 2010 10:50pm

I am re-posting what I have posted before. I think all the citizens of New Haven should understand how they are being duped.

$16 million of Federal money that we all pay in our Federal taxes.
$6 million of City money that we all pay in our property taxes.
$1 million of State money that we all pay in our state taxes.

That’s $23 million of our money so far, and Kelly Murphy states she is looking for other state and federal money. How much will this really cost us all.

Every man, woman and child in New Haven, all 130,000 of them, is giving $177 each so far to this Winstanley character so he can fill in a highway to build an office tower that costs what, $50 million because Yale wants some new offices. If this isn’t corporate welfare I don’t know what is. With New Haven citizens putting in 33% of the cost I’d say we’ve been mugged by our dear Mayor on Yale and Winstanley’s orders.

If Yale wants offices and labs they should put their money into the 200 plus acres they already own in West Haven. Remember, the old Bayer research labs. If I remember correctly that was the largest ever municipal subsidy to a corporate organization. It didn’t work. Bayer just skipped town. I think West Haven has even higher property taxes than New Haven.
So the point I am making, and take note Alderman Elicker, is that there is no guarantee that government subsidies will work. Property developers go belly up and if that happens the we have all put up a lot of cash for nothing.

Alderman Goldson. I think you’d better get yourself up to Hartford a few weeks from now and start talking to the new boys. Get the state to pull their cash out of this deal. We all know its just pork for friends of Johnny, and we’ll all end up paying a lot more taxes.

Or many of you will be losing your jobs as there’s no money left. Johnny Boy has spent it all and more.

posted by: Observer on December 9, 2010 5:14am

I have to agree with Darnell on this one. The numbers always add up at this stage. It’s once the deal is locked in place that “unforeseen circumstances” come to light and the financial projections upon which the deal is based get tossed out the window and we, the taxpayers, are stuck. I, like others, want this to be successful. However, if time proves Darnell right, then I would say its official that we cannot believe anything this administration says.

posted by: Cedarhillresident on December 9, 2010 8:11am

http://www.youtube.com/watch?v=_uROuR3Jm6M

posted by: anon on December 9, 2010 10:11am

Charlie,
I’d rather see the Federal money creating a more sustainable economy, including creating local jobs and less reliance on urban sprawl, so that we can compete with the rest of the world, than see it go towards subsidizing high-fructose corn syrup, missiles, and tax cuts so that the people making millions of dollars who now control 90% of the nation’s wealth (and who just got another huge tax cut from Obama) can purchase another beachfront property in Branford.

No matter what you think of Federal spending, for the city, this is a good deal.

posted by: robn on December 9, 2010 10:24am

CHARLIE,

Connecticut and other so called Blue States pay out far more in federal taxes than is given back in aid than so called Red States. So essentially we should be happy to receive as much federal aid that we can get because if we don’t, the states that purport to be fiscally conservative and who say they want to lower taxes for everyone will continue to suck the blood out of our local economy.

posted by: told u so on December 9, 2010 10:38am

private developers do not fail. tell that to the taxpayers of fairfield ct. sold a train station and a million sf of office space in a public/private partnership. developer went bankrupt, bank foreclosed on the property, left an environmental cleanup disaster behind.
if it looks, smells, sounds like a pig..it’s a pig. history repeats itself….public/private partnerships are a disaster waiting to happen.

posted by: Citizen on December 9, 2010 10:42am

To: “Charlie O’Keefe”... I hate to break it to you but this TIGER money was going to go to some other municipality in the country if it didn’t get awarded to New Haven…So wouldn’t you rather see “our” money go towards “our” community rather than some other community?

posted by: Gary Doyens on December 9, 2010 10:58am

These are pretty optimistic projections in terms of tax revenue and seem to fly in the face of projected tax payments publicly released just a few weeks ago. At that time, the Register was reporting taxes would be $1.2 million. What are the real numbers? I also note that our finance department puts a lot of stock in the rating agencies. This is misplaced adoration as their endorsement isn’t worth a warm bucket of spit. These same agencies gave approval to a whole host of disastrous bonds that were key to the mortgage crisis and even now, are under heavy criticism for their endorsement of muni and state debt instruments that have greatly escalated public debt which is now threatening the solvency of thousands of towns, cities and states.

While I support this project in concept, it is critical the project be paid for in the shortest time possible. As a banker, Jorge Perez should know this. At very least, the BOA should have exercised their auhority to force the structure of this deal so it costs city taxpayers the least amount possible which can only be achieved by quickly paying back debt.

As for any development deal with Winstanley, I would hope it includes no tax incentives or other taxpayer funded sweeteners. He needs this more than we do. Further, the agreement should also require a performance bond that would pay off the new debt if the project specs substantially change so that projected tax revenues fall below projections. This will keep the projections honest, provide taxpayers’ insurance if the deal changes, and help keep the project on tract in terms of completion. One can have confidence in Winstanley’s past performance but that is no reason to throw caution and prudence to the wind. If the numbers are the deciding factor, it stands to reason that if the numbers change, the value of this deal to taxpayers is diminished.

I remain totally confused as to why Perez is considered a “budget watchdog.” Our fiscal house of cards was not hatched and made worse year over year in a vacuum.

Cedar Hill: Lol - Pennies from Heaven. Perfect.

posted by: Gary Doyens on December 9, 2010 6:07pm

The more I think about this project and the conflicting numbers ($1.5 million vs. $3.75 mil); the no guarantees, the lack of a development deal that sets out the framework for this partnership, the more concerned I get. Why are we agreeing to take on $6.3 million dollars in debt when the deal points hven’t even been agreed to yet? Would Jorge Perez do a deal like that at his bank? Let’s get real here: Winstanley hasn’t even agreed to pay fully loaded taxes in five years. How can finance produce accurate projections without these deal points in place? It sure looks like the projections may be much rosier than reality. Is this right?

posted by: Brandon on December 9, 2010 6:59pm

Here’s the reality folks. If the city and BOA did not accept the TIGER II grant funding, we would never get fed funds like that again for another project- it would be over for us. In this economy, the only way to go is up. Up with growth. Up with jobs. Up with generating tax revenue, and Up with building developments like the Downtown Crossing project.

Is it a “risk” with yet to be determined features, such as developers secured (besides Winstanley)- YES. Are there questions about just how much tax money will be generated by the project- YES. However, if New Haven never takes a risk like this and donesn’t grow, I’d hate to see this city in another 10 or 15 years. Back to where we were in the ‘90- a place that no one wanted to vist, let alone work or live. To not support this project is like not supporting this city. Period. Can’t do both.

posted by: ernest espo on December 9, 2010 7:02pm

Oh Come ON. The only way a City like New Haven can succeed is to GROW. What kind of ... want to stop a project that will help this city to grow and prosper? You sit home and second guess every plan, every idea, and bemoan the developers and companies that will benefit from the process. Well welcome to the World! This is how it works—you take the chance, you have the vision, you put up your money and you hope to succeed. I’m proud that our Aldermen—my Alderman chose to see beyond this head-in-the-sand thinking so prevalent on this page and move our city forward!

posted by: Anastasio Popollino on December 9, 2010 9:24pm

Mr Doyens.

I agree with you. The flashing warning lights are in the Memo from Pietrosimone to Goldfield that are linked to this story. The biggest is the $4.35 million GAP included in the summary table. Looks like there’s not the money to go ahead with this and city hall is dreaming big things that can’t be achieved.

There are other big inconsistencies. After filling Route 34 construction is due to start mid 2012. This indicates completion and first occupancy in mid 2014 with 2 years for construction and fit out. All of Pietrosimone’s cash flows indicate receipts of both property taxes and real estate taxes in 2012, 2 years before the building is complete. How can this be? If there’s no building and no one in it there will be no personal property taxes. I also don’t believe the city can tax an incomplete building. I thought it had to be legally approved by them with a certificate of occupancy before they could tax it. Attorneys reading this post please respond.

So, where does this get us?

It could be ‘The Terminator’ who posted yesterday is correct, and this is the Mayor being very cynical announcing a gaping budget deficit and implied layoffs while honey coating it with a real estate deal that looks like its the yellow brick road.

It could be the Mayor knows Rick Levin is going to Washington and will bail him out with whatever he wants to do. Is that why Alpern has been brought in as the seal of approval.

It could be the Mayor has lost it completely and will compound error with error. Its interesting that Elicker, who is a Yale SOM grad and without doubt the most intelligent and best educated alderperson, has distanced himself from this by telling the BOA not to question the finance department and the trivia they deal with. Should the alderpersons contact their attorneys to check out their personal liability when this all blows up and the state has to take over.

I don’t know the answer and I don’t know what’s going on. All I know is my wallets being taken for a ride. I’d prefer to be mugged by a gunman. They are honest. They just ask you for your cash in exchange for your brains not being blown out.

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