Home Liberal The city of Richmond is considering a massive handout to Virginia’s political...

The city of Richmond is considering a massive handout to Virginia’s political kingpin (The Week)

9
0
SHARE

The city of Richmond is considering a massive handout to Virginia’s political kingpin – By Ryan Cooper (The Week) / Nov 6 2019

The city of Richmond, Virginia, is in the process of approving one of the largest redevelopment projects in its history.

The “Navy Hill” project, according to its website, will redo a 10-block chunk of downtown Richmond with new development worth about $1.5 billion — replacing the aging Richmond Coliseum with a new 17,500-seat arena, a huge new hotel, dozens of new stores, and much more. It promises to be a “revitalization of an entire neighborhood where one was lost, creating jobs and opportunity, affordable homes, and new tax revenue for the City.”

It’s also a high-risk investment that looks extremely fishy and the brainchild of a man named Tom Farrell. Farrell is the president, CEO, and chairman of the board of Dominion Energy, the enormous power and gas utility that services customers in seven eastern states, and he’s one of the largest political donors in the state. He reportedly came up with the idea, and he is the head of the NH District Corp, the development group that is the project’s main backer.

Thus the story of Navy Hill seems to be a window into how one political kingpin can wield influence over business and politics on the local level, with almost no transparency or accountability, to enrich himself and his associates to the possible detriment of regular citizens.

To start with, it goes without saying that trainloads of money are at stake here. We’re talking about “260,000 square feet of retail and restaurant space; a 541-room luxury hotel within walking distance of the Greater Richmond Convention Center; 1 million square feet of commercial and office space; more than 2,500 apartments; a $10 million renovation of the Blues Armory,” and more, as Kate Andrews and Kathleen Shaw write at Virginia Business. Farrell and his associates — which include an ex-banker, an ex-property developer, and the ex-CEO of the tobacco company Altria — unquestionably stand to make a handsome sum. And the keystone for the whole project is the city-financed arena, which will surely ensure higher property values and a steady customer base even if its own financing doesn’t work out.

That financing is based on a huge public subsidy in the form of a “tax increment financing” (TIF) scheme, which will raise roughly $311 million to build the new arena (the remainder of the money to develop the surrounding area will come from private investment). A TIF is a policy whereby a government borrows a bunch of money by issuing bonds that are backed by the presumed increases in future tax revenue from the property around the project itself (about 80 blocks of downtown Richmond, in the case of Navy Hill).

A TIF ensures the government doesn’t have to come up with a bunch of cash up front to finance the project, and guarantees a dedicated stream of tax revenue to repay the bonds. But it can also mean higher interest rates on those bonds. The proposed Navy Hill bonds, for instance, pay 1.75 percentage points more in interest than Richmond’s “general obligation” bonds (which are backed by the entire tax base). In the case of Navy Hill, only the increase in property taxes will go toward the TIF bonds. Projected increases in sales taxes, meal taxes, and parking fees will be earmarked for schools, housing, local art, and general city services, as Jonathan Spiers writes at Richmond Biz Sense.

The problem is that TIFs are one of those classic American hide-the-ball policy tools that allow governments to spend public money while pretending they aren’t doing so. “No new taxes are being levied,” says the Navy Hill website. But the increased property tax revenue earmarked for repayment of the TIF bonds comes at the expense of future budgets, because otherwise the increased taxes would go into the general revenue pot. That can mean less money spent on other priorities. “TIF districts have a history of starving schools, such as in Chicago and Baltimore,” Ayame Bryant, a co-chair of Richmond’s DSA chapter, which has opposed the project, rightly told The Week. The city will also pay a great deal of interest — something like $620 million over 30 years.

In theory, TIFs can work out reasonably well, and sometimes do. But like any opaque funding mechanism in which costs are shunted onto future generations, they are highly vulnerable to misfiring or outright abuse.

For one thing, future revenue projections are often over-optimistic. If that happens, then the government may have to either raise taxes in some other way, or cut other priorities. The Navy Hill developer promises that won’t happen — “Richmond taxpayers will never be ‘on the hook’ for development costs,” reads the website — but an analysis done for a local advisory committee showed that the Richmond city general fund could indeed end up paying if the projected revenue increases don’t materialize.

For another, even if revenue estimates are correct, if expenses grow in other areas — say the city wants to stand up a new public daycare — then it will still have to raise new revenues somehow, and one of their prime options will be off the table, already allocated to paying for the Navy Hill bonds. All this pulls the mask off pretensions that TIFs are somehow different than normal government subsidies. At bottom, it is still public money.

So, how does Tom Farrell fit into all this? As noted above, he reportedly came up with the idea. He and other wealthy developers were working on a plan to replace the Richmond Coliseum back in mid-2017, with Richmond Mayor Levar Stoney only putting out a request for proposals months later. Sure enough, Farrell’s group was the only one to respond before the deadline, and Stoney backed his plan in November 2018 before any details were even made public. The mayor “sold out to Dominion,” Chelsea Higgs Wise, a local radio host, told The Week. (A spokesman for NH District Corp denied the project was Farrell’s idea via email, writing that “For quite a long time, there has been ongoing public and private interest in developing this area, and bringing entertainment and tourism options back to downtown.”)

Since then Farrell has been “spearheading” the project, as Spiers writes, selling the idea to local real estate barons and organizing a public relations campaign — like an op-ed published under the name of a local university president that was actually written by Farrell’s development company.

All this raises suspicions about some of the specific details about Navy Hill. For one thing, building a big arena — indeed, it would be the largest in Virginia — right in the downtown of a medium-size city has flopped spectacularly in other cities. They are large facilities that sit empty most of the time, and thus need a steady supply of crowded high-dollar events to work out. As Ben Campbell and John Moeser point out at the Richmond Free Press, other similar arenas that do work well, like the Capital One Arena in D.C., are directly connected to underground heavy rail with sufficient throughput to handle a stadium’s worth of people and are supported by one or more major sports franchises as primary tenants. Cities like Richmond without high-capacity public transit typically put their arenas on the outskirts of town, so they can be built on cheap land and surrounded by vast oceans of parking lots. Even then, they are more often than not disastrous boondoggles.
(A NH District Corp spokesman disputed these worries, writing via email that “There are many successful arena-anchored development projects. We’re aware of those that did not work, have created a plan that does work, and have enlisted the best arena-district designers, architects, and operators in the world who have a track record of championing these types of projects.”)

Furthermore, the tax revenue projections that will make the TIF scheme work hinge on Dominion Energy building a big office tower in the TIF zone. They already have one new tower there, and are planning to demolish an old building of theirs in the zone. But after promising a second new tower to replace that old building, Dominion has been bizarrely reticent about following through — which would scotch the whole financing plan if it doesn’t happen. Given that Farrell runs Dominion, and the entire project seems to be his baby, it raises the question of just how personally committed he is to the project — as opposed to trying to make other people pay for a pet idea that he will stuff through the city government. “Dominion Energy is evaluating the company’s future downtown workplace needs and developing plans for our 701 E. Cary Street property that could include a new office tower,” a Dominion spokesman told The Week via email. “A final decision regarding those plans will be made in the coming months.”

That’s not the only thing Farrell has been squirrelly about. His development company promises that they’ve already sold sponsorships and naming rights to the new stadium, but they won’t say who paid until the project is approved. JPMorgan Chase and Citigroup will underwrite the bonds, but neither has the development corporation revealed who is buying them. And per the deal under discussion, the size of the TIF bonds, their final interest rate, and what they will be secured with will not be released publicly until it is approved, leaving significant latitude to soak Richmond taxpayers. The city did not even appraise the land they plan to sell to NH District Corp.

It’s also not like it’s crazy to be skeptical — for instance, banks have paid gigantic fines for conspiring to rig bids on municipal bond issues in the past. It was also discovered in late September that Richmond’s lead negotiator on Navy Hill had a nephew working for Farrell. (It’s perhaps telling that “Navy Hill” itself refers to an old middle-class African-American neighborhood that was bulldozed so a noxious highway could be built.)

Farrell and Dominion Energy have long been enormously influential in the politics of Virginia and neighboring states, and hence sizable players nationally. His pet issues are, as one might expect, fossil fuels, low taxes, low regulation, and high utility rates, and thus he tends to support Republicans, but he also spreads out his donations to both parties — Virginia Governor Ralph Northam, a Democrat, is a close ally. His only serious challenger (naturally) is another oligarch, the investor Michael Bills, who has reportedly gotten religion on climate change, and donated over $3 million to Virginia Democrats since 2018 in an attempt to contest Farrell’s influence and put Democrats in control of the state legislature. Dominion has responded in kind, donating $640,000 to the Republican committee contesting the Virginia state legislature, and $387,500 to its Democratic counterpart.

But the investment in Republicans at least did not pay off — in elections Tuesday, Democrats took control of both houses of the state legislature for the first time in a generation. How that will affect Farrell’s priorities remains to be seen.

Frankly, everything about Navy Hill stinks to high heaven. Any sensible city government would not touch this project with a 10-foot pole, at least not until a great deal more security and transparency were locked down. It’s not a sure thing — Stephanie Lynch, who has previously expressed moderate skepticism about the project, won a special election for the city council’s 5th District on Tuesday. But the fact that it’s even being considered in the first place reveals just how much power big money has over Richmond politics.

https://theweek.com/articles/875090/city-richmond-considering-massive-handout-virginias-political-kingpin

LEAVE A REPLY

Please enter your comment!
Please enter your name here