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« Midnight shift | Main | Larry Kudlow Day »

Jul 16, 2010


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Now I am really confused. Why would the financial condition of the purchaser of the bonds matter at all? As long as an entity can pony up the cash, why does it matter what its financial rating is? The purchaser of the bonds has no obligation after its purchase, does it?


"a 'trial' implementation of these lowered credit requirements"

Good idea. We all know how well that sort of thing worked for Fannie and Freddie, don't we?

Ed Cone

If you open things up to buyers of junky debt, you can approve junky debt.

The change allows them to approve bonds that would not have met their old standards -- the point being what the buyer is willing to buy, not the buyer's own solvency.

From the memo: "LGC must approve facility bond financings by evaluating each project’s financial feasibility...These feasibility standards have allowed the staff to utilize the credit evaluation of banks and other similar entities when conducting our own feasibility analysis."

LGC used to only like projects that met certain standards, set by financial institutions or ratings agencies (no junk).

Now they're opening things up to a new class of buyers: "A typical high yield fund will invest in a mix of investment grade, barely investment grade, sub investment grade and unrated bonds..."


I've wondered about the parking as well......are they building the parking under the hotel itself? Maybe that explains why this hotel is taller with less rooms than the old plan.


OK, Ed, I think I see now. Thanks for the explanation.

George Hartzman

Now our bond authority can sell corporate junk debt in the name of Greensboro and Guilford County, North Carolina.


So if the bonds get shoved through the committees, councils and commissioners, and the principals get to cash out, and the hotel fails, Greensboro and Guilford County get the public stigma of defaulted debt.

Super Duper Duper.

Enjoy the rain.

Andrew Brod

Wait a minute. Hasn't this blog and its community of commenters established many times that even though state and local governments are authorizing the project and the federal government is exempting the tax on the bonds, no government is selling debt or is in any other way involved in its issuance? Haven't we clarified this point again and again?

Or has something changed since the last time we talked about this?

George Hartzman

"state and local governments are authorizing the project"

Authorize as in approve.

If our leaders approve a flimsy project that fails, how can it not reflect poorly on the competance of the decision makers?

If it becomes clear that our decision makers are incompetant, why would many want to lend "us" more money?

Why would nonsubsidized businesses looking for a fair playing field choose to expand or move here, if the local government chooses to help a few compete with taxpayer dollars?

The new Tax Credit Scheme looks to be direct government payment.



people don't believe the spin that some how the government is going to be responsible for paying for this. If the hotel fails, the private investors will lose their money, not the government. The worst case scenario would be that this hotel becomes a "white elephant". If it did, Which I believe it wont, another developer would come along and turn it into an upscale apartment building or something.

George Hartzman

Tim, thank you for your contributions to this and all the other conversations you've chosen to take part in.

You are an amazing persona.

You eminate apology more obviously than anyone I have ever read since Karl Rove, Alberto Gonzalez and Joe McCarthy.

I hope you have contributed to the collectetive realization that all is not well behind the curtain, where you emplore we musn'st look, lest we turn into salt.

Would you consider yourself from Soddom or Gamorra?

Please don't be a very good bad example.

Please don't conclude what you want because you want to.

Please don't do what you don’t want to get what you don’t need.

Please don't rationalize faults by blaming others,
or swim with the incontinent.

Don' steal from my kids.

Andrew Brod

That's very poetic, George, but this time I think Tim's right.

Junkyard Bill

Timmy's back in the well ruining the water for all who have to drink it.


".....another developer would come along and turn it into an upscale apartment building or something."


"or something"

And you know this because someone like Robbie Perkins tell you so?

George Hartzman

"...this time I think Tim's right."

Andrew, have you compared the old hypo to the new?

It looks like they write these things to satisfy who payed for it.

How could the food and beverage per room jump like that?

How could RevPar jump like that?

What happens to the paid out Tax Credits if the deal goes under in 5 years?

Should we repeat the Subprime debacle with government approved debt more than we already are with what Congress did with Agency paper?

How could the hypo say occupancy will now be 20%+ higher on 10% fewer rooms within 3 months?

If thier year two occupancy projections look to be about 24% higher then the hypo for the city from a few months before, how can anyone make a rational decision of feasability?

Have they taken into account the Marriot's ability to compete on price?

Or the negative stigma Skip's involvement has had?

How many Greensboro residents will say "stay at the downtown Wyndam!!," our subsidized hotel, instead of our non-subsidized hotels?

Are you saying you are willing to bet teh dignity of our communities name on a long shot bet that benefits a few at the expencse of many?

Are we going to put up public dollars if it goes bad to protect our reputation as a well run city?

What exactly is Tim right about?

It took 20 years and a $2 million taxpayer paid incentive to get Center Point up and running.

You want to sign up for that again?

Andrew Brod

George, those are good questions, but they're not what I was talking about.

What's Tim right about? That it's not a publicly financed project in the sense of bond issuance, as your previous comment implied. Yes, the tax exemption is a public subsidy, but the bond issuance and payment are completely private.

Junkyard Bill

"What's Tim right about? That it's not a publicly financed project in the sense of bond issuance, as your previous comment implied. Yes, the tax exemption is a public subsidy, but the bond issuance and payment are completely private."

So we, the taxpayers must take up the slack for the tax exemptions granted to private developers-- how is that NOT public financing in one form or another.

And I've still yet to hear what extensions and upgrades to water and sewer are going to cost we, the taxpayers. I still don't believe there are enough existing pipes to carry the additional volume necessary and to my knowledge no one from water and sewer has spoken publicly to these concerns.If I'm right about water and sewer this could cost we, the taxpayers, millions.

Ed Cone

George, the looser standards are set by the state LGC, not Guilford County. LGC is the body that judges feasibility, to whatever extent that judgment is made.

There are many good questions about the project and its prospects, but it's not funded with public money, and the final approval of the bonds would be done at the state level, not the local one.

George Hartzman

Sorry about the rant Andrew, but I have seen the Greensboro News and Record say there is no taxpayer money in the deal over and over again, to the detriment of their reputaion as an unbiased information source.

Unless I misinterpreted the PDF, the Tax Credit structure in the newly proposed deal involves direct payments from the government.

And we are going to have to approve junk debt to subsidize a company that is going to take taxable profits from one set of business owners and transfer them to another set that will retard government tax income.

Therefore, we are paying, and Greensboro's paper of record won't admit it.

David Hoggard

A tax credit is just as its name implies: a credit against taxes that would otherwise be due on income.

A tax credit is a subsidy, certainly. But no money flows from the government back to the entity who utilizes the credit. Such credits are usually enacted by Congress to spur investment in market segments, or encourage an investment behavior, where it would not be profitable to do so otherwise.

George Hartzman

"no money flows from the government back to the entity who utilizes the credit."

They flow from the investments used to finance the project.

Dollar for dollar.

If you have a $0 tax bill, and you get a $250 tax credit, they send $250.

$250 that would otherwise be in the tax pool.

How is that not a direct payment?

David Hoggard

No, George. You are likening it to the earned income credit. All tax credits are not the same.

With New Market and Historic tax credits, if you don't owe any taxes, you can't take the credit. They are only available as a credit against actual money owed and usually limited to a five year re-capture.

George Hartzman

David, would you like to disclose any possible conflicts of interest before we continue this conversation?

George Hartzman

Looks like the $10,000,000 Tax Credit folks want a first lien on the property in front of the $26,000,000 in subsidized debt.


Page 32 of 44.

On New Market Tax Credits

"The credit provided to the investor totals 39 percent of the cost of the investment and is claimed over a seven-year credit allowance period. In each of the first three years, the investor receives a credit equal to five percent of the total amount paid for the stock or capital interest at the time of purchase. For the final four years, the value of the credit is six percent annually. Investors may not redeem their investments in CDEs prior to the conclusion of the seven-year period."


So the idea is the folkes who get some will somehow get their money back after 7 years.

What we have to do is figure out the likleyhood of their return of principal, because the the issuer is (page 31, leverage lender) The Guilford County Industrial Facilities and Pollution Control Financing Authority.

Not that a hotel fits that kind of description or anything.

If Guilford County's name is going to be on the deal, our reputation is on the line if we are responsible for approving the deal.

Andrew Brod

George, "possible conflicts of interest" or not, David's explained the situation accurately. The federal government will forgo tax revenues they would otherwise collect; no money will change hands. The state and local governments will have no involvement on the fiscal side of this project, and again no money will change hands.

You quote a government summary of the New Markets Tax Credit, but you omit the first sentence of that very paragraph: "The New Markets Tax Credit (NMTC) Program permits taxpayers to receive a credit against Federal income taxes for making qualified equity investments in designated Community Development Entities (CDEs)." I don't believe we're talking about government hand-outs here.

George Hartzman

How is it not a government handout?

If I have a $5,000 tax bill, and I get a $1,000 tax credit, I send the feds $4,000 instead of $5,000.

Less money will change hands, and I and you, David and our kids have to make up for it.

Why does the programs morrality depend on whether fed or state or local money is involved?

"I don't believe we're talking about government hand-outs here."

How can this be anything other than a hand-out?

Why would they have to qualify through the government if it wasn't?

You might be thinking something I'm not...please clarify.

Ed Cone

I think most people would view a "hand-out" as handing out money, rather than a break on taxes to be paid.

And I think insinuations of conflict of interest should be backed up by something substantial, or else the insinuator ends up looking pretty bad.

George Hartzman

OK, has David indirectly profited from Historic Tax Credits?

"I think most people would view a "hand-out" as handing out money, rather than a break on taxes to be paid."

What is the difference?

One for the poor and one for the rich?

Eupamisms for the same thing, only different.

Maybe the "most people" who would view it don't know any better.

How do you view it Ed, Andrew and David?

David Hoggard

Good Lord, George. There's not a conspiracy behind EVERY tree.

If I'd had a conflict of interest I would have disclosed it some time ago because I'd have been tickled to have that kind of money to gamble on such a questionable project.

I restore historic windows. About 75% of my business comes from property owners who take advantage of Historic Tax Credits. I'm a friggin' authority on the subject because my livelihood depends upon understanding, and abiding by, the rules of that road.

Get over yourself.

George Hartzman

Sorry to offend David.

But what may seem like a good way to earn a living to some, others may find questionable.

I have recently found myself in a new world in which my industry is utterly dependent on governmental largess, and it makes me sick inside.

What was when I entered the working world has been turned upside down.

Waiting for the government to declare what capitalism is in any given week has worn nerves to bones for those who understand what is actually happening.

I wish your and yours the best David, and I apoligize for offending.

David Hoggard

I appreciate that. Apology accepted.

But please help me understand how you construe and contort my understanding and involvement with my CUSTOMER's Historic Tax Credits (I don't get the credits - and I pay PLENTY of taxes) as a "possible conflict of interest" with the hotel deal.

If you have ever taken advantage of ANY tax credit (child credits, 1st time home buyer, health care, etc, etc), then you also have a "possible conflict of interest" by your logic. Let he who is without sin....

And I'd be interested to hear from others who find my line of work "questionable". Most term it honest and honorable.

George Hartzman

I percieved the conflict of interest in your defense of a tax credit structure the hotel wants to use that you take advantage of in your business.

The difference between the two though, is that while both add to the federal deficit, historical tax credits don't nesessarily take business away from others nearby that didn't use it.

The purpose of the hotel is to make money, and take money from other businesses that arn't getting the break.

So in effect, they intend to double up on the benefit at the immediate expense of others down the street.

Historic tax credits don't appear to really do that.


Ed Cone

Conflict of interest is a serious charge, and the facts here don't back it up. "Hand out" also blurs the facts.

There are a lot of good questions to ask about this hotel project, but sloppy language and casual accusations have sidetracked that discussion.


"But what may seem like a good way to earn a living to some, others may find questionable." -- George Hartzman

For Pete's sake. Do we really want to start suggesting that people's motives are suspect if they work a company that has benefited from government largess? Stones? Glass houses?

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