By Stephen Young
By Stephen Young
By Stephen Young
By Jim Schutze
By Rachel Watts
By Lauren Drewes Daniels
I know that grown-up people on the city council of a major American city would not sit there and ask a bond lawyer if it would be OK for the city to pledge some collateral for a loan, get the loan money and then sort of quietly slide that collateral out of view.
People go to the pokey for that.
First of all, I don't pretend to understand high finance. Everything I know about money I learned loaning money to reporters. By the way, it's not a bad way to learn.
A major principle in reporter finance: There is a difference between how reporters feel before they get the money and after. I was thinking about that one during the city council finance committee meeting.
Sometimes reporters are absolutely committed to paying back every penny on Monday right on the dot, but that's before. After they get the money, well, priorities slide.
Another lesson I learned and really the most valuable in the long run was that you have to listen carefully to the way reporters answer when you ask them if they will be able to pay you back your 50 bucks at the appointed time. It's not so much what they say but how many words they use. I count.
Any answer longer than one word is a bad answer. If you get a complicated answer to that question and you hand over the 50 anyway, you just gave somebody a birthday present.
So on this recent Monday when the finance committee was discussing the city's obligations to rebuild the old Mercantile Bank complex downtown, I was distressed to hear a lot of very complex patter from the council.
They were talking about the collateral the city must pledge against a loan from bondholders in order to pay the city's share of the Merc deal. Some of the council members seemed surprised--although they had no right to be--that the loan was soaking up so much collateral. In order to float this loan, they were told, they would be unable to give away any more tax money downtown for 30 years.
You got it. That's their crisis. They have given away so much tax money--including the $6.3 million they just threw at Hunt Oil for its new corporate headquarters--that their banker (in this case a bond attorney) was telling them they have to go cold turkey and stop giving away tax money for 30 years. Thirty years! Otherwise they will not be able to borrow the money for the current deal, and they will ruin the city's credit.
So here's what you expect them to say, right? "We gave away that much tax money? We must be drunk! Please do some kind of shock therapy for us; put us in a 12-step program; lock us up if we've really done that bad."
But noooo. They wanted to know if they couldn't possibly do some tricks with the collateral.
I don't make these things up. You know how I said when you ask somebody if they can pay you back, you don't want a complicated answer? Listen to Mayor Pro Tem Don Hill at the finance committee meeting talking about collateral. He wants to know if the city couldn't pledge the tax revenues from the buildings downtown but sort of ooch some of those buildings out of the pledge later:
"If it's not part of what's been identified," council member Hill asked, "or if it is part of what you have identified, or if it is a part of what you have identified as a potential spot, going about it the other way, identify it maybe like the way you do the historical tax credit thing, go ahead and identify the potential spot now to carve out because there isn't anything now, because there isn't anything working, so we won't create that problem for the bond market."
That was a question. In a nutshell, he was asking if there were not some way the city could pledge tax revenue from buildings downtown to go toward paying back the bonds, sell the bonds on that pledge, then de-pledge some of the buildings.
After his question was posed, there was a pregnant pause.
Then Wayne Placide of First Southwest Company said politely but decidedly no: "Once we make representations to the rating agencies and certainly once we distribute the preliminary official statement to the public, I think whatever you disclose there as being the value, we can't change it, because that's the value we are representing to potential investors that would be available to service the debt. Any change in that would be inappropriate and certainly would be misleading to the investors."
I would have added, "And it's so awkward, you know, trying to hop into the van with those leg irons on."
I mean, come on. You pledge collateral. You subsequently pawn the collateral. You go to the hoosegow.
Listening, I hoped the problem was me. Maybe I didn't get it. Now after a week of phone calls I have come to a depressing conclusion.