The Scarlet Letter
Did members of the Dallas City Council vote to make a huge "gift of public funds"--tens of millions of tax dollars to the Palladium deal in exchange for private business favors--when it had evidence the city was getting totally chumped on the deal?
That's the issue. That will be the underlying question May 22 if the council sticks to its current schedule for a vote on the Palladium development project. It won't be forgotten.
This pot will be stirred, stirred again and restirred for all of the next year. The tinder is already smoking and the powder is dry. It only gets bigger. Troublemakers like me will live off this stuff from now until May 2003 when the city council and mayor go to new elections.
The Dallas City Council has evidence right in front of its nose that the Palladium deal--a $43 million tax subsidy to the Perot/Hicks interests--could be based on some really bad numbers. On their desks at this very moment is a study by a respected national authority on public-private partnerships indicating that Palladium, the developer chosen by Perot and Hicks to do 20 acres of office, hotel and retail development on their land outside downtown, may have overstated the value of its proposed development by 100 percent.
Worse yet, the study says Palladium's refusal to give the mayor and city council detailed information on its project is an off-the-charts unacceptable practice that would make the Palladium deal illegal in states like California, where there are laws to prevent "gifts of public funds."
A principal in Sedway Group, a consulting firm that has represented both public authorities and private companies in tax subsidy negotiations all over the country, told me Palladium's refusal to hand over detailed financial information on its Perot/Hicks project is "really sort of beyond the pale."
Terry Margerum, senior managing director of Sedway, said he thinks it's possible Palladium won't turn over its numbers because there may be something wrong with them. "One reason I think Palladium has not been willing to share the numbers is the numbers are ludicrous," he said on the phone at the end of last week.
He gave me an example: Palladium says it will spend $160 million developing half a million square feet of retail space, not including parking. That comes to a cost of $320 per square foot without parking.
"Ken Hughes built Mockingbird Station with parking for less than half that," Margerum said.
I checked with Hughes. He said Margerum was right. Less than half. Mockingbird Station is close-in, high-end, very successful and cool.
Margerum said the numbers Palladium is pushing are crazy. "Three hundred and twenty dollars is a laughable number. You might see that in downtown Manhattan or downtown San Francisco."
These numbers are the entire ball game in terms of whether we as taxpayers get a good deal or wind up total fools. The value of the project drives the whole tax subsidy dynamic. Sedway Group is saying in its report that the overall cost of what Palladium is going to build may be as little as half of what the public has been told--$300 million instead of $600 million.
So where is our $43 million in tax dollars going? Margerum said it could go anywhere. Palladium could be using it to make a big fat payment to Perot and Hicks that nobody wants us suckers to know about. Or they could use it to subsidize their office towers to give them a nice greasy Soviet-style public sector advantage over struggling office space in downtown.
Who knows? Palladium won't tell us.
Margerum told me the kind of pro forma Mayor Laura Miller has been seeking would include no secret or proprietary or sensitive trade information, none, zip, zilch, nada. Nobody wants to see anybody's personal income tax return. Instead what cities and public authorities all over the country want and demand to see in these deals, Margerum said, is a basic set of garden-variety numbers to show how the developer's projected costs stack up against going rates in the marketplace.
We're supposed to be a $43 million investor in the project. Guy tells us he's going to spend $320 a square foot on retail. We need to be able to say, "How? Show us the numbers. We need to see how you could spend that much, because it's over twice the going rate for the market, and this is not our money. This is public money."
Sedway Group's Web page provides a list as long as your and my arms together of cities, development authorities and private companies it has represented in public-private development deals. I called Huntington Beach, California, because I have vacationed there and have gone there on business. I remember sitting on the sidewalk on the main drag sipping a cappuccino while my wife and son charged $200,000 worth of surfer T-shirts on my card, and I remember thinking, "Somebody is doing something very clever with this town."
David Biggs, Huntington Beach economic development director, told me it would be against the law in California for him to commit public funds to something like Palladium until after the public had been shown all the numbers. "In California we would have received a very detailed pro forma from the developer which would have served as the basis for our own economic analysis."
What is it exactly that Ken Wong of Palladium does not want us to see? What's the big secret? It must be a deal-breaker, because he is willing to go to great lengths to keep it hidden.
I called Lisa LeMaster, Wong's spokeswoman in Dallas. She said Palladium won't talk to me, because they didn't like my last article. I'm OK with that. I get the same thing at home.
But I need to say this in their defense, since they are being hurtsy and won't chat. The Sedway report was commissioned by their enemies. Sedway was hired by "The Downtown Group," which is all the people who have big investments in downtown who think giving tax subsidies to a development outside but close to downtown is like holding up a nail gun to the heart of the city. So it's fair to say that there was a big ax to grind before Sedway ever got out the door.
But, you know: They tell you what Ken Hughes spent, you call Ken Hughes. They tell you what common practice is in California, you call California. Eventually you wind up with some very disturbing questions, if nothing else.
Also on behalf of Palladium, let it be said that there is another report in now, the KPMG report, commissioned by the city council, which says Palladium is a good deal for the city. KPMG is a serious international accounting firm.
So was Arthur Andersen.
There were enough back-door, under-the-radar arrangements and codicils in this KPMG report to give us material for our own little Enron debate here in Dallas. KPMG says it signed secrecy agreements with Palladium and didn't look at the whole project, and allowed Palladium to edit their analysis before showing it to the council, because that's what City Manager Ted Benavides told them to do.
Why would Benavides do that? I say he would do it because he's a political bookie: He's worried that council member Mary Poss and the minority council members will win, and the Palladium deal will pass May 22. He wants to be on the winning side.
None of this will go away. If you take Laura Miller out of the Laura Miller phenomenon--not easy, but let's try--what do you have? In her overwhelming landslide election and in the crushing majority right after it in the police pay referendum, you have the major, angry, pent-up voice of middle-class civic-mindedness and of small business.
The basic bloc pushing for the Palladium deal on the council is made up of Mary Poss, who should not be voting on or even talking about this because of her family's close business ties over the years to the Perots but who does it anyway, and you have minority council members, especially African-American members, who have been promised substantial deals for contractors and for affordable housing initiatives, both of which are legitimate political goals.
But to that factor you have to add minority cynicism about the larger community. Minority leaders in Dallas have told me for years that they see the action at City Hall as a big money feast from which they traditionally have been excluded. And it's true. Unfortunately for the larger community--and this is a condition white Dallas created--that means minority representatives on the council don't have to worry themselves with the larger community good. The tragedy and failure of Dallas politics is that the minority community does not see itself as a real partner in the larger community.
If minority council members can snag some contracts and some housing money for their districts, they're way ahead. The bigger the snag, the more they get re-elected.
But that only means the focus of the civic-minded middle-class majority will be that much more intense, that much more ferocious, on the council members the middle class thinks it can vote the hell out of office.
I don't offer the Sedway report here as a definitive proof. It's one side of the coin from an interested party. But if the Dallas City Council pushes this Palladium deal through without first answering every issue raised by Sedway, then Sedway is all that anybody is going to hear about from now until the next election. It's this piled on top of the original arena deal piled on top of the river deal on top of the potholes on top of the general loss of faith in the integrity of the process. At some point, somebody's in for one messy squashing.
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