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."

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Jim Schutze has been the city columnist for the Dallas Observer since 1998. He has been a recipient of the Association of Alternative Newsweeklies’ national award for best commentary and Lincoln University’s national Unity Award for writing on civil rights and racial issues. In 2011 he was admitted to the Texas Institute of Letters.
Contact: Jim Schutze