Let me quote more from Detroit Mayor Bing's Budget speech and you too will have to wonder if there is another story behind the Tunnel deal:
"The financial crisis inherited by this administration is by now familiar to all of you. An accumulated deficit of $330 million with no plan to reduce it...
Financial decisions were too often driven by politics, not sound fiscal policy.
Budgets were developed using smoke and mirrors, rather than data...
This budget ends the practice of using past budgets instead of actual cash needed to
determine funding for our operations...
Our citizens deserve to know the real numbers, without the phantom positions or the
fuzzy math. As a businessman, I expect a real budget with real numbers and a plan that
delivers real results..."
It was reported in the Press:
"Detroit City Councilman Kwame Kenyatta told the mayor that while pursuing low-hanging fruit was good, some high-hanging fruit weighs more.
It comes in the current-year budget, he said, included about $275 million in revenue that never materialized from items like monetizing income from the Detroit-Windsor Tunnel and the Municipal Parking Department.
Those items aren't in the 2010-11 budget, Bing said, adding that all revenues are “going south.”
The only thing the city can do in the short-term, he said, is make cuts.
“I don't want to base this budget on what I think is going to happen,” Bing said."
And this even stronger:
"Karen Dumas, Bing's communications director, said Bing will present an accurate budget to council today.
"Mayor Bing's first budget will be realistic in both its assessment and outlook. The numbers will be real," she said Friday. "No longer will the city be held captive by the political practices of shifting numbers, questionable projections and smoke-and-mirror tactics to create the illusion of a balanced budget."
And this:
"A report released last week by the non-profit Citizens Research Council suggested past administrations "dummied up" budgets to avoid making real and necessary cuts.
That practice is over, Bing said, while calling for the council to approve the budget by the start of the July 1 fiscal year and join him in restructuring city government and implementing needed changes."
And finally this:
"In 2009, then-Mayor Ken Cockrel Jr. presented a budget with $275 million in revenue from the sales of future income for the city’s parking and public lighting department and for selling to Windsor the city’s half of the Detroit-Windsor Tunnel. The latter sale was first introduced by ex-Mayor Kwame Kilpatrick in his 2008 budget.
Bing administration officials say the city’s current $3.6-billion budget is propped up with revenue presented in last year’s budget that never materialized, including the lighting, parking and tunnel deals. Casino revenues, property taxes and state revenue sharing are also less."
It sure does not look to me that Mayor Bing has put one penny in his revenues for a Tunnel deal:
Moreover, he has devalued the Tunnel to an amount significantly lower than Edgar's $75M if I am reading this chart properly:
As I Blogged before about the CRC ["The Tunnel Deal Questioned" http://windsorcityon.blogspot.com/2010/04/tunnel-deal-questioned.html]:
"the Citizens Research Council of Michigan, a nonprofit policy group, criticized him [interim Mayor Kenneth Cockrel Jr]for including several revenue assumptions, such as the sale of the Detroit-Windsor Tunnel and other departments that never materialized. The sale of the tunnel has been a budget-balancing fixture for years."
It said in its report:
"Discussions on the Detroit-Windsor Tunnel have occurred, but, even if an agreement were to be reached, the sale would not generate the amount included in the budget...
"Monetization is the process of converting assets into legal tender. The FY2010 City of Detroit budget includes $275 million in general fund revenues to be generated by the long term lease of Municipal Parking, Public Lighting, and Detroit’s 50 percent interest in the Detroit-Windsor Tunnel. This plan to sell the income from specific city operations or assets for a specific period of time was defined by the former mayor as “unlocking the value of city assets for citizens...
Probability. There may be progress on the sale of income from the city’s interest in the Detroit Windsor Tunnel this fiscal year, but the $275 million budgeted from monetization of assets appears to be a “plug” to balance the budget. [Bing's] Crisis Turnaround Team estimated that $225 million of the budgeted $275 million would not be realized in 2009-10.”
It is becoming clearer and clearer that the deal seems to be nothing more than "a “plug” to balance the budget" and "which he [Kwame] reportedly touted to rating agency analysts as key to gaining stable financial ground." That practice was carried on by the $100M valuation of the Tunnel deal by the Interim Mayor.
I will let the Americans figure out what the consequences are of "shifting numbers, questionable projections and smoke-and-mirror tactics to create the illusion of a balanced budget." Ratings analysts, people who loaned money to Detroit, those who did not seek payment or securitization and who may suffer a loss based on a balanced budget assumption would have very interesting remedies.
However, now that the wid4e-ranging scope of this is becoming apparent, it is time for Edgar to start answering questions and members of the Tunnel Commission and Council need to start asking them. Teh consequences coudl be severe for us as well dependign on what we learn.
It is not enough for Edgar to disclose information when it is convenient for him but he needs to do so when it is necessary for citizens!
As Mr. Sutts, the City's lawyer on the Tunnel deal said when dealing with the Kwame visit to Windsor:
"We feel it's necessary to put the record straight…
"We are not going to lie or appear that we are not being truthful. The facts are the facts -- and they can't change them."
So what are the unanswered questiosn for which we need teh facts:
1) WAS THE US HALF OF THE TUNNEL EVER WORTH US$75M
That should be an easy answer. Show us the appraisal report and the Infrastructure Ontario letter in which they agreed to loan an amount in a range of numbers, obviously less than $75M. Instead the Cit y has not released that data.
2) WHY IS EDGAR AFRAID TO SHOW US HIS "EXHAUSTIVE PROCESS"
Remember when Interim Mayor Cokcrel decided he wanted $100M for the Tunnel and Edgar went ballistic and threw a hissy fit:
"Mayor Eddie Francis questioned how Detroit arrived at a $100-million price tag for control of the U.S. side of the tunnel.
Windsor has gone through an "exhaustive process" to arrive last year at a $75-million value, he said.”
Simply put, I question how Edgar arrived at a $75-million price tag.
3) WHEN DID EDGAR REALIZE THE PROBLEMS AT THE TUNNEL
Again as Edgar said after the Cockrel $25M increase:
"That was the number we were prepared to pay back then, but economic conditions have changed considerably and are very different than five or six months ago.”
The mayor said 2010 toll revenues for the Detroit side are projected at about US$11.5 million, but the city has no way of knowing exactly since it is controlled by Alinda, a private company which holds a lease until 2020.
“Does the tunnel have revenues to support $100 million on the American side? I’d be interested in looking at their numbers,” Francis said
4)DID EDGAR EVER TAKE INTO ACCOUNT THE DRIC BRIDGE COMPETITION
I note that the Mayor did not talk about the 25% reduction that the Tunnel may face if there was a new DRIC bridge. If he did, then it might well mean that it made no sense to enter into this transaction in the first place.
5) DID THE MAYOR DO PROPER DUE DILIGENCE
Re the above, did the Mayor ever see Detroit numbers?
In effect, the Mayor did not know if the Tunnel was worth $100 million without looking at Detroit’s numbers. Yet, he must have had Detroit’s numbers if he was going to do the deal for $75 million. Those numbers would not have changed, only the cost to buy the Tunnel revenues would have increased by $25 million. It should have been easy enough for him to do the calculations. Was he telling us something however that is very serious. Surely after spending almost $2 million of taxpayer money on this transaction the Mayor is not telling us that he has not yet done the due diligence on Detroit’s numbers at all.
6) WHY WAS EDGAR PREPARED TO PAY $75M WHEN KWAME ONLY NEEDED $58M
""And that would only become necessary in the event that, once we do get the documents on the tunnel deal, if we do deem that it's not viable and it doesn't look good for the city of Detroit, we would vote that down and then be in a position to plug that $58 million that would be left in the budget," says Cockrel.
$58 million is what the Kilpatrick administration estimates the city would net from the $75 million deal after fees."
What did that difference of $17M represent? We have never seen an accounting for it.
How did the budget number change from $65M with a payment of $10M for fees and insurance out of the $75M initially to $7M less?
7) WHAT WAS THE ROLE OF DEREK MILLER
"Is Derek Miller, Kilpatrick's former CEO and now with Citivest, being paid directly or indirectly as one of the deal-makers?
This question is important since it was reported that:
"FBI investigates Detroit-Windsor tunnel player
A key player in the proposed $75-million Detroit-Windsor tunnel agreement, and a former aide of Detroit mayor Kwame Kilpatrick, is under investigation by the FBI as part of a federal corruption probe.
A friend of the mayor and his former chief administrative officer, Derrick Miller has been named in federal search warrants regarding his business dealings with a pair of Detroit businessmen, The Windsor Star reported today..
Miller was a lead negotiator for Detroit in talks with Windsor on the tunnel and helped establish the framework for the proposed deal — to create a joint tunnel authority.
“We’re shocked. We thought very highly of Derrick Miller,” said lawyer Cliff Sutts, Windsor’s lead negotiator on the tunnel talks.
“I honestly hope there is nothing inappropriate in his conduct that will cause him any future problem.”
Mayor Eddie Francis agreed, describing Miller as a key advocate on the other side of the border for keeping the tunnel under public control...
Miller left working for the City of Detroit in November to start his own consulting company, Citivest Capital Partners, but continued to play a role in the tunnel talks until the end of 2007.
The Detroit News and Detroit Free Press reported on Wednesday that court records revealed Miller is facing scrutiny in the escalating federal investigation into the city’s financial dealings."
8) IS EDGAR SMARTER THAN MATTY
Matty Moroun only bid $20M for a 100 year lease while Edgar is offering $75M upfront for a 75 year lease. Hw can ther be such a difference. Is Mayor Bing's number an indication that Edgar overbid?
The Federal Government was involved in this matter at one time but decided that they were not going to invest $75 million. what their number is we do not know but I suspect that it was substantially less. As I Blogged:
"The city has requested financial support from Transport Canada for the deal — given how the federal government also expressed strong fears about Moroun’s potential border crossing monopoly in Windsor.
“We have invited federal and provincial governments to participate and hope they will see the benefit of preserving the tunnel as a public asset and give us the legal and financial assistance we require,” Francis said.
Transport Canada is awaiting a formal proposal from the city on any funding support, said Mark Butler, spokesman for the federal ministry.
“Certainly there may be an opportunity for the government of Canada to be involved in the actual transaction,” he said."
However, Gord Henderson claimed in his column:
"Following that meeting, feelers were put out to the U.S. and Canadian governments about buying it. Ottawa and Washington weren't interested."
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