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10/23/2003

News > News

Subsidy city

 

When Cari Coats took the podium Sept. 25 to introduce the recommendations of the mayor's downtown task force, she repeated the word "bold" several times. If the words weren't original -- the accompanying committee report mentions "bold" five times over a three-page introduction -- they were at least accurate. The 20 goals her 25-member Downtown Strategic Transition Team unveiled didn't lack for big thinking.

In fact, the task force called for just about every major project that has been percolating in government development meetings for years. A downtown performing arts center? You bet. A new baseball stadium? Why not? A downtown multiplex? Sure, as long as the tickets are affordable, and it provides ample parking. What about a new convention center? Move to approve. What about a huge digital media institute, run by UCF, located somewhere in the heart of downtown? Call the governor, work it out. What about market-rate housing? More parks? More cops? More retail? Better lighting? More events? A city-run newspaper? Expanded (free) bus service? Free parking downtown after 5:30 p.m.? Bring it on! All of it!

"That was all aspirational," says Coats, a childhood friend of Dyer's, who was an executive of RDV Sports, the parent company of the Orlando Magic basketball team, for 16 years. "We had to begin with a vision or we'd never get anywhere." Dyer obviously liked what he heard. (He gave Coats, a tall blonde, a peck on the lips three different times during the hour-long meeting.)

As Dyer turns his attention to his March re-election bid, it's doubtful he will do much, if anything, with the task force's recommendations.

If he wins, don't expect Dyer to be in a hurry to execute the plan. The Downtown Development Board, the city agency recommended to take the lead on many of the task force projects, has little, if any, money to subsidize the proposals. "We don't have very much more bonding capacity," says Sarah Kelly, DDB chairman. The DDB is part of the marketing and economic development arm of the city, responsible for organizing the Downtown Farmers Market and paying for the free Lymmo bus service circulating throughout downtown, among myriad other projects. DDB employees, like the members of its sister organization, the Community Redevelopment Agency, work outside City Hall to encourage downtown development.

The DDB/CRA has used its $5 million annual budget to leverage about $50 million in bonds to subsidize such projects as the recently opened $53 million Hughes Supply corporate offices, which brought 60 low-income apartments as well as the first bank in decades to the Parramore neighborhood. The agencies have also subsidized $13.2 million for five luxury apartment complexes, including two overlooking Lake Eola; this expenditure has drawn criticism from county commissioners. A portion of the money the agencies spend is drawn from the county's budget. Commissioner Ted Edwards, among others, says he opposes funding luxury apartments with public money.

Most of the deals struck by the DDB/CRA have been successful. But the agencies, which share employees and office space in the Signature Plaza Building, have also made a number of questionable calls over the years. The CRA gave such a good deal to developers of the 14-story downtown Marriott, located south of the Centroplex, that critics still talk about it today. "The Marriott owes the city considerable funds in back rent," another member of the mayor's transition team says. "The structure and nature of the lease has made it very difficult for the city to collect this revenue."

Tom Kohler, former head of the DDB/CRA, says the deal was based on standards of the time. "We had interest rates at 19 and a half percent," he says. "No hotel at that time was willing to locate on the other side of I-4. Remember, we had no arena at that time. If that deal had not been struck, there would not have been a Marriott." Still, Marriott paid out $273,356 in taxes on the $13.6 million building, and the hotel provides about 200 jobs in the downtown area.

Other deals have been less ambiguous. The CRA has been burned on four of eight small deals with entrepreneurs who accepted city grants but failed to open restaurants along Orange Avenue. Zello's Urban Caf?, for example, received $40,850 from the CRA in 2000, stayed open a year, and folded. Another restauranteur, Sharon Hadley, bailed out of rehabbing the old Jungle Jim's restaurant on Church Street without repaying a $40,000 CRA grant. Another Church Street restaurant, Shanghai Tang, folded shortly after opening in 2001; it took with it $39,750 in city money.

Sam Meiner, who owns the Bubbalou's Bodacious Bar-B-Que chain of restaurants, received $92,250 to renovate the Dr. Phillips House, a bed-and-breakfast inn underneath the East-West Expressway. He was supposed to use the money to remodel a portion of the house into a full-service restaurant. Instead, he opened a walk-up kitchen where you ordered sandwiches from a counter clerk and helped yourself to fountain drinks. Since the agreement didn't specify what a full-service restaurant was supposed to be, the CRA was on dubious legal grounds. Nonetheless, the agency was able to force Meiner into changing the appearance of the restaurant to include a full wait staff and hot meals.

Even developer Phil Rampy, a well-known downtown developer and member of Coats' Downtown Strategic Transition Team, broke the terms of a CRA agreement to find retail tenants for his China Glass Warehouse on Colonial Drive. The Warehouse, located next to train tracks that run through the heart of downtown, was unable to attract retail businesses to its ground floor within 90 days of Rampy's signing the agreement in January 2001 -- businesses the city paid Rampy $73,625 to entice. The CRA is still working with Rampy to find a tenant, which will likely end up being a furniture store.

As a consequence of the subsidy flameouts, the CRA has changed its agreements with developers. "Our agreements now include a payback clause," says DDB/CRA Executive Director Frank Billingsley. "Payments are made quarterly. That way we are never too far out on a limb." Billingsley also says agreements are no longer made with business tenants, only with property owners.

Yet the amount the city lost on the subsidies pales in comparison to the hundreds of millions it might have to spend to accomplish the Transition Team's recommendations. "While those [lost subsidy] dollars can't be minimized," says Billingsley, who took over the agencies in May 2002, "they represent a very small amount of dollars compared to the amount needed to build these projects." For the next few years, Billingsley says, the DDB/CRA has "to be very conservative in our expenditures. We'll have a wake-up period in the years ahead. We'll be able to be more flexible as the tax increment continues to increase."

Minor contributors

Subsidies are such a sensitive subject among business leaders that few actually use the word "subsidy." They would much rather talk about "incentives." Subsidies bring to mind backroom deals in which elected officials offer public money to builders in exchange for campaign contributions and other often unseen gifts. "There's a misperception that developers are bad," says Paris Rutherford, vice president of RTKL Associates Inc., the third largest architectural and urban planning company in the world. The federal government paid RTKL to rebuild the Pentagon after the Sept. 11 attacks and to construct a massive visitors center underneath Congress. "People assume they are bad because developers make money when a city comes in to assist with a project. They assume there's something unethical about that. We need to educate people on what subsidies mean. Once people understand, subsidies become more palatable in the sense that we know what we, the public, are actually getting."

There's also a philosophical difference of opinion between free-market enthusiasts and social engineers. Many people think downtowns are obsolete; pouring money into them is like trying to bring back the soda jerk, something the convenience store eliminated years ago. "Downtowns are a bit of a relic," says Peter Gordon, a University of Southern California economics professor and editor of "Voluntary City: Choice, Community and Civil Society," which argues for market-based, nonpublic social services. "There used to be the argument that downtowns needed to be saved because they were the center of an economic region. It was important for people to have face-to-face contact and all that. Now people can meet in suburban coffee shops, where there's free and easy parking."

People prefer living in suburbs so much, Gordon says, that they've begun moving to what he calls private cities -- the next step beyond gated communities. "Most people like their own suburban home," he says. "There's no getting around that."

But Rutherford says that's only because cities across America made unfortunate, expensive urban-planning decisions until the early 1990s, when interest in downtowns returned. "The point isn't to replace downtown living with suburban living," he says. "The point is, Do we have an option? Many people don't like living in the suburbs. It's not as cool. ... The demand for downtown housing has been astonishing."

It's been astonishing in Orlando as well. The five apartment complexes subsidized by the CRA reportedly have respectable occupancy rates; managers of a massive, 31-story condominium complex called 55 West have already presold 60 percent of its units since May, including five of eight $2 million penthouses. The development, which will be located on the doorstep of the old Church Street Station tourist trap, doesn't even break ground until mid-2004.

Billingsley, the DDB director, is unsure whether 55 West will require city subsidies. On the other hand, other, larger projects, such as a performing arts center, will require such a large public subsidy the city will have to finance them with bonds. "Some of those projects are a couple hundred million a pop," says the city's chief financial officer, Mickey Miller. "Those are very big numbers. The CRA will be a very minor contributor."

Everyone is waiting for Dyer to make a number of decisions, large and small. Probably the worst thing he can do is delay the Transition Team's recommendations until everyone forgets about them, the way of many past proposals. According to Coats, one of the things the Transition Team noticed was how little attention was paid to the existing Downtown Outlook Plan, the blueprint for making downtown a happening place.

"Our observation was that it was sitting on people's shelves, collecting dust," Coats says. "Someone needs to be held accountable. Everyone was responsible but no one was accountable. There needs to be someone championing the issues and tracking the progress."

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