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| Attorney Peter Davis wrote to Peter Allen in response: 'In responding
to his opponent's similar disingenuous argument, Abraham Lincoln
once asked a jury: "If you call a tail a leg how many legs
does a dog have?" Pausing, he then gave them the answer: " Four.
Calling a tail a leg doesn't make it a leg."' |
Lowertown Watch
THE
LOWERTOWN BOND:
LOAN OR SUBSIDY ?
The
Lowertown development
Broadway Village is a large proposed development
in Northeast Ann Arbor. It consists of seven buildings, including
a six-story parking structure, would have offices, retail space
and 185 residential units. It would cost about $180 million.
The
Lowertown bond
The
city government is planning to borrow $40 million by issuing bonds
and to give that $40 million to
the private developer to build the Lowertown project.
If the project succeeds, the property taxes on the project
would pay back the bonds, both principal and interest. The total
amount paid would
be at least $80 million over 30 years. This $80
million would not go to the local units of government that would ordinarily
receive the property taxes.
It would, instead, go to the
bondholders.
If, however, the rents paid by the tenants are not high
enough to produce the property taxes needed to make the bond payments, the city
government might have
to pay back the bondholders from our tax dollars.
A loan or a gift?
Peter Allen, a local developer and an investor in the Lowertown project claims
the $40 million in funds provided by the city is a loan, not a gift. If the average
homeowner got the same deal as the developer, here is how it would work:
John Q Homeowner wants to put a huge addition on his home but the bank is
willing to loan him only 60% of the cost because his income is not high enough
to make
the mortgage payments and the cost of the addition will be substantially
more than the increase in value of his home.
John Q Homeowner gets the city to issue bonds for the portion of the cost the
bank refuses to lend. The city turns over the bond proceeds to John Q Homeowner,
who uses the funds to construct the addition. As a result of the addition, John
Q Homeowner's real estate taxes increase. The city uses these increased taxes
to make it's bond payments. If the taxes are not enough to make the bond payments,
the city makes up the difference. If John Q Homeowner later sells his home, he
must repay the bank, but not the city bond holders.