IN AN UNUSUAL and potentially radical new precedent, the City Manager’s office is recommending that Mayor and Council approve this week a $33 million bond issue which would fund the construction of a new parking garage downtown.
That’s not the unusual part. Parking garages are funded by bond issues all over the country, all the time.
The unusual part is this:
According to the proposal, private hotel developer Richard Kessler would construct the garage, would collect all revenue from it, and would use over half the parking spaces in it.
It’s been public knowledge for several years that successful local hotelier/developer Kessler proposed a new parking garage as part of his ambitious new River Street hotel project.
Incorporating the site of the old Savannah Electric Plant Riverside power station, the development would be a much-needed upgrade to the long-neglected west end of River Street.
We’ve known from the beginning that the plan called for some form of public/private partnership – hardly an unprecedented idea.
What wasn’t common knowledge, however, was that the funding mechanism for the garage would be underwritten by taxpayers in the form of a municipal bond issue, rather than through traditional bank/loan financing.
Expected to be discussed and/or voted on at this Thursday’s City Council meeting, the agenda item calls for $33 million in bonds to be issued by the Downtown Savannah Authority – a 40-year-old entity which administers many of the City’s bond issues – specifically to construct the 488-space garage.
According to the plan, the new hotel will rent about 250 of those spaces for its own use, with the rest available to the public.
The agenda item – which went live on the City government website late Friday afternoon with no fanfare -- is unusually worded.
It states that “Richard Kessler has requested that the Downtown Savannah Authority issue a series of bonds which will finance the construction of a public parking garage.”
The nut of the proposal says that Kessler’s firm “will construct the garage for a fixed price, and then operate the garage, retaining all income, and paying all expenses including debt service on the bonds, operating costs and maintenance costs, fund a capital reserve for capital expenditures required for the parking garage, and pay the City a fee of $100,000 per year. Completion of the construction at the agreed-upon fixed price, and all payments for the first four years will be personally guaranteed by Richard Kessler.”
All that sounds reassuring enough at first glance. But the longer you look at it, the less reassuring it becomes, and the more questions it raises.
The oddly specific, customized wording seems to exacerbate concerns that a one-off public project like this could inspire a legal precedent for future developers to point to for their own purposes, as long as there is some quantifiable public benefit.
If this developer gets a bond issue by “requesting” one, why shouldn’t they request their own as well?
In verbiage seemingly more suited to a marketing pamphlet, the agenda item touts the benefits of the project without mentioning risks to taxpayers: The “construction of an approximately $250 million hotel project, the completion of the Savannah Riverwalk, and the creation of over 700 new jobs with an average salary of over $32,000 per year,” in addition to more downtown public parking.
All of which is well and good. But municipal bonds – with their often low interest rates and high degree of safety and security -- are typically used to pay for public works projects with more infrastructure value and demonstrated public need.
When bonds are issued to fund what seems uncomfortably similar to a private project outside the usual bidding process, you could almost say that taxpayers suddenly find themselves in the banking business.
Add to that the fact that this project involves an increasingly contentious topic in Savannah – how much more to invest in “Big Tourism” – and the potential for problems is clear.
All of which begs the questions:
Why doesn’t the developer secure financing through more traditional loans?
Why are the promised debt service payments on the bonds only “personally guaranteed” for four years?
What are the ramifications of allowing the same developer that is benefiting from the bonds to construct the project outside the usual bid process?
What is to prevent future developers from demanding similar largesse from the Downtown Savannah Authority and similar latitude with the bid process?
Is all this worth the risk for an extra 200 or so public parking spaces and some more service jobs?
In any case, clearly there is more information to be gathered on this developing story, and not much time to do so before Thursday’s meeting. Regardless of where you stand on the issue – and reasonable people can certainly disagree on it – we should all pay close attention to the Mayor and Council’s actions this week.
The City of Savannah has for decades enjoyed an exceptionally solid credit rating as a municipality, which is one reason this funding mechanism would be attractive to any high-dollar developer. The better a City’s credit rating, the more affordable the debt service on its bonds will be.
It would be a shame to put that hard-earned credit rating at risk needlessly, and to sell that good credit short.