Wednesday, July 26, 2006

"Show Me The Money"

As with the "16 communities' proposals," the media appear willing to accept without further investigation -- or even a follow-up question -- David Oman's assertion that both Riverside and Pella have met his $25 million in hand demand.

The Des Moines Register puts a headline on its story: "Each town has raised $25 million to compete for the Earthpark project." (It was not an unreasonable call by the headline writer, given that Jeffrey Patch wrote in his story, "The two communities, each of which have raised $25 million in local contributions . . ..")

At least The Gazette did not assert this as a fact, but rather repeated it as an assertion made by David Oman: "Developers in Pella and Riverside have viable sites and have met or exceeded Earthpark’s goal of coming up with $25 million in local funds for the project, he said." The Press-Citizen did likewise: "Oman said Riverside and Pella submitted financial packages that met or exceeded the $25 million in local funding." (Though I don't know how many readers of those stories would see the subtle difference and read between the lines.)

There will be more on the funny numbers in next Monday's update, including Bradley Franzwa's explosive analysis. Meanwhile, these bits give a flavor of what's to come:

Mike McWilliams reports in his Press-Citizen story today (July 26), "Officials say the project will be funded by a $50 million Department of Energy grant secured by Sen. Chuck Grassley, R-Iowa, a $25 million contribution from the town awarded Earthpark and state funding they hope will be between $15 million to $20 million. The rest, they said, could come from debt financing."

Zack Kucharski reports in The Gazette, "Local funding is critical. Project officials are trying to unlock a $50 million federal grant that requires matching non-federal funding. They also have plans to seek a state Vision Iowa grant and corporate funding. . . . The [Riverside] casino would contribute $10 million by giving the project $1 million annually over 10 years. His family would provide an additional $2 million, [Riverside Casino and Golf Resort CEO Dan] Kehl said. Additional revenue could come from the casino’s foundation and from a potential motel tax, he said."

The questions all of this raises are almost endless.

1. For starters, how does Riverside's "$1 million a year for 10 years" become the Des Moines Register's
"The two communities, each of which [Pella and Riverside] have raised $25 million in local contributions . . ."?

2. Putting aside (a) the problems raised if this is only to be a $155 million rather than a $180 million (or better yet, said their consultants, a $225 million) structure and venture, and (b) the fact that promoters have never revealed the details of what this amount -- whatever it may end up as -- does and does not cover, what money does the project now have in hand?

"Show me the money." All I see is Ted Townsend's promised $10 million (which has surely largely drained away during the last 10 years at the rate the project has been spending) and the $25 million "raised . . . in local contributions" -- on the (false) assumption it does, in fact, exist.

There's no $50 million Senator Grassley obtained for his friends and campaign contributors from grateful taxpayers until the rain forest promoters can match it. So far, they haven't.

What of promoters' "plans to seek a state Vision Iowa grant and corporate funding," reported by Kucharski? (a) When did "plans to seek" qualify as money in hand? A great many Americans have "plans to seek" lottery winnings, but find the money difficult even to borrow against, let alone spend. (b) It's not that this is news, that these are new plans the promoters just thought of. We have a track record. So far, the Vision Iowa folks have not been receptive to dropping state taxpayers' money on this project. And the "corporate funding" has been elusive for 10 years. Unless there is some break-through announcement of a sudden corporate largesse to rival that of Senator Grassley, that's not the answer either.

3. McWilliams' reference to "debt financing" -- something that has seeped into Oman's conversations before -- should frighten any community leader into hiding. As I've learned more about use of tax money for economic development generally, and attractions in particular, over the past few years (in the course of tracking the rain forest project) the one thing that keeps coming up with the projects that fail is their reliance on debt. And this is in large measure because . . .

4. The real problem with this project is not the decade-long failure to raise the construction cost -- as serious, indeed decisional, as that may be. It is the high likelihood that the attendance estimates of 1-1.5 million visitors a year are grossly inflated and unlikely of achievement. That would be serious enough if the thing was fully paid for. If it is also trying to pay off debt, it's fatal.

More Monday.


John Neff said...

The folks who buy revenue bonds are very picky. You have to prove to them that you have an established source of revenue.

Are there any lenders who will supply such a large amount of start up money when there is no revenue?

Nick said...

John: It's not that there's "no revenue," it's just that the odds are high there won't be enough revenue.

Since most of the attendance at attractions (other than the mega-spots, like Disney) comes from within 50-100 miles, let's assume Earthpark can attract from the entire state of Iowa -- even though some Iowans live 250 miles or more from Riverside.

To pull in the 1-1.5 million visitors a year the promoters are projecting would require that every Iowa man, woman and child -- from birth to death -- visit this place every two years throughout the entirety of their lives, without fail. I just find it improbable that would happen.

As for lenders, I've asked local bankers if they would lend up to their maximum loan level for a project of this kind (not that such amounts would come close to being enough), given its absence of business plan, limited prospects of revenue, etc. None would.


John Neff said...

The info on Iowa Radio was that the total start up cost of the Iowa Rainforest Project was estimated to be $155 million.

$50 million of Federal funds
$25 million of matching funds provided by the home community
$25 million of matching funds from unspecified sources. I assume that means they are looking under sofa cusions for loose change.
$55 million to be borrowed.

My point was they cannot sell revenue bonds until they have revenue.

Suppose they can find enough suckers to buy $55 million of ten year bonds at 5% interest will they generate enough income to pay their expenses plus debt service of $6.4 million per year. You say no way and I agree.

Nick said...


I don't think "revenue bonds" are an option for the rain forest whether or not it has sufficient revenue. See "Revenue Bond," A revenue bond, it says, is a form of municipal bond (although sometimes available to other government agencies).

The rain forest, as a project of what I believe is still called the Iowa Child Foundation, is a Section 501(c)(3), or non-profit, private organization.

So far, as the media's reporting reveals, there is somewhere between "little" and "no" interest (or even involvement) from the municipalities of Riverside and Pella. Such enthusiasm as exists for this project -- aside from the promoters -- is coming from a land developer in Pella, and a casino owner in Riverside (or South Carolina, as I believe his home to be). They presumably see the prospect of some added profit for their wholly owned venures if they can get enough public money put into the rain forest to get it built and operating.

But all of this comment of mine is a detail. Your concerns (and mine) remain whether this is a bank loan or the project is purchased by a municipality and then run with "revenue bonds." Where is the money coming from to keep this thing running and pay off the principal and interest of a significant debt?

-- Nick