Tag: Economic Development

Right.

Rob Morris 1 Comment Campaigns, Local , , , ,

On November 2nd, Lexington chooses its mayor.  I’ve spent much of the past few years observing the two candidates in action.  

Here, I address why one candidate is the right choice for Lexington, and why he will lead our city to a more prosperous and successful future.

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I first got to know Jim Gray personally about a year and a half ago.  After I had written about Lexington several times, I was pleasantly surprised when he asked to meet with me.

Gray I had long admired Jim’s accomplishments as a successful businessman and civic leader.  But as we talked about our backgrounds and about his experiences as Vice Mayor, I realized that this was the man Lexington needed to lead our city to a better future.

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Jim Gray is the right person to lead Lexington back to prosperity. Let’s explore why.

Humility
For all of his accomplishments and personal achievements (more on those in a bit), Gray is surprisingly humble about his success. Gray’s humility manifests itself in a number of important ways.

  • He acknowledges his own imperfections.  Rather than becoming defensive about his faults, he surrounds himself with people who more-than-compensate for qualities he may lack.
  • He listens.  A lot.   He knows that he doesn’t have all of the answers, so he seeks out people who have more knowledge and ideas.  And then, he listens carefully to what they have to say.
  • He is inclusive.    He always uses inclusive terms – “we”, “us”, “our” – when talking about Gray Construction (his family business where he serves as CEO).  He generously shares credit with others for the company’s success.

While his humility helps him lead and inspire those who work with him, it doesn’t always serve Gray well in politics.

For one thing, bragging comes unnaturally to him – he finds it awkward and unseemly to crow about what he has done and how he has led.

For another, he is inclined to be magnanimous – sometimes maddeningly so – with his political opponents.  While his opponent kicked off the campaign by attacking Gray, Gray has kindly maintained that his opponent “is not a bad guy, he’s just made some bad decisions”.

Accomplishments
Looking around the city and the commonwealth, Gray has left a lasting economic legacy which will serve our community long after his political career is complete.

Gray has led Gray Construction to be one of our city’s most innovative firms, and the company has a long record of job creation and city-building.

Gray It starts with Gray Construction’s downtown Lexington headquarters, located in the old Wolf Wile building.  Gray took a dilapidated building and transformed it into one of Lexington’s most inspiring workplaces.  The building stands as a stellar example of blending historic preservation with economic development.

But Gray’s accomplishments don’t stop there.

Sayre From here at Lowell’s, we can see Sayre’s Buttery and Upper School. Both buildings use modern building materials and techniques, while maintaining consistency with our historic North Limestone neighborhood.  That is a trademark of a Gray urban construction project.

In other parts of Lexington, Gray Construction projects include:

  • CenterCourt, a mixed-use development near the UK campus
  • A LEED-certified distribution center for Kentucky Eagle
  • The headquarters of Big Ass Fans
  • Amazon’s Lexington distribution center

Gray was instrumental in the inception of the 21c Museum and Hotel in Louisville.  Combining the best of old downtown Louisville with new design and materials, 21c has now been voted the #1 hotel in the U.S. for two years in a row.

South of Louisville, Gray built the visitors’ center at Bernheim Forest, Kentucky’s first LEED Platinum building.

In Georgetown, Gray built Toyota’s sprawling manufacturing facility, a vital part of our local economy.

Gray has changed the face of Lexington and of Kentucky for the better, and our community is more beautiful and more economically vibrant as a result.  He knows what makes a city thrive.  And he knows what businesses need to create jobs.

Insights
Jim Gray brought his experiences and insights from the business world to his (part-time) role as Lexington’s Vice Mayor.  He has had a knack for asking the right questions and doing the right things while in office:

  • He challenged the economic viability of the failed CentrePointe development from the beginning.
  • While the mayor waffled, Gray took the lead on looking into scandals at the Airport, the Library, and the Kentucky League of Cities.
  • He looked into how public safety was compromised by poorly-executed fire station brownouts.
  • He asked how wise it was to close several blocks of a major artery into downtown (South Limestone) for nearly a year.
  • He pushed for alternatives to the $160 million water plant which has now raised water rates by 65 percent.

Some have dismissed Gray’s actions as ‘grandstanding’.  But when we look back at the record, we see that he was right to ask these questions.  Every time.

Vision
Gray has been able to synthesize his business experience, what he’s learned about city goverment, and what he has heard from our community into a new vision for what Lexington could be.

But beyond a simple and unactionable vision, Gray has also detailed a ‘Fresh Start’ plan to specify what he will do as mayor.  The plan helps translate Gray’s vision into actionable steps.

Don’t agree with something in Gray’s plan?  Let him know.  Challenge him to make it better.  Tell him how.  As he says, the plan “is designed to be intelligently changed”.

Gray’s plan also reveals something even more important about Jim Gray: He has been thinking carefully about the future of Lexington.  He has kept his eyes open.  He has listened to our citizens.  He cares deeply for our city.

And, he has very good ideas for making Lexington an even better place to live and work.

I think we should give him the chance to implement his vision.

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On November 2nd, I hope you will join me in voting for Jim Gray as Mayor of Lexington.  I give him my whole-hearted endorsement.

 

Wrong.

Rob Morris 0 Comment Campaigns, Local , , , , ,

On November 2nd, Lexington chooses its mayor.  I’ve spent much of the past few years observing the two candidates in action.  

Here, I address in some detail why one is the wrong choice for Lexington.  Next, I’ll address why the other candidate will lead Lexington to a more prosperous and successful future.

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Last December – late in his third year in office – Lexington Mayor Jim Newberry proposed an ordinance to overhaul Lexington’s ethics laws.

Newberry Among other proposals, the ordinance suggested that lobbyists be prevented from serving as fundraisers or campaign treasurers for local campaigns.

Two days later, Newberry attended a $10,000 fundraiser for his campaign at the home of David Whitehouse, a registered lobbyist.

Proposed after the Urban County Council had adjourned for its winter break, little came of Newberry’s ethics proposal when council reconvened in 2010, and the mayor did little to promote his ethics initiative.

In microcosm, “Lobby-gate” encapsulates Jim Newberry’s tenure as Lexington’s mayor.  Let’s look at a few themes which emerged from this incident:

  • Scandal Blindness.  The mayor seems unable or unwilling to recognize and act upon wrongdoing.

Why would Newberry attend  fundraiser in a lobbyist’s home only two days after suggesting that Lexington should eliminate such a practice?  He either didn’t think – or didn’t care – about how apparently inappropriate his actions were.

  • Failure to Lead.  Newberry has resisted decisive action when faced with important issues.

While ethics reform was a centerpiece of Newberry’s 2006 run for mayor, he waited over 3 years to offer a proposal, and did so only as he and his competitors were ramping up for the 2010 campaign.

  • Hypocrisy.  In the wide gulf between words and deeds, the mayor often opts for symbolic posturing (rather than substantive action).

When questioned by local media about the fundraiser, his response was less-than-satisfactory for a ‘reformer’: “I… will continue to operate by the rules of the world as they exist.”

With his ethics proposal, Newberry could now make the empty claim that he ‘delivered’ a campaign promise for ethics reform.  Meanwhile, he would do precious little to see his half-hearted proposal – made while council was on break – into law.

  • Favoritism.  When Newberry does take action – or refuses to act – the beneficiaries are often his friends and campaign contributors.

Refusing to act on ethics reform allows lobbyist-contributors like Whitehouse (who represents a software firm that did work on the city’s financial systems) to operate without scrutiny or interference from the city.

  • Failure to Deliver.  Ultimately, the Newberry regime is marked by a pattern of profound inability deliver meaningful results.

Lexington’s ethics laws today are essentially unchanged from when Newberry entered office.

Isolated to a single incident, these flaws might be forgivable.  But they are not isolated: We can see these tendencies consistently pervading Newberry’s conduct as mayor.

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Scandal Blindness
This administration has been plagued by scandal.

  • There was out-of-control spending by the Bluegrass Airport staff and poor oversight by the Airport board of directors, who are appointed by the mayor.
  • There was out-of-control spending by the Kentucky League of Cities and poor oversight by KLC’s board.   Newberry is a member of that board.
  • There was out-of-control spending by the Lexington Public Library staff and poor oversight by the Library board of trustees, who are appointed by the mayor.
  • In the wake of the Haitian earthquake, there was Newberry’s failure to quickly approve sending a specially-trained Lexington Search and Rescue team into the quake zone.  The delay meant that the team was relegated to a support role.  The mayor’s indecisiveness likely cost lives.
  • There were the accusations of fraud by Patrick Johnston, Newberry’s own Director of Risk Management in the Lexington-Fayette Urban County Government.

While actions in question failed to rise to the legal definition of fraud, the investigations into the Johnston affair revealed fresh concerns over how Newberry’s administration behaved – including audit breakdowns, ethical failures, privacy breaches, and retaliation.

After months of obstruction and delay in the Johnston affair, Lexington was left with a ridiculous predicament: the city government sued itself, and taxpayers footed both sides of the $50,000 bill.

While Newberry wasn’t implicated in these scandals, he has been indecisive and ineffectual in responding to them.

First, Newberry minimized possible wrongdoing.  Then, he questioned the motives and challenged the authority of those who wanted to take action on the scandals, preferring to let the respective boards handle their ‘internal’ issues.  As weeks and months of inaction (and, in some cases, obstruction) became deeply embarrassing, he finally ‘welcomed‘ the investigations which were already underway.

As scandal upon scandal broke, Newberry could have learned from each one – figuring out how to lead decisively in the face of scandal.  Instead, Newberry seemed to intensify a kind of bunker mentality – choosing to hunker down until the uproar passed.

Failure to Lead
As seen with the scandals above, Newberry has demonstrated an appalling failure to lead just when his leadership was needed most.

Another area which needed strong mayoral leadership has been Lexington’s urban development, especially throughout downtown.  Instead, Newberry has adopted a laissez faire attitude – opting instead to do little to help guide downtown development efforts.

  • The mayor has been a steadfast supporter of the failed CentrePointe development, even as the project’s deep flaws became evident.  As a result, Newberry stood by while the developer tore down a neglected-but-historic block of buildings in the center of our city.  And he has done little to ensure that responsible development happens on that still-vacant block.
  • As the council adopted design guidelines for the downtown area, Newberry failed to offer any executive leadership to see form-based guidelines defined and implemented.  So when CVS wanted to build a new pharmacy at the gateway to downtown, Lexington had few formal requirements guiding the ultimate design of the structure.
  • The mayor has extended this do-nothing approach to historic preservation initiatives, refusing to see how economic development and historic preservation can be complementary efforts.  He has incorrectly characterized design and preservation as matters of ‘taste’ rather than of smart economics for Lexington.
  • At the last minute, the mayor launched a poorly-conceived and transparent effort to block the funding of improvements for Lexington’s Distillery District.

As we’ll see more in a few moments, when the mayor actually does take decisive action, the results are questionable.

Hypocrisy
Without apparent shame, the mayor often maintains a stark and hypocritical disconnect between what he says and what he does.  He seems to think that voters won’t notice if he does one thing while he says the opposite.

  • He pushed his expensive water plant plan through council while accepting huge contributions from water company executives and allies.  Now he is ‘outraged‘ about 65% increase in water rates – a burden that his plant put on taxpayers.  Hypocrisy.
  • He and his staff actively suppressed the release of government information during the Johnston scandal while announcing a ‘new’ government transparency initiative.  Hypocrisy.
  • He dragged his feet on investigating scandals at the Airport, the Library, and KLC, only acting when his inaction became embarrassing.  Now, he likes to claim that he ‘strongly condemned’ the same scandals he failed to act upon.  Hypocrisy.
  • He browned out fire stations and decreased police and fire staffing while declaring that public safety was “job one”.  Hypocrisy.
  • His contributors like to ridicule putting local businesses first (especially this local contributor who contracted on the local $160 million water plant with his local business), while he champions projects which benefit those same contributors – some of Lexington’s wealthiest citizens and corporations.  Hypocrisy.
  • He attacks his opponent’s accomplishments in his part-time position as Vice Mayor, all the while hoping nobody asks “What has Jim Newberry really accomplished as mayor?”  Hypocrisy.

This serial hypocrisy is compounded by Newberry’s profoundly Bushian inability to admit mistakes. Such lack of humility means that he is unable to go back and fix the problems of his administration.

Newberry’s campaign is built upon the cynical belief that voters will remain ignorant of such hypocrisy.

Favoritism
There is a short list of mayor-driven accomplishments during the Newberry tenure: downtown streetscapes, the Lyric theater, the $160 million water plant, and CentrePointe stand out.  As we look across this list, we notice a distinct pattern: the primary beneficiaries of the mayor’s action – when he chooses to actually take action – are Lexington’s richest citizens and companies.

  • If the Tax Increment Financing (TIF) that Newberry promoted for CentrePointe does more for Dudley Webb than for the average Lexingtonian (and it does), it amounts to little more than corporate welfare.
  • If streetscape projects greatly benefited Leonard Lawson (the owner of ATI Construction and already one of Kentucky’s wealthiest people), while the average citizen was made to wait in traffic jams for 15 months, it seems that the mayor’s friends’ priorities are put ahead of voters.
  • KAWCPlant If the mayor pushes through a $160 million water plant which lines the pockets of Warren Rogers and other campaign contributors – while making average families pay 65 percent more for water – that, too, amounts to corporate welfare and pay-to-play.

These projects were among the most contentious that the council considered over the past four years.  And on each one, the mayor was more active and vocal than usual in strong-arming them through council.  For whose benefit?

Failure to Deliver
When we look over the Newberry record, we have to ask what Jim Newberry has really accomplished for Lexington.  And that record is not impressive:

  • He dropped the ball on overseeing the Airport scandal, the Library scandal, and the Kentucky League of Cities scandal.
  • He dropped the ball on CentrePointe.
  • He dropped the ball on the water plant.
  • He dropped the ball on delivering more firefighters and police officers.
  • He dropped the ball on saving lives in Haiti.
  • He dropped the ball on the fire station brownouts.
  • He dropped the ball on the budget and responsible spending.
  • He dropped the ball on jobs.
  • He dropped the ball on economic development.

After so many fumbles, it is time to bench our current mayor.

Jim Newberry is the wrong choice for Lexington.

The CentrePointe Scam

Rob Morris 10 Comments CentrePointe , , , , , ,

We’ve long been critical of the economics of the proposed CentrePointe development just a few blocks away in downtown Lexington.  

One of the least understood portions of the project is the element known as Tax Increment Financing, or TIF.

In essence, TIF allows cities and states to allocate future incremental tax revenues to finance today’s public improvements related to new economic development initiatives.

The recent changes to the CentrePointe project invite a reassessment of the CentrePointe TIF program.

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NewCP2CentrePointe’s TIF program would use future new tax revenues from the CentrePointe development to fund about $50 million in projects around CentrePointe.

These public initiatives would include:

  • A new underground parking garage beneath Phoenix Park;
  • Renovating Phoenix Park;
  • Renovating the old Fayette County Courthouse (now the Lexington History Museum); and,
  • Providing new infrastructure including storm sewers, sidewalks, and – according to the most recent renderings – a pedway which seems to cross Upper Street to (?!) McCarthy’s Irish Pub.

The state and city would issue some $50 million in 30-year bonds (i.e., public debt) to fund the initiatives.  Over the course of the next 30 years, our governments would pay out some $100 million in principal and interest to the investors in the CentrePointe TIF bonds.  The state would cover three-quarters of the total payments (about $72 million), and Lexington would cover the rest.

Then, the state and city would hope to use new taxes generated from CentrePointe over the next 30 years to offset the $100 million spent paying bondholders.

But is this a good investment of taxpayer dollars?

To get an informed answer, we need to dive deep into the business fundamentals of the CentrePointe TIF project.

(Note: What follows is financially ‘geeky’, but it is also critical to understanding how our money is invested.)

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We have two major concerns with the CentrePointe TIF:

  1. The valuation methodologies used by the state and city are fundamentally flawed, and are not the standard for evaluating a long-term investment.
  2. CentrePointe will not generate the promised revenues, due to incredibly optimistic business model assumptions.

Let’s look at each of these concerns in succession.

Valuation Methodology
As far as we can tell, there have only been two evaluations of the public impacts of the CentrePointe project:

  • A late 2008 assessment of CentrePointe done for Lexington by Morgan Keegan & Company which expected $211 million in total tax revenues over 30 years; and,
  • An Economic Research Associates (ERA) report [PDF Link] done last summer for the state’s Cabinet for Economic Development, which expected nearly $70 million in tax revenues from CentrePointe for the state alone.

Of the two, ERA’s assessment is the more recent, more complete, and – in our judgment – more reliable.  It is also the one which the state used to approve the CentrePointe TIF.

But, as mentioned above, there are deep flaws in how both of these reports valued the public benefits stemming from CentrePointe.

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Businesses make investment decisions all the time: products, facilities, acquisitions, marketing, and so on.

When businesses evaluate an investment project, they look at how much they put in up front (‘the investment’) versus how much they can get out over time (‘the return’).

But when looking out into the future, most businesses lower the value of future earnings.  In other words, the promise of $1 million next year isn’t worth as much as $1 million in-hand today.  A lot of things can happen in the course of a year – inflation, disasters, competition, market shifts.  And $1 million two years from now is worth even less, because there is even more risk of something happening.

Typically, stable and established businesses use an annual rate of around 10% to ‘discount’ future earnings.  For example, if an investment generates a return of $1 million today, that is valued at $1 million.  Simple enough.  But if it promises another $1 million next year, that is worth just $900,000 to us today (i.e., 10% off of $1 million). The promise of $1 million two years from now is worth just $810,000 today, and earnings further in the future are given even steeper cuts in their valuations.  So the promise of $1 million 30 years from now is worth just $42,000.

This ‘discounted cash flow’ method is the same standard that Warren Buffett and other investors use to evaluate how much to pay for an investment, and it is the financial equivalent of ‘a bird in hand is worth two in the bush’.

Depending on the kinds of risks an investment faces, the discount rate might be significantly higher.

When we purchased Lowell’s, we used a 20% discount rate.  Even though Lowell’s was a solid business with loyal customers, we faced a number of uncertainties.  Would we lose key employees? Would customers stay away in droves?  Would things fall apart? Those things didn’t happen, but they posed very real risks as we purchased a new business.

With an especially speculative venture like CentrePointe, we would usually apply an annual discount rate of 20%. Or more.

So what kind of discount did Morgan Keegan and ERA apply to CentrePointe’s promised future tax revenues?

Zero.

Instead of incorporating the risks inherent with a project like CentrePointe, these assessments valued CentrePointe as if there were no risks at all. In these scenarios, the faint promise of $1 million in 2040 from CentrePointe was just as secure as having $1 million in our wallet today.

This is especially problematic, because so much of CentrePointe’s tax revenues were promised so far in the future, when a conventional valuation methodology would steeply cut their value.

For instance, in Morgan Keegan’s assessment, nearly half of CentrePointe’s tax benefits – over $100 million – came between 2030 and 2040.

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The original report [PDF link] from Economic Research Associates (the state’s CentrePointe consultant) estimated that 30 years of tax revenues from CentrePointe would generate some $70 million for the state – while the state’s expenses for CentrePointe projects ran $72 million.  So ERA projected that the state stood to lose $2 million on the CentrePointe TIF.

And that estimate derived from the faulty methodology we described above.

So what does the CentrePointe TIF look like when we apply standard valuation techniques?  Let’s be generous, and apply the 10% annual discount rate reserved for stable investments to our analysis of CentrePointe.  We’ll also use ERA’s estimated stream of future tax revenues.

Using a more conventional valuation of CentrePointe’s incremental taxes, they’re only worth about $25 million to the state, and an estimated $32 million overall.

In reality, the city and state would incur $50 million in public debt today for the CentrePointe TIF bonds, and only get back $32 million of that in future tax revenues.  CentrePointe TIF is a poor investment which loses $18 million for taxpayers.

And that is even before we look at the stability of CentrePointe’s overly-optimistic business model…

Business Model Assumptions
A distinct pattern emerges in ERA’s assessment [PDF link] of the CentrePointe project for the state. At numerous points throughout the document, ERA hedges: they express skepticism about some element of the project, but then use the developer’s assertions about the project as ‘proof’ of its ultimate viability.

How ERA evaluates CentrePointe’s million-dollar condominiums is typical of these hedges (we’ve added emphasis in red):

“ERA approaches new luxury condominium projects in 2009 with a healthy degree of skepticism. […] Bank financing for new condominium construction has seized up. There is a very high degree of uncertainty in residential markets, especially high-end condominiums, across the U.S.  And in recessionary times, introducing a luxury product where it has not been present before represents a considerable risk.

“However, there are two reasons for optimism in the CentrePointe Tower. First, the developers have pledged an all-equity transaction. This greatly reduces the risk that loans would have to be renegotiated in the middle of a deal, that payments would be missed, or that financing would be pulled at the last minute. While it does not eliminate all risks associated with financing, an all equity transaction greatly reduces the risks and complications of development in this difficult market.

“The second reason for optimism is that the developers have reservations for 64 units, out of 91. While a reservation is less a commitment than a purchase contract, this is still an impressive level of sales for this stage of the process. With two-thirds of units reserved before construction begins, the developers have demonstrated there is demand for these types of units.”

Both of the reasons for optimism that ERA cites come directly from the developer’s tenuous assertions.

The ‘all-equity transaction’ refers to the developer’s dead mystery financier, whom the developer had claimed was putting up cash (the ‘all-equity’ part of the transaction) to back the development. Last week, the developer admitted that he was forced to pursue more conventional financing.  Using ERA’s logic, this would greatly increase the risks to the project’s success.

The ‘reservations for 64 units’ refers to the handshake deals that the developer claimed for the old CentrePointe design.  As we have previously documented, 64 ‘reservations’ stretches the bounds of credibility in a market which only sold 10 million-dollar properties in all of 2008. And last week, the developer trimmed the number of condominiums in the new design from 91 to 63.

(Update: As Beverly Fortune notes, the numbers haven’t gotten better for million-dollar residential properties: Only 8 sold in Lexington in 2009, and only 5 have sold thus far in 2010.)

With both ‘reasons for optimism’ now rendered impotent, how would ERA evaluate CentrePointe’s condominiums today?

ERA’s skepticism extends to every other major part of the project:

Offices: “Estimated rents of $26 per square foot would be about $6 per square foot higher than the current highest quoted rate in the market – a number that may be difficult to achieve given current market conditions and may require some concessions.”

Retail and Restaurant: “ERA believes that $27 per square foot is an aggressive ask in this market, especially in downtown.”

Hotel: “With a first year ADR [room rate] of $175 and RevPAR [revenue per available room] of $103 at 53 and 45 percent higher than any comparable properties in the market at the end of 2008, these metrics may be optimistic. […] Projected hotel occupancy as well, is projected by the developer to be nearly 10 percentage points higher than the 2008 year-end average of 61.9 percent.”

In evaluating the entire project, ERA says

“Traditional bank financing would be extremely difficult, if not impossible, to secure for a project of this scale at a time like this. […] If the project’s equity financing remains intact and the investors are satisfied with the projected return, then ERA does not see a market barrier to feasibility of the project.”

How would ERA evaluate CentrePointe’s feasibility now that the ‘equity financing’ has fallen through?

Not well, we suspect.

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We took the liberty of re-running ERA’s estimates with more realistic (but still quite generous) assumptions:

  • The developer estimated that he would spend about $250 million on the old CentrePointe design. While there are few specifics, he has used a figure of $200 million for the new design.  We adjusted construction spending down by 20%.
  • The developer assumed they could get higher occupancy levels (over 71%) even though they were charging 50% more per night than the Lexington hotel market.We adjusted hotel occupancy to market levels – a more reasonable 62%.
  • The developer has claimed to be able to sell two-thirds of their condominiums at the outset of the project. We adjusted expectations down to about 20% at the outset, and we never expect full occupancy of the 63 condos without drastic reductions in property price.
  • The developer assumes a $26 to $27 per square foot rate for its office, retail, and restaurant leases.  We’ve adjusted those assumptions down by about 20%. Such an adjustment still leaves these CentrePointe spaces as the highest rents in the Lexington market.

These adjustments to the CentrePointe business model have a number of economic ripple effects: Lower spending, lower sales, lower profits, fewer jobs created, lower quality of tenants, and lower tax revenues.

Using these more realistic assumptions, our estimate is that CentrePointe will generate incremental state and local taxes worth only $21.5 million ($16 million of that would go to the state, and the remaining $5.5 million would go to Lexington).

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As long-time critics of the CentrePointe project, we hear a common counter-argument: that CentrePointe is a private development on private property and that we and our community leaders have no business questioning the project.

CentrePointe is a private development on private property.

But CentrePointe also has a number of externalities that make it of public interest. It would require significant public investment in new infrastructure and facilities to support the new development.

And while TIF projects are targeted to public improvements, the reality is that about half of the $50 million publicly-financed CentrePointe TIF projects would most directly benefit CentrePointe’s developer: the parking garage, sidewalks, pedways, and other infrastructure.

It is highly unlikely that the developer would go forward with the project without the public subsidy of these elements – despite his prior threats to do so.

A second TIF reality is that the public bears a disproportionate part of the risk of the new development: In return for putting up $50 million of our money today, taxpayers are promised an unreliable trickle of future tax payments over the next thirty years.

So despite what many of CentrePointe’s defenders – including Lexington’s mayor – say, CentrePointe’s TIF program does amount to a public subsidy of the private development of CentrePointe.

And when we apply a realistic analysis, that CentrePointe TIF subsidy is a truly awful investment.

In return for committing $50 million in new debt (and paying another $50 million in interest on top of that), taxpayers get a return of just $21.5 million.

Local government would lose almost $7 million on its $12 million investment, while the state would lose $21 million on its $37 million investment.

And despite the developer’s indignant none-of-your-damn-business attitude toward public inquiry on CentrePointe, it clearly is a public issue with public dollars at stake.  The CentrePointe TIF is little more than outright welfare for the developer and his project.

The CentrePointe TIF is a spectacularly bad public investment, and every attempt should be made to rescind the TIF approval.

The proposed redesign of CentrePointe should be a time for community leaders to rethink the community’s investment in CentrePointe.

At a time when our public budgets are under extreme duress, now is not the time to spend extravagantly on a wildly speculative private development such as CentrePointe.

No responsible business would make this kind of investment.  Our governments shouldn’t either.

The Tombstone at CentrePointe

Rob Morris 3 Comments CentrePointe , , , , , , ,

We last wrote about CentrePointe one year ago this week.

In Tangled Webb, we wrote about the folly of the CentrePointe development, capping a series of posts chronicling our growing skepticism about the downtown Lexington project’s financing and viability.

We then stopped writing about CentrePointe because there wasn’t much left to say.

Four months later, Business Lexington reprinted Tangled Webb, prompting an aggressive and condescending response from CentrePointe’s developer, in which he simultaneously attacked us, bloggers in general, and Business Lexington.  He asserted that we knew “little about commercial real estate development or the potential and viability of this project”.

Time would tell.

NewCP
New v. old CentrePointe designs

A New CentrePointe?
Yesterday, finally admitting that his financial backing had failed and that his initial design wasn’t viable, the developer submitted a smaller design for CentrePointe to the Courthouse Area Design Review Board (CADRB).

The new tombstone-shaped design (shown at right, superimposed over the older design) is 210 feet shorter than the one that the CADRB had previously approved.

The project still proposes a 237-room J.W. Marriott, along with office and retail space.  The upper tiers of the project would house 63 high-end condominiums (scaled back from the originally-proposed 91).

The developer asserts that “progress is being made” on “more conventional financing”.

What is the CADRB?
Within Lexington’s crazy-quilt of planning bodies and agencies, the CADRB is a five-person board commissioned by the Urban County Council to oversee a small portion of downtown called the Courthouse Area Design Overlay Zone.  The CentrePointe site falls within this irregularly-shaped zone.

In 2008, the CADRB approved the developer’s demolition of several long-neglected-but-historic buildings on the site – including Morton’s Row, which had some of Lexington’s oldest commercial buildings.  In June 2008, the CADRB approved an initial design for CentrePointe, issuing an “authorization permit” good for one year.  The CADRB  then approved a modified design again in November 2008.

On July 8th, 2009 the developers sought – and received – an early extension to their November 2008 authorization permit.   That third permit expires less than 30 days from today.

The Overlay Zone is intended to “encourage growth and redevelopment in the downtown area, while preserving and protecting the unique features and characteristics of the area.”  As outlined in its bylaws, the CADRB has 5 mandates:

  • promote those qualities in the environment which bring value to the community;
  • foster the attractiveness and functional utility of the community as a place to live and work;
  • preserve the character and quality of Lexington’s heritage by maintaining those areas which have special historic significance;
  • protect investment in those areas;
  • raise the level of community expectations for the quality of its environment.

Since initial approval, the CentrePointe site has been, by turns, a pit of rubble, a dust bowl, a pond, and, now, a horseless horse pasture with huge signs heralding how CentrePointe is “Coming Soon”.

By issuing demolition and construction permits for the CentrePointe site, the CADRB failed on every one of its own mandates.  The development has failed to bring value to the community.  It has failed to deliver the promised 900 jobs.  It has failed to preserve the character and quality of Lexington’s heritage.  The fantastical proposal never had the right scale or proportion for the Overlay Zone. Along every dimension, CentrePointe has been a collossal failure.

In light of that multidimensional failure, now is the time for the CADRB to take corrective action.

New design, same old problems
NewCP2While scaled back in height, the new ‘Pointe-less’ design for CentrePointe is no less problematic than the old one.  It fails to address some of the project’s deep, long-standing flaws. These include:

Financing: While the developer asserts that progress is being made on new funding, this is actually a step back from previous assertions that funding was already in hand.  On June 4th, 2009, the developer assured the Lexington Forum that he had two ready sources of funding if his dead mystery financier’s estate didn’t come through.  Yesterday’s application for extension made it clear that those sources failed as well – if they ever existed at all.

Capital flows to the most promising investments, even in a difficult economic environment.  The fact that the developer has yet to secure funding for CentrePointe speaks volumes about its quality as an investment.

Business Model: The developer has continually asserted that he has a ready list of tenants for the property.

But there are enough problems with his business model assumptions to call the viability of the entire project into question.

  • Analysts hired by the developer assumed that the J.W. Marriott hotel could achieve higher occupancy rates – at start-up – than surrounding hotels even though the Marriott would charge 50% higher room rates.
  • While the number of million-dollar condomimiums has now been scaled back to 63, that is still far too many for the Lexington market to absorb (when only 10 million-dollar properties sold in all of Lexington in 2008).
  • The one retail prospect that the developer has named as ‘interested’ in the project wasn’t really that interested.

Vague Assurances & Broken Promises: The developer has offered many claims – but little substance – with regard to the project’s viability.  He has repeatedly decommitted from previous promises.  When challenged, the developer usually responds by playing either victim or bully – and, sometimes, both at once.

It is time to openly challenge the developer’s overreaching claims and blithe assurances.

Scale: CentrePointe’s proposed tower has never had the appropriate scale for the historic character of the Overlay Zone.  The CADRB’s approval of the initial designs and subsequent re-approvals were mistakes.

Now is their chance to undo those mistakes.

Accountability for CentrePointe
Before issuing a fourth permit, the CADRB needs to require the kinds of accountability for this iteration of CentrePointe that was missing in the project’s earlier phases.

They have a responsibility to ensure that our community does not end up with – in the words of former Councilmember Don Blevins Jr. – a “vertical Lexington Mall”.

When the developer presents CentrePointe’s new design to the CADRB on June 30th, the board should do the following:

Ask the tough questions.  Especially the ones which weren’t answered the first time.

  • Does the developer have financing in hand, or is he just ‘working on it’?
  • What, exactly, happened to CentrePointe’s previously ‘rock-solid’ financing?
  • Can the developer really build the design being considered?
  • What is the business model for this property?  Will that model really work?
  • Is this design really consistent with the unique character of our downtown?

Require documentation.  Don’t accept the developer’s word at face value.  His proven inability to deliver on previous promises mean that he should be required to document the stability of his financing and his business model before any design is approved.

Rethink prior approvals. As mentioned above, the CADRB made a mistake by approving the old design of CentrePointe.  Don’t just rubber-stamp the new ‘tombstone’ design.  Make sure it works with the surrounding community.

The Overlay Zone exists for a reason.  On June 30th, The CADRB should fulfill their duty to ensure responsible economic development within the Zone which preserves the unique character of our downtown.

The old design of CentrePointe didn’t do that.

The new one still doesn’t.

The CADRB should reject the application for extension.

It is time to put a stop to the empty promises.  It is time to stop enabling this kind of overreaching incompetence.  It is time to end the delusional fantasy of CentrePointe.

Will Creative Cities Matter?

Rob Morris 7 Comments Local , , ,

Lexington hosted the third installment of the Creative Cities Summit late last week (previous editions were in St. Petersburg in 2004 and Detroit in 2008), and the event was headlined by internationally-recognized experts in urban growth and vitality: Charles Landry, Rebecca Ryan, Richard Florida, and Bill Strickland, among others.

CCS-300x253  The event drew participants from across North America, but most of the attendees seemed to be from Lexington.  And while Lexington was not the central focus of the event, our city naturally entered into many of the conversations.

In the wake of the event, a vigorous local debate emerged about whether Creative Cities was significant for our city.  What’s intriguing is that much of the debate is occurring between folks who normally get along.  And much of the negative criticism is coming from folks that I like and respect (see here, here, here, and here), and who aren’t typically curmudgeonly.

That criticism has led to head-scratching – and, at times, indignance – from those who felt that the summit was a worthwhile, transformational, and enlightening experience.

And that leads us to an interesting – and telling – distinction: Most of the attendees of the summit seemed energized by the discussions and the ideas which emerged from Creative Cities; Most of the criticism came from those not in attendance.

* * *

There seem to be three basic criticisms of Creative Cities:

1. It was too exclusive.  This criticism usually centers around conference participation: who was invited, who wasn’t, and the perceived snobbery of some of the attendees.

2. It was too expensive.  This criticism focuses on the $199 registration, and whether the scholarships to the event were adequately publicized.

3. It was too much talk (and much of that talk was self-involved drivel).  This criticism takes multiple forms, including:

  • The conference was too self-involved and self-congratulatory, and prioritized self-help and good feelings over substantial change.
  • It glorified out-of-town gurus who repackaged the obvious while angling for their next consulting gig.
  • It didn’t involve enough meaningful action, and thus amounted to a vacuous echo-chamber of do-nothing happytalk.

As an attendee of the summit, I find a kernel of truth in all of these criticisms.  But I don’t think that any of them are completely fair, and none are particularly helpful in crafting a better future for Lexington.

I have to admit I’m not all that patient with the ‘exclusive’ or ‘expensive’ arguments.  Everyone was invited; everyone had a chance to participate.  While the price of the event was problematic for many, it was far cheaper than similar events with participants of this caliber.  Events like this cost a lot – and high-quality speakers, food, and facilities are necessary to draw a national audience.

What concerned me the most about these critiques was that the perceived exclusivity or expense of the event often became an excuse for dismissing the good ideas which arose there: A good idea is still a good idea, even when someone has to pay to hear it.

And if the criticisms of conference ideas are based upon bruised egos and hurt feelings, then I’ve got zero patience for that.

I’m much more sympathetic to the ‘too much talk’ reasoning.

Before I bought Lowell’s, much of my corporate life was spent in the company of very skilled consultants: research consultants, design consultants, business strategy consultants.

There was a predictable part of nearly every consulting engagement where the consultant would suggest that hiring them for another engagement was part of the solution to the problems we hired them to resolve – “The way you fix that is to hire me again!”.  Consultants always position themselves for doing more consulting.

We did get to see that angling-for-the-next-gig routine with some consultants at Creative Cities.

And admittedly, there was a little too much excitement over slick ideas and catch-phrases, and not enough thought about the hard work needed to truly transform Lexington for the better.

But that hard work isn’t what a conference is for: The summit was for learning and for exchanging ideas; the hard work comes after.

* * *

The structure of the conference didn’t help its perception – especially on Twitter – for those who didn’t attend.  In the process, I think some of the shortcomings of Twitter for civic conversations like these were exposed.

The most compelling (and, presumably, highest-paid) ‘keynote’ speakers addressed all participants at the same time.  For these speakers, attendees usually tweeted about the same inspiring messages, giving rise to the echo-chamber perception.

For instance, when Bill Strickland spoke at the end of the conference, many non-attendees mocked his ‘poor people should be considered assets, not liabilities’ line.  They seemed to say What fool would pay to hear something so blatantly obvious?

But Strickland had spent several emotional minutes demonstrating how attitudes, institutions, and architecture in his native Pittsburgh neighborhood treated poor people like liabilities.  At the same time, he had shown how he had successfully used beauty and light and architecture and respect to transform his home neighborhood by treating poor people like assets.

When those present tweeted the ‘assets’ line, they were truly moved and inspired by Strickland’s story and context.  Those outside the venue only saw vacant platitudes.

This same pattern repeated itself again and again throughout the other keynotes: The rich, compelling images and backgrounds and stories couldn’t traverse Twitter effectively; only the catchiest (and apparently empty) phrases made it out.

In between keynotes, there were 4 simultaneous breakout sessions.  While the breakouts weren’t as inspiring (or ‘tweet-worthy’), they were far more practical and hands-on about the mechanics of transforming a city for the better.  They were – for me – the most beneficial part of the conference.  I learned about:

  • Detroit’s strategies for reviving long-neglected neighborhoods, building-by-building and block-by-block.
  • How Toronto and Portland are funding and implementing inspiring, for-profit social innovation initiatives which pull people and neighborhoods out of poverty and make their cities more livable.
  • The model Massachussetts’ Creative Economy Director uses to get tangible economic development successes in arts, software, design, video games, and music.

From the discussions around my table, other Lexingtonians learned even more from the sessions I wasn’t able to attend.  We also talked with people on the ground in Atlanta, Des Moines, and San Antonio about their experiences in their cities.

Because I was so busy listening and taking notes, I was much less occupied with getting the word out on Twitter.  I saw this effect repeated with other attendees, as well.

So the resulting Twitter stream was decidedly biased in favor of the least-important, most self-helpy kinds of messages, while the deeper, more important insights went relatively silent.

And I think that is the source of the skepticism and derision from those ‘out-of-the-room’, while those ‘in-the-room’ were decidedly enthusiastic about how the event played out.

***

Will the Creative Cities Summit matter to Lexington?

It is far too early to tell.  It will take time, work, and discipline to realize the vision that many of us had leaving the summit.

Should the Creative Cities Summit matter to Lexington?

Absolutely.

Seeing the innovations that other cities have applied in improving their quality of life is vital as we attempt to build a better Lexington.  We need that kind of cross-pollenation with our own innovative initiatives to ensure the best possible future for us and for our city.

For those who feel as though we need a lot less talk and a lot more action, then mark this coming Saturday 17th April on your calendar.  That is when ProgressLex is hosting the Now What, Lexington? ‘unconference’ at the Carnegie Center in Gratz Park.

Now What? is explicitly geared toward generating tangible action from the ideas of the Creative Cities Summit.  Whether or not you attended Creative Cities, you should come to Now What? if you want to join with others to make Lexington better.

Now What? will be tweeted, too.  But it will be better if you show up.  As we’ve seen, Twitter isn’t always the most effective medium for conveying important ideas.

It is free.  Everyone is invited.  We’ll be doing things.  No excuses.

Read more of the continuing conversation about the Creative Cities Summit on Twitter with the hashtags #ccslex, #uncreatives, and #uncreativelex.  Read about the upcoming Now What, Lexington? unconference with the hashtag #nowwhatlex.  Full disclosure: Lowell’s is a sponsor of Now What, Lexington?

To-Do List for Lexington: 9. Do!

Rob Morris 2 Comments Local , , , , , ,

(Part of the To-Do List for Lexington series.  Click here for an overview and links to the rest of the series.)

Checklist Throughout this To-Do List series, we’ve talked about the kinds of things we need to do to make Lexington a better city, especially with regard to improving our city’s economic development.

In Get Real, we talked about the need to curtail boosterism – the compulsive promotion of our city at the expense of real, substantive economic initiatives.  Lexington needs to get a lot more realistic about what kinds of civic activity drive true prosperity.

We talked about promoting growth at home as the best way to attract new growth from the outside in Stop Seeking Saviors.  Rather than spending huge, speculative amounts to draw in new firms from outside the city, Lexington should target spending on growing its economy from within.

We talked about the multiplier benefits of buying products and services from local providers in Local First.  Lexington should prioritize local purchasing, development, and investing in order to supercharge its growth.

In Embrace Openness, we talked about the need for our city to adopt an open approach to serving citizens, including open access to data about our city.  Lexington should find new, more transparent ways of serving and communicating with its citizens.

We talked about how to grow, keep, and attract educated talent – talent which is currently bleeding from Lexington – in Leverage Intellectual Capital.  We must find ways to keep experienced and specialized workers – who contribute enormously to our economy – in our city.

We talked about taking advantage of Lexington’s uniqueness – including the promise of the Distillery District – in Be Original.  We must leverage that uniqueness to make Lexington a city worth visiting and worth living in.

We talked about the need for intermediate-term strategic planning as a way to connect action to vision in Plan Well.  Lexington must make thoughtful, strategic investments with its public dollars.

Then, in Demand Accountability, we talked about how good initiatives get derailed and about how we must step up to make our leaders – and ourselves – responsible for keeping such initiatives on track.

While the list covers a lot of ground, it isn’t comprehensive by any means.  For instance, we didn’t delve into the importance of the arts in our community.  We didn’t talk about becoming more environmentally responsible, and building a sustainable Lexington.  We didn’t talk about how to improve conditions for Lexington’s poor.

Our To-Do List for Lexington isn’t complete.  We’ll continue to add to it in the months ahead.  There’s a lot more to talk about…

But it is time to stop talking.  Stop complaining.  Stop whining.  Stop planning.  Stop theorizing.  We need to shift from analysis to execution.  This is a To-Do List, not a list of discussion items.

Lexington must start to do these things.

We need to ensure that leaders from across the community understand and implement these principles.  If they disagree, that’s fine, but they need to articulate why they disagree in open, democratic debate.

And if they don’t, we need to get new leaders.

We need to commit our time, money, and effort to applying these principles for the betterment of our community.

We need to go build a prosperous, beautiful, livable city.  We need to go make Lexington better.

Who’s in?

Next: Postscript

LowellsSquare

To-Do List for Lexington: 8. Demand Accountability

Rob Morris 2 Comments Local , , , , ,

(Part of the To-Do List for Lexington series.  Click here for an overview and links to the rest of the series.)

Why don’t more good things happen?

Throughout my career, I’ve had the all-too-frequent opportunity to observe how things don’t work out – in academics, in business, and in local politics.

A good share of the blame resides with ‘bad actors’ – folks who gum up the decision-making process and derail worthy initiatives.  For fun, I’ve begun a typology of these people.

  • There’s the Smug Know-It-All, who pretends to have all of the answers, and therefore doesn’t need or seek input from experts or the public.  The Smug Know-It-All just wants to be ‘right’.
  • There’s the Intentionally Clueless, who lacks sufficient information or sound principles for making strategic decisions, and who instead makes those decisions based upon personalities of the people involved.  The Intentionally Clueless just wants to be liked.
  • There’s the Do-Nothing, who struggles mightily to rationalize the status quo, and who hunkers down and defers decisions in the face of any initiative which promises change.  The Do-Nothing just wants to avoid doing anything.
  • And, there’s the Obstructionist, who actively blocks initiatives by constructing elaborate hurdles for an initiative, often by invoking process-related parliamentary maneuvers.

B2sstonewallweed001What is common to all of these bad actors is an unwillingness to enter into an open, rational, democratic debate on an initiative’s merits.

Notice that none of these folks are engaged in solving problems.  Instead, they pour their energy toward squelching debate, often by exhausting or diverting their opponents’ ability to continue the fight.

Attend an Urban County Council session – or watch one on GTV3 – and it is surprising to see how many of these bad actors are on the council or work for city government.   We were able to see versions of all of these bad actors on display during the Parsons Affair, when the council decided whether or not to bond the Distillery District.

Throughout Lexington’s leadership, we can see these bad actors.  We see them among our elected representatives, among public employees, in publicly-supported agencies (like Commerce Lexington or the Downtown Development Authority), and in local businesses.

More troubling, we see this behavior among our own citizens – amongst ourselves.  We know it all.  We remain clueless.  We do nothing.  We obstruct. 

We are the bad actors, too.

If we are to build a better Lexington, we must declare such behavior
unacceptable.  Then, we must make bad actors answer for their actions.

Lexington must demand accountability.  From its leaders.  And from its citizens.

::

How do we begin to make good things happen in Lexington?

By making Lexington’s leaders and citizens accountable for doing good things.  Reward them when they do the right things; punish them when they don’t.

Sounds simple, doesn’t it?  But what, exactly, do we do?  How do we really demand accountability?

Here’s a partial list of what I think we need to do.  I hope you will expand on these ideas in the comments below:

  • Speak up.  Let your representatives, neighbors, friends, and fellow citizens know what matters to you.  Write letters.  Make phone calls.  Send emails.
  • Show up.  Make time to attend council meetings or local neighborhood meetings, especially when they address issues which matter to you.
  • Inform yourself.  Find out what is happening in our city.
  • Join together.  Actively look for people with similar viewpoints, and unite your voices.  One voice is too easy to ignore; a movement is not.
  • Campaign.  Fight for your causes, and recruit others to them.  Lobby for your point of view.
  • Call ’em out.  When you see bad actors squelching public discussion, don’t let them get away with it.  Call out their anti-democratic behavior for being anti-democratic.  Make them think twice before they do it again.
  • Vote ’em out.  When representatives, public employees, organizations, or businesses continue to act in bad faith, deprive them of what they need most: Votes, jobs, or funds.
  • Persist.  Bad actors are betting that you’ll give up.  Make them lose that bet.

Gandhi urged us to “be the change you wish to see in the world”.  William Johnsen offered this pithier 18th-century version, in 10 two-letter words: “If it is to be, it is up to me.”  Both of them recognized that real, productive change takes place when we stop waiting for someone else to fix things.

If Lexington is to reach its full potential – if we are to build a better, more livable, more prosperous city – we must demand accountability from our leaders and from ourselves.  Especially from ourselves.

Next: 9. Do!

LowellsSquare

To-Do List for Lexington: 7. Plan Well

Rob Morris 2 Comments Local , , , , ,

(Part of the To-Do List for Lexington series.  Click here for an overview and links to the rest of the series.)

Last week, Lexington’s Urban County Council deliberated on the projects the city would issue bonds for.  When we issue bonds, we are borrowing money from bond investors – Bonds are new debt that we will pay off at some point in the future to fund today’s projects.

In that bond deliberation process, one word kept coming up: Streetscapes.

The council has earmarked some $30 million in new bonds for four streetscape projects.  In addition to funding the ongoing project on South Limestone (whose ever-escalating price tag now stands at $17 million), the council will fund new streetscape projects on Cheapside, West Main, and West Vine for $12.7 million.

All four projects are slated for completion by July 1st, 2010 – less than 7 months from now.

::

Barely two weeks earlier, the Mayor announced a $12 to $13 million shortfall in the current year’s budget, noting that – after several previous rounds of cuts – the city would likely have to cut services to balance its budget this time.

Yet, in this economically-strapped environment, the Mayor pushed for (and council approved) a disruptive $30 million spending spree to make streets look pretty.

Why the rush?  The World Equestrian Games are coming to Lexington in September 2010, and we must look our best for “the world”.

This is boosterism run amok: In the mad scramble to make Lexington ‘pretty’ for out-of-town visitors next fall, the city is simultaneously 1) spending $30 million to make streets look better, 2) incurring $30 million in new bond debt, and 3) destroying $90 million of economic value by disrupting local business operations.

And the next 6 months promise to be even more disruptive, as the four separate street projects further entangle downtown Lexington.

In the face of financial crisis, massive spending on discretionary aesthetic projects – especially ones which disrupt commerce – seems wildly irresponsible.  It is the urban equivalent of not being able to make the mortgage payment, yet getting a new loan to redesign the landscaping.

::

Last January, at the request of Lexington’s Mayor, a group of citizens delivered a long-term vision for our city to the Mayor and to the Urban County Council.  Dubbed Destination 2040, the document outlined strategies and initiatives for maintaining “great city life in a productive rural paradise” for the next 30 years in Lexington.

I have previously written that I believe that Destination 2040 is destined to fail.  I make that assessment not because there is anything fundamentally wrong with the Destination 2040 vision, but because Lexington lacks the mechanisms and processes to realize such a vision.

::

Together, streetscapes and Destination 2040 provide a snapshot of Lexington’s inability to implement strategic economic and urban development plans.

At the scale of decades, Destination 2040‘s objectives are too distant to grapple with in a systematic fashion.  It is too difficult to tangibly connect today’s initiatives to the distant future.

At the scale of months, the scramble for streetscapes is ripped from a broader strategic context: Are these really the wisest investments for our city to make while facing a very distressed economic environment?  What emerges from such short-term focus is a series of disconnected, momentarily-important initiatives with spotty results.

Lexington needs t0 better connect its near-term projects to its long-term vision.  We need to invest in projects which fit within well-defined urban development goals.  We need to clearly articulate a coherent strategy for sustainable growth.

Lexington needs to learn to plan well.

Planning isn’t very exciting to talk about, but it is critical that we do it well – especially when we are incurring public debt that we’ll be paying back over several years.  So here are some thoughts on how Lexington can better plan its future.

Choose big, specific, near-term goals. 
Lexington needs to choose audacious goals, and then work diligently to make those goals happen.  Ideally, those audacious goals would connect to our long-term vision (such as that outlined in Destination 2040).  Then, instead of thinking in terms of months (like streetscapes) or decades (Destination 2040), we need to think in 3- to 5-year “chunks” and establish deadlines and accountability accordingly.

Some examples:

  • Aggressive growth of high-paying new jobs:  “10,000 net new jobs by 2014, adding $1 billion to the local economy”.
  • Dramatic increases in urban density through incentives which promote responsible infill and redevelopment: “10% greater residential and commercial density in downtown Lexington by 2015”.
  • Reclaim blighted areas of Lexington.  Encourage new growth and investment in those areas.  Capitalize on our originality: “Make the Distillery District one of Lexington’s signature, must-visit places.  Target getting 20 stories about the District in national or regional media.”

Don’t just spend; make investments.
Public money is a resource to be invested for public benefit, not a handout or slush fund to be spent.  We must evaluate discretionary public spending based upon what that investment returns (or fails to return) to the public.

This was the massive failure of the South Limestone streetscape project – A simple analysis would have revealed the tremendous costs associated with closing a major artery to downtown for a year.

If we begin adopting an investor’s mentality to urban development, we will ensure that our tax dollars are more wisely spent.

Invest selectively and intensively.
To maximize the returns on Lexington’s tax dollars, we should concentrate our investments in select strategic areas (job growth, for instance), and then allocate disproportionate amounts toward those investments.

This strategy yields two major benefits when compared to spreading public investment to multiple, disconnected projects.

  • It creates a self-imposed discipline on the ways in which we will spend public money.
  • It lets us leverage previous investments, as concentrated cumulative investing can compound the desired effect.

Invest in factories, not fish. 
We can give someone a fish.  We can teach someone to fish.  Or we can invest in an infrastructure – “boat factories”, if you will – to create the conditions in which they can reliably and efficiently feed millions.

Hopefully you get my metaphor.  If not, here’s how my favorite charity, Acumen Fund, puts it with regard to generosity:

 

All too often, boosters promote one-time wins which give our city a short-term economic ‘pop’, but the hoped-for lasting effect never materializes.  Boosters usually hand us a dead fish.   Occasionally, they teach a few of us to fish.  That isn’t enough.

When it comes to investing the public dollar, we must plan smart, sustainable investments – ones which keep growing and keep repaying the public for its investment many times over.  We need to identify gifts which keep on giving, and maximize our investments.

::

By better connecting its short-term projects to its long-term vision, Lexington can begin to make smarter, more effective decisions about its future.  We can begin to invest public money wisely and productively toward crafting a better Lexington. 

Next: 8. Demand Accountability

LowellsSquare

Be Original. But Be Smart, Too…

Rob Morris 3 Comments Local , , , , ,

(A fun little break from our To-Do List for Lexington series.  Click here for an overview and links to the rest of the series.)

Yesterday, we asked readers to support a $3.2 million bond issue for Lexington’s Distillery District, which includes much of Town Branch Trail.

As part of the same post, we called for Lexington to “be original“.

But we didn’t expect so much originality so soon.  And we didn’t expect it to be so completely inept…

::

As we mentioned yesterday, the Urban County Council is in a financial pinch.  And it was deciding what projects to issue bonds for, including the ever-growing bill for South Limestone streetscape construction (now at over $17 million) and early 2010 streetscape projects on Main, Vine, and Cheapside, totaling $12.7 million.

Ddimage024 At $3.2 million, the Distillery District bonds were relatively small, and the Distillery District was the only bond project which would provide infrastructure to spawn new jobs and new revenue – meaning that it was the only initiative which could provide taxpayers a return on their investment.

This return on investment is a principal feature of tax increment financing (TIF) projects.  Public funds are made available to such projects as those projects generate tax revenues back to the city.

Roughly two-thirds of the Distillery District’s bond would go directly for public improvements for direct public benefit – building out the Town Branch Trail and improving pedestrian access throughout the district.  The rest would go for researching road and utility improvements along Manchester Street (the District’s primary corridor).

::

An hour before the council met yesterday, councilmembers were sent an ominous memo [PDF link] from a former counsel (attorney James Parsons) who formerly advised LFUCG on the TIF process.

The last-minute memo appears to be a very deliberate misreading of the Distillery District request.

It creates the incorrect impression that the developer (Barry McNees) could simply pocket the bond funds and leave the city in the lurch.  As mentioned above, most of the funds would go directly toward civic infrastructure improvements, not the developer’s bottom line.  And the remaining funds would go toward research and design initiatives – also not the developer.

And the memo is plain wrong on the developer’s ability to start the project – The Distillery District already has one active, successful entertainment venue (Buster’s) which employs over 30 people and, in just a few months since opening, has drawn 10,000 fans from across the region.  Other, smaller businesses are already in place, too.  And McNees has a letter of intent from a major investor to start a new distillery in Downtown Lexington.

In total, the Parsons memo appears to intentionally mislead the council on the magnitude of “dangers” associated with the project – It appears to be a blatant scare tactic designed to squelch the Distillery District.

Good News, Bad News
The good news is that the council saw through the transparent attempt to derail a worthy project.  The bad news is that they only partially funded the request (about $2.2 million).  The council narrowly (6 to 5 vote) missed approving the entire $3.2 million request.

But the Parsons affair raises a number of troubling questions:

  • Why was the former TIF advisor weighing in on this project?
  • Why did he so badly mischaracterize the project?
  • Were taxpayer funds used to craft this diversion? (If so, this taxpayer wants a refund.)
  • Who requested Parsons’ input?  Why?
  • Was Parsons directed to magnify the potential dangers to the project?  Again, by whom?
  • And where was this alarmist “DANGER, DANGER!” attitude toward TIF while Mr. Parsons was advising LFUCG on CentrePointe?

The broader question is this: Who wanted to derail the Distillery District so badly that they used such a transparent, ham-handed approach?

::

When we called for Lexington to be more original, we wanted that originality to be smart, too.  The Parsons memo was certainly “original”.  Smart?  Not so much.

LowellsSquare

To-Do List for Lexington: 6. Be Original

Rob Morris 3 Comments Local , , , , , ,

(Part of the To-Do List for Lexington series.  Click here for an overview and links to the rest of the series.)

Quick!  Think of a city you love (outside of Lexington).  Really savor that mental image.  Let your positive thoughts run for a bit.

Got it? OK.

If you’re like most folks, when you think of your favorite city, you think of one (or a combination) of a few key types of memories:

  • Places.  You remember neighborhoods, buildings, parks, alleys, establishments, etc.
  • History.  You remember important things that happened there.
  • Products.  You remember things that they have or that they produce there.
  • People.  You remember who you met and how they treated you there.

I have the wonderful affliction of loving nearly every place I visit – but always for different reasons.

I loved crawling through the historic back alleys (and patronizing the restaurants and bars) of Boston’s North End.  I had the fortune of being there in a little Italian restaurant while Italy won the World Cup in 2006.  I remember the flags, the honking, the cheering, the flavors and smells…

I loved going to Tokyo with a couple guys I worked with in my last job, and visiting the temples at Asakusa and seeing the bewildering variety of Japanese people at the temple and at surrounding neighborhoods and markets.  In one of those inexplicable cultural moments, I remember 3 separate families awkwardly approaching me to take pictures with their sons (and giving me their sons’ “business card” afterward).

I love Portland.  I love Austin.  I love Boulder.

More than anything else, I love the utter originality of those cities’ places, history, products, and people.

But Lexington is the city I chose.

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Our city leaders often go on tours of “model cities” which Lexington might be able to learn from, including Boulder, Austin, and Madison.  In the process, they see many unique things to love about those cities.

But too often, rather than focus on what original qualities Lexington should leverage, our leadership focuses on what those cities have that Lexington does not: “If Madison has bike trails, so should we!”  (No, I’m not opposed to bike trails; I am opposed to the mindless parroting of other cities’ actions.)

Lexington must be original.

What impressions do we make on people when they visit Lexington?  What impressions do we make upon our own citizens?  What unique experiences do we create?

Here are a few which jump out at me.  I’m sure there are more I missed.  (Add your own in the comments below!)

There are the memorable places like no other – Keeneland, Ashland, Gratz Park, the UK campus, the Transy campus, Victorian Square, and the downtown pasture at CentrePointe, just to name a few.  (OK, I’m joking on the last one.)  I love the North Limestone neighborhood that Lowell’s is privileged to be a part of.

There are the memorable histories of Henry Clay, Town Branch, the East End, and the Carnegie Center.

There are the memorable world’s-best products – basketball, Camrys, horses, and bourbon.

There are the incredible people of our city – smart, thoughtful, hard-working, and funny.

When we’re looking to influence how people – tourists, visitors, job applicants, investors, business owners, our own citizens – view our city, we need to amplify our best assets.

And, when we are presented with the rare opportunity to leverage all four memorable assets  – original places, original history, original products, and original people – at the same time, we must jump on those opportunities.

Oldtarr2 Right now, we have such an opportunity with Lexington’s Distillery District and Town Branch Trail. Many people still don’t know that Lexington even has a Distillery District, so I’ll offer a brief overview.  On Manchester Street, there are several old, historic, and distinctive distillery buildings and warehouses which were last used last century to make bourbon in downtown Lexington.  They used the water supply from nearby Town Branch, a stream which used to run through the center of Lexington, but is now buried under Vine Street.  Several of Lexington’s best and brightest people want to transform the largely abandoned district into a vibrant neighborhood with entertainment, arts, shops, restaurants, and – for the first time in nearly a century – distilling.  Businesses are already beginning to open in the district, and one – Buster’s – is an entertainment venue which is already attracting notable new talent to Lexington.  The Distillery District would also be the starting point for Kentucky’s Bourbon Trail.

This afternoon (at 4 PM), Lexington’s Urban County Council is voting on whether to issue $3.2 in infrastructure bonds for the Distillery District.  Issuing the bonds would not be a handout – the funds would be reimbursed through taxes on the new commerce that takes place within the District.  Also, the funds would be released incrementally – as new commerce takes place, more funds would be available for needed infrastructure improvements.

Ddimage027 The bonds would be used to create parts of Town Branch Trail (a greenspace and walkway along historic Town Branch), to improve pedestrian access along Manchester Street, and to look at how to improve utilities, roadways, and streetscapes along Manchester as well.

Lexington is in a financial pinch at present, and there are many on the council who just want to “wait a while” for things to get better in the economy.  The trouble with waiting is that – often – waiting turns into permanent deferral, and projects never get done.  Unlike CentrePointe – of which I have been highly critical – the Distillery District has active businesses and active investors who are ready to utilize the improvements that this bond offers.  These businesses are poised to contribute far more than $3.2 million back to our city’s coffers over the coming years.

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Lexington has the all-too-rare opportunity to create a unique place in our city – the kind of place which ultimately would stand next to Keeneland, Gratz Park, and Ashland as one of Lexington’s “signature” locations.  We should leverage our our originality – our unique and memorable places, history, products, and people – to craft a better Lexington.

That’s why we should support the Distillery District, even in difficult financial times.

Let’s be original.

(This post is awfully late in getting up – If you don’t have time to contact your council person prior to their 4 PM vote, please do take the time to see how they voted.  And remember that for the next election.)

Postscript: The backroom intrigue as the council vote approached.

Next: 7. Plan Well

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To-Do List for Lexington: 5. Leverage Intellectual Capital

Rob Morris 4 Comments Local , , , , ,

(Part of the To-Do List for Lexington series.  Click here for an overview and links to the rest of the series.)

Lexington is losing its minds.

At 100,000 strong, Lexington’s college graduates represent approximately one-third of the population over 25 [Source: US Census Bureau, American Community Survey, 2006 and 2008].

The University of Kentucky and Transylvania University churn out over 6,000 new graduates – including over 4,000 new bachelor’s degrees – each year.  With 4,000 new degree-holders per year, Lexington should have increased this talent pool from 100,000 in 2005 to about 112,000 in 2008.

But we didn’t.

Instead, even as Lexington’s overall adult population grew by 9,000 in that 2005 to 2008 period, the number of college graduates remained stuck at 100,000.  (For comparison purposes, Louisville grew from 191,000 college graduates in 2005 to 202,000 in 2008 – growth of 5.7%).

Somehow, 12,000 graduates have slipped from our economy – far more than can be explained through normal attrition (retirement, death, etc.).

The explanation: Educated talent is leaving Lexington.  We suffer from a “brain drain”.

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In recent years, it has become fashionable for Lexington’s leaders to talk about attracting the “creative class” to Lexington.  Coined by Richard Florida, “creative class” refers to professionals who work in knowledge-intensive industries, and Florida’s theory is that this group of professionals drives economic development in “creative cities”.

When our leaders talk of the creative class, they frequently focus on diversionary amenities which will attract young creatives to our city – entertainment, events, and facilities which will make life in Lexington more enjoyable outside of work.

While not entirely misguided, the problem with this approach is threefold:

  1. It confuses cause and effect.  Is this creative environment really the driver of economic prosperity in American cities?  Or, more likely, are they the result – the pleasant side-effect – of a prospering economy?
  2. The flagrant boosterism which permeates Lexington’s attempt to attract new talent often comes at the direct expense of retaining the talent we already have, as Steve Austin ably points out.
  3. It assumes that the creative class is something ‘out there’.  Lexington already has a creative class.  And we must cultivate it here first.

Instead of focusing on amenities, Lexington should focus on crafting a vibrant economic engine which will keep the educated talent our city produces and which will create real demand for those amenities.

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Who’s leaving?

When we see that Lexington has lost 12,000 college graduates in 3 years, our impulse is to look for an exodus of newly-minted degree-holders, and to start thinking about what we could do to retain our newest, youngest graduates.

And while the loss of a departing new graduate’s energy, potential, and future is certainly tragic, there is an even-more-profound tragedy which Lexington must actively address: the loss of the experienced employee.

When experienced employees with college degrees leave Lexington, they injure our economic engine far more than a young graduate.  Experienced employees represent significant investments in training, dollars, relationships, know-how, and, well, experience.

In aggregate, these experienced employees are vast pools of expertise which create enormous economic advantage for Lexington.  They have more income than recent graduates.  They provide more tax revenue.  They have higher property values.  They spend more money in the local economy, which creates more local jobs.  They tend to add more value to their companies.

This is the primary reason I have been so publicly critical of Lexmark’s implosion.  Every few quarters, Lexmark announces fresh rounds of layoffs and “restructuring” which shed dozens or hundreds of local employees.  Many other employees have left of their own accord.

Seeking employment which can utilize their expertise, these folks often leave Lexington.  Many who remain in Lexington are underemployed.  When so many highly-trained experts in engineering, software development, logistics, and marketing leave our city, it is an enormous hit to the local economy.

Lexington must find ways to solve this exodus of talent (in both new graduates and experienced employees).  We need to be creative in how we grow, keep, and attract smart people.

Lexington must leverage its intellectual capital.

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How do we grow, keep and attract smart people?  We need to start by helping to create new local jobs.

There is a common misconception that all job growth in the US comes from small businesses.  But business size isn’t the determining factor; business age is.  The Kauffman Foundation found that all job growth in our country comes from young businesses (regardless of their size).  Entrepreneurial ventures founded in the last 5 years drove all job growth in our nation’s economy.

When we think about entrepreneurship, our focus is often (again) on our younger generations.  We are drawn to stories of Gates, Jobs, Dell, and Zuckerberg launching wildly-successful ventures from their dorm rooms or garages.  They came so far from such modest beginnings.  In Lexington, we see this youthful energy and creativity exhibited in Awesome, Inc. (who are awesome, by the way), a local business incubator.

They make really compelling stories.  But the meteoric rises of Microsoft, Apple, Dell, and Facebook are so compelling precisely because they are so rare.

And they misrepresent the realities of the entrepreneurial world.

In another counterintuitive study, the Kauffman Foundation found that older, more experienced workers actually start new businesses at higher rates.  Other studies have found that the vast majority of technology startups are founded by people 35 or older.  And where do many of those older entrepreneurs come from?  Often, from large corporations.

So how do we create new jobs in Lexington?  How do we keep and attract members of the “creative class”?  How do we stem the bleeding of expert talent from our city?  Here’s a starting list for leveraging our intellectual capital.  I hope you will add to it:

1. Fuel the entrepreneurial engine.  From experience, I can tell you that starting a business is daunting hard work.  There is the bewildering array of legal and tax implications.  There are a variety of financial hurdles.  And, unless you’ve done this sort of thing before, there is a ton of on-the-job learning about what you don’t know about starting a business.

Lexington (LFUCG and Commerce Lexington) should strive to streamline the start-up process far more than they do today.  Our city should embrace entrepreneurs as they seek to create new jobs for our economy.

We should help them flatten the usual barriers to getting a business started.  We should provide forums for getting enrepreneurs connected with other talents and businesses which can assist them in the setup and growth of their businesses.  We should give them open access to critical business data about our city.  We should give them some amount of preference in local bidding contracts.  We should provide them with essential training in operating their businesses (e.g., If they are brilliant engineers, that doesn’t always mean that they are brilliant marketers or financial analysts).

When possible, we could even provide them with financial support or space (such as setting them up in the plentiful space available in Lexington’s Distillery District).

In short, Lexington needs to foster the conditions under which entrepreneurs can create jobs.

2. Grow our pools of expertise.  Our mayor frequently talks about how Lexington’s 3 H’s (Horses, High tech, and Healthcare) form the foundation of our city’s economic development strategy.  Those sectors may be the right ones to leverage going forward.

But when we think about stopping our exodus of talent, we need to think in more flexible terms than specific industries.  A supply chain manager leaving Toyota has a unique skillset (how to get things made overseas, optimizing inventory, logistics, etc.) which can carry over to a variety of other – not necessarily high-tech –  industries.  A marketer leaving Lexmark has a vast array of experiences with retailers, ad agencies, design firms, and product strategy which could be redeployed to, say, UK Healthcare.

In addition to choosing strategic industrial sectors, we should also choose strategic, functional areas of expertise that we can tap into as one industry wanes and another expands.  Some ideas? Supply chain, marketing, sales, engineering (multiple types), software development, etc.  (Add your own in the comments below.)

Not every employee currently leaving Lexington will want to become an entrepreneur.  But nearly every one wants a job.

As companies like Lexmark shrink, Lexington should seek to actively funnel their fleeing employees to growing local enterprises like Alltech, UK Healthcare, HP’s Exstream, or some new entrepreneurial venture.  We should inject some “liquidity” into the local job market, so that finding local opportunities is an easier, more streamlined process.  When we learn of new layoffs, our city should mobilize to keep that valuable talent local.

We shouldn’t allow employees, especially experienced ones, to leak from our economy.

3. Coordinate and amplify existing efforts.  Today, we have a patchwork of agencies and institutions which have missions to grow Lexington’s economy and provide jobs.  We have one person working on economic development in the Mayor’s office.  Commerce Lexington is given tax dollars to help produce new jobs, but is unable to show that they have actually created any.

We should coordinate such efforts in a more strategic, consistent, coherent, and effective way.  We should designate a person or an agency who has accountability for results – especially for job growth in our city. That entity should also have responsibility for fueling our entrepreneurial engine and for growing our pools of expertise.

And then – and this is really important – we must hold them accountable for the results they get.

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The loss of 12,000 educated Lexingtonians shows us that our city needs to work hard to grow, keep, and attract talent.  If we create the mechanisms to create new entrepreneurs while simultaneously magnifying our existing expertise, our economy should have the raw materials to begin growing again.

Next: 6. Be Original

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