Following many questions raised about its obligations and duties, yesterday East Lansing’s Brownfield Redevelopment Authority (BRA) voted 6-3 to rescind last week’s approval of a resolution on a refinancing bond for the Center City District deal.
That resolution had authorized the BRA officers to sign off on bonds of up to $33.5M with interest rates of up to 8 percent, with about a million dollars to be paid out of the new bond to the Center City developers.
BRA members Jim Croom, Jeff Smith, Mike Krueger, Reuben Levinsohn, City Manager George Lahanas, and Mayor Aaron Stephens voted in favor of the withdrawal of the resolution.
BRA Chair Peter Dewan, Kristin Clark, and Luke Hackney voted against, indicating their preference for amending the bonding resolution instead of withdrawing it completely for now.
The BRA also voted unanimously to instruct staff to hire an independent financial advisor to counsel them on the bond refinancing – to advise them on who should market the bonds, what fees should be paid out of them, and so on.
BRA members frustrated with lack of adequate information last time
A BRA meeting can be called by the Chair (Peter Dewan) or by three members. In this case, Lahanas, Stephens, and Krueger called the BRA to meet just four business days after last week’s meeting.
Lahanas said he was not comfortable paying a lot of developers’ fees out of the new bond, and all three said they felt the conversation last week did not allow for adequate informed deliberation.
Krueger said he was “frustrated” that he hadn’t been able to see an important memo about the matter from Council member Mark Meadows before the meeting where the BRA had been asked “to make a large decision on behalf of the taxpayers.” (Krueger was voted BRA Treasurer at the meeting.)
BRA Vice Chair Jim Croom said that “it is clear” that last week’s meeting happened “without complete information and without complete understanding of all the facts. It also appears,” he continued, “that very astute minds disagree on some facts and legal conclusions, so there is some disappointment that all the information wasn’t shared with the board. But we can take that up with appropriate parties at a later time.”
During public comment, former mayor Vic Loomis called in to speak on behalf of “concerned citizens.” He warned that, “Although legally you have a non-recourse bond” – which means the City is technically not on the hook for any financial problems with paying back the bond – “I submit that functionally there is no such thing.”
Loomis told the BRA it did not have enough information to be making major decisions. Retired from a long career in commercial banking, Loomis warned the DDA it had to get hard numbers and understand them. He said he had listened to last week’s meetings and believed important questions remained unanswered.
“We taxpayers are counting on you,” he told the BRA.
At last week’s meeting, the recommendations put forth appeared to come chiefly from the developers’ team, including Brian Lefler of Robert W. Baird & Co.
Lefler sometimes is paid to be a financial advisor to the City of East Lansing, but at last week’s meeting, he made the case for the developers while telling the BRA the deal would be good for the City taxpayers, too.
After many questions were raised about his possible conflicts of interest, this week, Lefler was notably absent. Developer Mark Bell of Harbor Bay Real Estate came forward with other team members to try to convince the BRA to issue the bonds as they recommended last week.
Bell’s team members repeatedly called the idea that the developers did something inappropriate “insulting.”
A meeting that differed in numerous respects from last week’s
At yesterday’s meeting, Stephens (sworn in as Mayor earlier in the day) asked Chair Dewan not to allow the developers to stay in the BRA’s conversation as if they were part of the deliberations. He was not satisfied with what happened last week in that regard.
Dewan allowed the developers’ team to give short presentations and answer questions, but then asked City staff to take them out of active participation mode in the virtual call. As a consequence, the BRA members were able to have a long discussion among themselves without interruption by pitches.
This week’s meeting involved a lot of questions by BRA members aimed at understanding basic facts. The BRA established, for example, that the bondholder has not yet actually asked for a refinancing, and that the BRA can seek a refinancing to a lower rate without permission from the current bondholder, Mark Bell’s father, Peter Paul Bell.
While the BRA’s bond attorney had structured the last round to allow for Lefler, working for the developers, to market the public bonds to private investors chosen by him, this time the BRA pushed and learned that they don’t have to go that route. They can hire their own marketer. This may allow them to get a better interest rate.
On the issue of whether the bonds can be reimbursed by $56 million in tax capture or only $50 million, at Tuesday night’s Council meeting, before they both resigned, Ruth Beier and Mark Meadows made clear they believe they voted through a $50 million cap.
But at the BRA meeting yesterday, the BRA’s bond counsel from Miller Canfield told the BRA they believe their firm was right when they wrote the bond materials indicating a $56 million cap. Unlike last time, bond counsel walked through parts of the Master Development Agreement showing where that agreement allowed for payment of fees from the bond.
Miller Canfield’s attorneys also pointed to where the agreement allowed for paying more of the developers’ expenses for public infrastructure costs once the full principal and interest on the bonds are paid off.
Last week, the BRA voted to give the developers $822K from the refinancing bond for cost overages. Lefler had argued this would ultimately save the BRA money – pay it now at a lower rate versus pay it later at 5 percent.
Now the BRA will hear from an independent financial advisor whether that will really save the taxpayers money.
The City Attorney warns not to violate the Open Meetings Act
Yesterday, BRA member Jeff Smith sought confirmation of his understanding that the BRA had merely voted through an authorization for its officers to negotiate a new bond within certain parameters. He said he wanted people to know they had not definitely voted for something more than negotiation.
But City Attorney Tom Yeadon – whose contract a 3-2 vote of Council has just terminated as of Oct. 1 – said in response that approaching the matter that way would constitute a violation of the Open Meetings Act. Yeadon warned that “weighty decisions” of the sort Smith and others were describing needed to happen in public meetings, not by BRA officers behind closed doors.
After receiving this advice, Smith became a strong advocate for rescinding the prior action. He said he would “feel much more comfortable” holding off on the marketing of any refinance bonds “until we have a financial advisor on retainer, someone making good solid judgements on our behalf in all of this.”
Discussion then included the question of whether the BRA should hasten a refinance to avoid paying more interest than necessary. But in the end, BRA members decided it was better to be cautious and well-advised about this matter than to potentially save every dollar.
On that point, Croom said the public should know that the BRA was looking at refinancing relatively early in the process, and that was good – there had not been a lot of time wasted in the refinancing process. Smith and Krueger agreed.
After about two hours, Krueger made the motion to rescind the approval from the week before, with a second from Stephens. Some confusion ensued on the part of new board members about what was being rescinded, and they received clarification that the actions last week had been for adoption of an entire bonding resolution.
As noted, that vote to rescind went through 6-3, with the votes against coming from members who wanted to try to rework the resolution now.
After that vote, Stephens made a motion to instruct staff to engage an independent financial advisor. Hackney seconded the motion, and that vote went unanimously in favor.
At the end, Krueger said, “ultimately what we’re trying to do is what is best for the City and what is best for the developers in some respects as well. I know they want to get this off their books and we want to work with them on that, but we have to take correct steps to make sure the taxpayers are being represented fairly.”
Smith concurred, adding that he did not feel he had been strong-armed or made to change his mind. He said he knows there will be some cost involved in pausing to retain a financial advisor but that it was better than being “rushed to make a decision,” a decision he called a difficult one.