“You simply don’t read about [these kinds of bonds defaulting] because they’re not a big splashy thing that people write about.” So said attorney Bill Danhof of Miller Canfield to City Council about the Center City District bonds in June 2017, as Council inked the deal.
|

New City Attorney Asked to Look at $6M Question of the Center City District Bonds

Note: Peter Dewan informed us on Monday, Oct. 26, that he has not asked Foster Swift to weigh in; he has asked Miller Canfield again. Read more here.

At the very end of yesterday’s two-and-a-half-hour meeting of East Lansing’s Downtown Development Authority, DDA Chair Peter Dewan revealed that he has asked the City’s new attorney, the law firm of Foster Swift, to weigh in on the highly disputed Center City District bonds.

Meanwhile, a new review by ELi of prior meetings on the subject finds more evidence that this matter won’t be simple for Foster Swift to sort out.

Today, we bring you key sections of those videos.

At yesterday’s DDA meeting, Dewan said “there’s been quite a bit of talk” on the matter and that he’s asked for Foster Swift’s legal opinion, which he plans to share with the public when it becomes available. Here’s the video of Dewan’s short statement on the matter yesterday:

City staff had put out a call last week for investors who might be interested in possibly refinancing the bonds for the project, with a deadline for expressing interest of this Wednesday (Oct. 21) at 3 p.m.

Yesterday, staff did not give the DDA an update on how many – if any – investors expressed interest, and the City has not responded to requests from ELi for that information. (We have now filed a Freedom of Information Act request to get the answer.)

The chief dispute comes down to this:

The City’s and DDA’s bond counsel, from the law firm of Miller Canfield, is saying there’s an approximately $56M cap on taxes that can be used to pay back principal and interest on these bonds.

But Mark Meadows and Ruth Beier – who were Mayor and Mayor Pro Tem, respectively, when this deal was inked in 2017 – have been insisting that Council unanimously limited the tax cap to about $50M.

Here is a video clip from the July 14, 2020, meeting of City Council where this issue came up. The very next day, the East Lansing Brownfield Redevelopment Authority (BRA), which has the same membership of the DDA, was set to vote on the bond refinancing question, engaging this hot-button issue.

You can see that both Meadows and Beier insisted the cap was about $50M, “regardless of what our bond counsel says,” in Beier’s words.

Shortly after this part of the meeting, both Beier and Meadows resigned from City Council, claiming as their reason the termination by the rest of Council of City Attorney Tom Yeadon’s contract. Yeadon was the attorney for the City and DDA on the Center City District deal.

Going back to the original votes on this deal, we find the recording where City staff – specifically Lori Mullins, economic development specialist – acknowledged that City Council that night was limiting the tax capture to only about $50M. This was on June 20, 2017:

Shortly after that moment in the meeting, Council unanimously voted through an authorizing resolution that limited the tax capture for the bond repayment to about $50M.

Notably, sitting behind Mullins in that video and witnessing the whole affair is Steve Willobee. At the time, Willobee was working for the Lansing Economic Area Partnership (LEAP), a quasi-public organization which was advocating for the deal as being in the public’s best interest. Shortly after the deal was sealed, Willobee was hired by the developers — Harbor Bay Real Estate Advisors — as their Vice President of Government Affairs and Public Relations.

Willobee and Harbor Bay are now claiming the City and BRA owe the higher sum – around $56M.

Just after Mullins spoke with Council during that June 20, 2017, meeting, Beier called up to the podium attorney Bill Danhof of Miller Canfield, the City’s and BRA’s bond attorney, to explain what might happen if the BRA defaulted on these bonds. Here’s that part of the tape:

The above clip shows several interesting things.

For one, Danhof refers to the cap on the taxes available for the bond as being around $55M. This suggests he didn’t understand what Council had decided to do with the $50M cap in the authorizing resolution.

Danhof also says very clearly in the tape that he expects the bonds to be purchased by a bank. He apparently didn’t expect at the time that it might end up that the only bond purchaser to come forward later that year would be the developer’s father. 

As shown in the clip, Danhof was asked by Council about what would happen if there weren’t enough taxes captured when a debt payment became due on these bonds. Danhof says clearly that won’t happen, because he said he would set up a debt service reserve fund – a plan designed to avoid default.

“A revenue bond needs a debt service reserve fund,” Danhof told Council that night.

Yet Danhof did not set up a debt service reserve fund when, later that year, he structured the bonds. And it is the lack of such a fund that is now causing a payment default to loom, as the BRA is short about $2.4M in funds for the payment due on December 1, 2020.

In the tape, you can also see Danhof tell the Council you don’t read about defaults on bonds like these, because, he said, reporters don’t cover them: “You simply don’t read about them because they’re not a big splashy thing that people write about.”

Now, it’s up to Foster Swift to weigh in on the issues of these bonds.

Will Foster Swift agree with the interpretation of former City Council members who insist the BRA must adhere to the protections they put into the deal with the support of the full Council? Or will Foster Swift’s attorneys agree with the attorneys from Miller Canfield, including Danhof, who insist the legal documents commit upwards of $6M more in taxes?

We will see.

And there’s one more thing worth reporting

Unsatisfied with the work of Tom Yeadon on development deals, the members of the BRA and DDA decided about a month before Yeadon was fired on July 14, 2020, to seek their own specialist counsel for big redevelopment deals.

Once Yeadon’s contract was terminated and Foster Swift was hired as the new City Attorney in September 2020, the DDA and BRA voted to accept the counsel of Foster Swift for day-to-day affairs.

But the DDA and BRA also decided to still seek specialist counsel, to be available to them for big, complex redevelopment deals. Several firms applied.

So, who did they hire?

At the recommendation of City staff, on Sept. 24, 2020, they hired Miller Canfield to protect the public’s interests.

Note: Peter Dewan informed us on Monday, Oct. 26, that he has not asked Foster Swift to weigh in; he has asked Miller Canfield again. Read more here.

See ELi’s complete reporting on the Center City District deal. And then don’t forget to support ELi today. Hit this button: