The Balance Sheet for the Valiant Proposal for the Conference Center

A common approach to decision-making, particularly in a finance context, is to devise a “balance sheet” of pluses and minuses.  For a public entity like the City of Ann Arbor, these will not necessarily take the form of a traditional business balance sheet, but should include both dollars and cents items and policy goals.

With regard to the City’s search for a decision on the fate of the Library Lot (which has been extensively documented on this blog), there are several questions that need to be addressed.

Policy issues:

1. What is the importance of this site to the long-term health of our city (as a community and a business center) and what uses on the site would best support that?

2. Who should make that decision and what information do they need in order to make it?

3. What weight should be given to different types of benefit and to different groups to be benefited, and should that weight be placed mainly on economic considerations or are there more intangible benefits that are equally or more important?

Financial issues:

1. When we speak of financial benefits, are we speaking of specific financial gain for the City of Ann Arbor that will help our city government to balance its budget and to avoid further loss of services and/or increases in taxes and fees?

2. Or are we speaking of a predicted financial impact on economic development activity in the greater Ann Arbor area?

3. To what extent does #2 influence #1, that is, if the area’s economic activity increases, what is the effect on the specific revenue and expenditures of the City of Ann Arbor?

Risk and certainty:

1.  Should actions taken by our City government be based on a reasonable certainty of a positive financial outcome directly to the city coffers?   This would be for example, a contract, or a tax revenue stream that was secure.

2. Or should the City behave as a venture capitalist, leveraging future debt and city property against the hope of gains in the future?

Okay, those last two questions were loaded.  But what is your answer?

Getting down to the specific question, namely the Valiant proposal for building a hotel-retail-office-residential project that would then supposedly fund a conference center:

Strictly from a financial viewpoint, what is the advantage to the city of building a conference center?  How much risk should the city assume to make that happen, and at what cost?  In other words, is the main objective

a. To achieve a conference center; or

b. To get a substantial financial benefit to the City coffers directly?

Councilmember Stephen Rapundalo has been a major proponent of the development of the Library Lot and has also been a vocal worrier about the state of the city budget.  As chair of the RFP Advisory Committee,  he had a strong influence on the decision to dismiss the two open space proposals that were submitted and to focus on only two of the other proposals (Valiant and Acquest).

In a widely circulated email dated January 7, 2010, CM Rapundalo enunciated clearly how he regards the importance of a direct financial benefit to the City:

Any successful project has to pay for itself without the use of City funds. Furthermore,the project should be able to describe in some basic fashion how it will do that as a minimum to meeting the RFP requirements. … The fact is that there has to be some sort of payment to taxpayers either through land sale and property tax revenue, long-term lease payments, or some guaranteed revenue streams.

Taxpayers must be left intact at the time of build and for the future …Any economic benefits generated by a project must be disclosed and articulated in a balance sheet. That’s what we’re asking for when we say that a financial benefit must be demonstrated. It’s simple math. Of course, that does not exclude all the other elements that must be addressed, i.e., experience with actually building such a major infill project, a viable development team, physical concept and design, etc.

Bottom line – I’m happy to review and compare any project with any design concept so long as they can provide me with a full accounting, profit-loss, balance sheet and description of all other requested features.

So there you have an important opinion on what a “balance sheet” should be.  We’ll examine how the Valiant proposal stacks up against that in the next post.

Explore posts in the same categories: Business, civic finance

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