Thursday, February 23, 2017

Priester defends borrowing $90 million

Jackson Ward 2 City Councilman Melvin Priester, Jr.  defended the proposed $90 million loan that would be used to fix Jackson's infrastructure on his Facebook page yesterday:


Regular readers know that I HATE borrowing money. Several months ago I had a number of choice words about the Tax Anticipation Note that the City took out to tide us over until property taxes arrive in March. I voted in favor of that deal (because we had no choice) but invoked the specter of a certain town that will go unnamed.

For more than a year now, we've been trying to do a deal that would give us the funds necessary to do some bigger ticket infrastructure repairs. It looks like we're finally at the point where that deal will come through (next step is city council approval of taking this deal before the Mississippi Development Bank).

Let me walk you through what's being proposed, why I think it's good, the timeline, etc..

As a matter of first principles, let me get this off my chest.

It's expensive being poor.

When you have money, you can make cost-saving moves like replacing the old hot water heater in your house BEFORE it breaks and you have to fix the damage caused by a catastrophic leak and you don't have the time to get a couple of quotes.

When you have money, you can buy toilet paper in bulk and grab extra shampoo when it's on sale.

When you are poor, you put off things like preventative maintenance. You buy just what you need at that moment rather than getting the bulk discount or the off-season price. You don't have a choice.

What I've described at the individual level holds true for cash strapped cities like Jackson.

I wish that 20 years ago, the leaders of Jackson said "hmm, we can't keep up with preventative maintenance, lets ask the legislature to let us set up a special sales tax and we'll use that money to pay for repairs as we go along."

We didn't do that.

Instead, we ignored the change oil light and now we have to replace the whole engine.

Which brings me to the deal being considered.

First off, we are not borrowing $90 Million from the Mississippi Development Bank.

We are not issuing a general obligation bond (although that might be a wise follow-up move 3 to 5 years down the road).

If you think what's about to happen is that $90 million dollars will be sitting in Jackson's bank account ready to be wasted with no oversight, you're wrong.

What's on the table is a kind of transaction called a "direct placement."

A direct placement would be like if a construction loan from a bank had a baby with a home equity line of credit.

The entity lending the money is JP Morgan.

Unlike a regular bond deal where there is an underwriter and a bunch of lawyers and red tape and fees because you are selling bonds to the market as a whole, in a direct placement, only one bank (here, JP Morgan) is lending its money to us. There are no third party buyers and so a LOT less regulation and hoops.

We gave a list of potential projects and their price tag to JP Morgan and they in turn will give us the money to do them on an as requested basis up to the total amount. JP Morgan thus exercises oversight on the spending by the City (in fact, part of what they will look at before each draw is whether the 1% commission has approved the particular infrastructure project).

JP Morgan does this at a very, very low interest rate because they know they are getting paid back from the 1% sales tax money (it's a secured debt, like a home equity line of credit, why does a home equity line of credit have such a lower interest rate than a regular credit card? Because it's secured by an asset, the house).

The City doesn't get one big pool of money, we draw this line of credit down as we need it based on actual use.

We are bringing in 15 -20 million per year on the 1% tax. We've got critical projects that individually cost more than that. We could do no work for a few years until we had enough cash in the till to pay for these projects outright . . . or we can borrow money today to do these projects and pay back the debt over time with the subsequent income from the 1% sales tax.  (KF: Wrong, it's $12-13 million per year)

You've made it clear that you want us to get to work already with some big ticket projects. So we're going to borrow the money.

Now, as I said before, I hate borrowing. BUT, there are situations in which it makes sense to borrow. For example, if you borrow money to invest in one time capital projects that will have benefits that last longer than the time you spend paying off the debt, then ok, borrow the money.

Conversely, you shouldn't borrow to cover your regular operational expenses or to smooth out cash-flow (which is why I don't like tax anticipation notes, but I'm debt averse, others I respect disagree with me on the Tax Anticipation Note).

It makes sense to borrow when it allows you to achieve savings that outweigh the transaction cost of borrowing. For example, if buying in bulk is such a big saving over buying by the onesies that it outweighs the finance charge of putting it on your credit card for a month or two and making installment payments, heck, buy a years worth of diapers/baby formula/etc. on-line or at Sam's.

At the end of the day, this deal makes a lot of sense for the City. We need to finance a few big ticket purchases. The interest rate is top-notch. I like the fact that JP Morgan will be providing oversight on the spending when we make requests to use this line of credit.
This transaction's structure keeps us from having to use all of the "underwriters counsel" and other folks who add to the transaction costs of borrowing.

I will cobble together a list of projects and a timeline that works for facebook and will follow up with more on this later.

Kingfish note: Mr. Priester is probably pushing this because the size of the proposed Tiger grant doubled and the city's match will shoot up from $4 million to around $16 million - more than the annual revenue collected from the sales tax.   That area just happens to lie in Ward 2 and covers North State Street, West County Line Road, and Tougaloo. 

33 comments:

Anonymous said...

I used that analogy yesterday under the "Water Outage" thread! LOL! @ February 22, 2017 at 8:31 AM

But I agree with his analogy - the weather change, amount of use affects your roads, sewers, power lines, etc etc - everyday. If you are not keeping up the maintenance, it only gets more expensive.

Damn shame our state legislature doesn't understand that. So they will just keep on kicking the can down the road, until some ol' white woman falls into a sink hole on I-55 in her Buick LeSabre and then her family turns around and sues the state for a $100 million dollars - then they will decide to do something about the infrastructure.

Anonymous said...

Priester hearkening back 20 years wondering why the leaders of the past didn't have the foresight that he quietly wants his followers to conclude he possesses today should pick up the phone and ask Harvey Johnson, who was Mayor in 1997, to explain himself.

Anonymous said...

At least Jackson has one politician who can articulate a sound economic principle then explain his actions when challenging circumstances arise. I don't have to agree with his actions but I want to understand his thought process. This certainly helps in understanding the direction the city is going...and where it will not go. It also helps to know what substantive information he uses to arrive at his conclusion. The others seem to have no real thought process other than simple minded self-interest and pandering to the mob. I'm glad Priester uses this forum for this purpose and I would like to see other elected officials do something similar. It's called democracy.

Anonymous said...

Unfortunately, the state cannot be sued by an individual (or their family) for $100 million. The state's liability is capped by the Mississippi Tort Claims Act at $500,000. No matter how egregious the conduct of the state (or its subdivisions), and no matter the injuries (or death), no one can recover more than $500,000 in a tort claim against the state. So, as far as incentives to fix the roads, the threat of lawsuits is probably not one.

Anonymous said...

Once they get that money, maybe they can celebrate with daiquiris at the Skybox, as long as they don't send their chicken back, causing the owner decides to put a beam on dey ass.

Anonymous said...

If Priester wouldn't cater so much to Bennie when he comes calling he might would make a decent mayor.

Anonymous said...

He flip-flops on the advisability of debt.

A temporary one or two-year one or two mil increase in property taxes would produce more immediate interest-free bang-for-the-buck but Priester knows that Jackson's abjectly corrupt black political class would never turn off the temporary spigot once it had been opened.

Anonymous said...

Spend the money as it comes in. No bonds. It takes a long time to prepare for the actual work anyway.

Is Rudy behind this?

Kingfish Cousin Catfish said...

@ 10:06am - well said, good point!

@10:16am - point taken, its still gonna be messed up when Mee-maw falls through one of them mississippi worm holes on 55

@10:34am - HELL NAH! Jackson residents have THE HIGHEST property taxes already, but yet the residents of Madison and Rankin ad to the wear and tear of the city, and don't contribute nan-nickle to our infrastructure. So I must say "a hell to the nah" on raising the mil's on property taxes.

Anonymous said...

Evidently Priest needs some cash to help pay for upcoming wedding and hopes to get in on the Yarber financing scheme - overpriced engineering contracts with mentoring rqmts to fund personal needs.

Borrowed money where the loan will outlast the projects? Sounds like Madison County economics. 90 million? Jackson couldn't handle speNing that much in multiple years - hell, they can't even spend what they have in the bank today.

Priester might be smart, but now he has also proven that he can be bought.

Anonymous said...

Enjoy your Pyrrhic victory but it doesn't change the fact that the vast majority of special sales tax collections are coming out of the pockets of Jacksonians not residents from our neighboring counties. And now a percentage of the meager few cents they do pay will go to debt service instead of a kick-in for the "wear and tear".

Anonymous said...

Every business in Jackson should be required to collect a commuter tax on every employee living outside the city limits. The tax could be paid quarterly to the city and earmarked for infrastructure. A tax of 2-3 dollars per day per employee living outside the city is reasonable. Also, an additional 1 percent tax on all restaurants and hotels in the city should be levied and also earmarked for infrastructure. And if people in Madison, Rankin and Copiah counties don't like it, they can find a job closer to home.

Kingfish said...

Yeah, that is real smart.

What will happen is it will drive more businesses to move out of Jackson.

Kingfish Cousin Catfish said...

I agree with kinfolks

Commuter tax works in major cities like New York, Chicago, and Houston - where major attractions are within the cities limits.

But for Jackson it would be punitive to do a commuter tax at this moment.

Anonymous said...

Enact a commuter tax and watch the Legislature move everything State of MS they can outside of Jackson. Your mentality is the same one that got Jackson into this mess in the first place. Congrats bagholder!

Kingfish said...

No more kingfish cousin catfish. Use catfish. But I don't know you, you r not my cousin so no more. I won't approve another comment with that screen name.

Anonymous said...

Jackson has money but spend it poorly. It get a block grant for community development that can be used to match other Federal programs that is wasted each year

PittPanther said...

A city wage tax is the only long term solution. You live or work in Jackson, you pay 1% (or 2 or 3%) of your salary.

If that drives the entire state of Mississippi government out of Jackson, I want to see Madison or Flowood or wherever handle it. Build all the new buildings, expand their roads, and get no state money to assist.

Anonymous said...

Priester would be a great mayor. But he doesn't want to get in that mud fight. Too bad.

Anonymous said...

Typical. Something's wrong...blame the legislature!

Anonymous said...

City wage tax is NEVER going to happen Panther. NEVER. Enjoy your BK. It will be sweet watching illness deniers such as yourself go up in flames.

Anonymous said...

6:55 pm The legislature and past mayors and city councils are easy to blame.
Considering consequences and the future has not been their strong suit.
KF may quibble on the revenues of the 1% tax but JP Morgan will not be giving out the money if the numbers don't add up for the amounts requested.
I wish Melvin would run again, but darn, he needs someone who can help him not seem like the genius he is while campaigning. Brilliance and ethics are handicaps for a politician even if you are as handsome as Mitt Romney.

Anonymous said...

I wouldn't loan the City a dime, even with a gun pointed at my head...My father had a saying while I was growing up - son, you never let a hungry dog guard the pork chop!

The City's staff and elected officials are like having termites; they're going to eat everything up until there's nothing left...

Anonymous said...

Right. And spending $90 million on the Seimens contract will save us $124 million down the road.

Only it won't. The past is prologue. Yarber will just treat this like another slush fund, Priester will plead ignorance and the few remaining Jackson taxpayers will take it in the neck.

The mayor's office is an organized criminal enterprise, and any council member who dares vote in favor of this is a willing accomplice.

Anonymous said...

The millage rate is already above the limit set by state law.

Anonymous said...

It's expensive being poor.

Guess what? In 1989 Jackson had 220,000 residents, a thriving JATRAN system, passable major roads, major business sectors on Hwy 80 and west side of I-55, low crime and a JPS that graduated educated students. Jackson was not poor. Maybe it could have made some better decisions, but that is not what led to this current crisis. When the minority majority thought they could do better and let crime run rampant in their communities Jackson became poor. That's not to say we do not have good African American leaders, but the incessant drum beat of only a black chief, the continued electing of Kenny Stokes, the pitiful DA's and Judges in Hinds and on and on without any consideration that Jackson is supposed to be a city for all people - white, black, brown or yellow is why it is poor and getting poorer. Look in the mirror and fix your own house before you mortgage everyone else.

Anonymous said...

Jackson voters were scammed that the convention center was going to be financed with revenue bonds. Measure passes. Presto-Changeo and behind the scenes the plan for revenue bonds is oh-so-quietly changed to the selling of general obligation bonds backstopped by Jackson taxpayers.

Then the convention center, as warned, tanks beyond even the worst of the worst case financial scenarios. But it is the lack of an f'ing hotel, right?

The screwing is easier if you bend over and push gently.

Anonymous said...

Priester can claim that this JPMorgan deal has been in the works for a year but the mad rush to pass it now with scant public input and zero transparency says otherwise.

Anonymous said...

As a Jackson remnant, I would definitely back this proposal to address $90M in infrastructure improvements. Unfortunately, the City has repeatedly demonstrated it is incapable of managing the most basic services. This will never work unless there is a separate construction manager hired by JPM to award all contracts and supervise all projects.

Anonymous said...

Let's give Wyatt Emmerich some love here. He wrote (incessantly) against the convention center, the local/state tax giveaways to rich corporations and developers, the corrupt bidding processes, the road issues in Jackson, and the suits against the Mayor. Who else beside the Fish (more limited) has done this? That is fact,Jack. Unfortunately Wyatt steadfastly still lives in Jackson and will have to pay for all(sewage/water/roads) this mess.

Anonymous said...

Wyatt is also a huge believer in feeding off the teat of the Federales and, in the case of his incessant calls for Medicaid expansion, kicking the can down the road when it comes to figuring out how Mississippi will pay for the budget busting price tag when the Obamacare bait becomes the Obamacare switch.

Then you have the Wyatt who squashes stories about his friends who get in trouble with the law. Yes, let's give him some love.

Anonymous said...

For those proposing a commuter tax, think long and hard about the number of Jackson residents that do not pay hardly any taxes to the city they live in and use its infrastructure daily. The ones riding around with expired car tags, the ones in apartments, rental homes, HUD, Section 8 housing that don't pay a lick of property taxes. They get the majority of their food from WIC benefits. I'd venture to say its close to, if not more than 50% of the "takers" from the infrastructure of Jackson, the city they call home. Do we not try and get anything from them? They are using everything the commuter does, even moreso. What about a renter tax, or tax more for those that have housing they are renting to people, to cover that loss in tax revenue. Does Madison and Rankin County charge the "communters" from Jackson that use their malls and eateries? That commit crimes in their communities for the detainment and prosecution in their jurisdiction? It sure would be nice to be reimbursed, but we just eat it and move on. Does the legislature and state need to kick in some, probably, but they shouldn't have to be relied upon to do carry the weight.

I say all that to say this. I would have no problem with paying a commuter tax if 1) the city of Jackson would hold their own citizens accountable and 2) the city of Jackson would use the money wisely, unlike they have been using in the past.

Anonymous said...

A commuter tax and yet not one person of the 3000 plus whom Yarber estimated were discovered straight-piping water have been prosecuted. Not one.

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Trollfest '07 was such a success that Jackson Jambalaya will once again host Trollfest '09. Catch this great event which will leave NE Jackson & Fondren in flames. Othor Cain and his band, The Black Power Structure headline the night while Sonjay Poontang returns for an encore performance. Former Frank Melton bodyguard Marcus Wright makes his premier appearance at Trollfest singing "I'm a Sweet Transvestite" from "The Rocky Horror Picture Show." Kamikaze will sing his new hit, “How I sold out to da Man.” Robbie Bell again performs: “Mamas, don't let your babies grow up to be Bells” and “Any friend of Ed Peters is a friend of mine”. After the show, Ms. Bell will autograph copies of her mug shot photos. In a salute to “Dancing with the Stars”, Ms. Bell and Hinds County District Attorney Robert Smith will dance the Wango Tango.

Wrestling returns, except this time it will be a Battle Royal with Othor Cain, Ben Allen, Kim Wade, Haley Fisackerly, Alan Lange, and “Big Cat” Donna Ladd all in the ring at the same time. The Battle Royal will be in a steel cage, no time limit, no referee, and the losers must leave town. Marshand Crisler will be the honorary referee (as it gives him a title without actually having to do anything).


Meet KIM Waaaaaade at the Entergy Tent. For five pesos, Kim will sell you a chance to win a deed to a crack house on Ridgeway Street stuffed in the Howard Industries pinata. Don't worry if the pinata is beaten to shreds, as Mr. Wade has Jose, Emmanuel, and Carlos, all illegal immigrants, available as replacements for the it. Upon leaving the Entergy tent, fig leaves will be available in case Entergy literally takes everything you have as part of its Trollfest ticket price adjustment charge.

Donna Ladd of The Jackson Free Press will give several classes on learning how to write. Smearing, writing without factchecking, and reporting only one side of a story will be covered. A donation to pay their taxes will be accepted and she will be signing copies of their former federal tax liens. Ms. Ladd will give a dramatic reading of her two award-winning essays (They received The Jackson Free Press "Best Of" awards.) "Why everything is always about me" and "Why I cover murders better than anyone else in Jackson".

In the spirit of helping those who are less fortunate, Trollfest '09 adopts a cause for which a portion of the proceeds and donations will be donated: Keeping Frank Melton in his home. The “Keep Frank Melton From Being Homeless” booth will sell chances for five dollars to pin the tail on the jackass. John Reeves has graciously volunteered to be the jackass for this honorable excursion into saving Frank's ass. What's an ass between two friends after all? If Mr. Reeves is unable to um, perform, Speaker Billy McCoy has also volunteered as when the word “jackass” was mentioned he immediately ran as fast as he could to sign up.


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If you get tired come relax at the Fox News Tent. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both will entitle you to free drinks.Get your tickets now. Since this is an event for trolls, no ID is required, just bring the hate. Bring the family, Trollfest '07 is for EVERYONE!!!

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