Thursday, October 27, 2022

Throwback Thursday: Harvey's Time Bomb Blows Up

 This post was first published on August 21, 2018.  It is a perfect example of how former Mayor Harvey Johnson wrecked Jackson finances with time-delayed fuses.  Mr. Bingham is serving four months in federal prison for defrauding Rolling Fork on a bond deal. 

Harvey Johnson's ticking time bomb finally blew up.  Mayor Johnson loved to brag how he was able to balance his budget without raising taxes or laying off any employees despite enduring the Great Recession.  Unfortunately for Mayor Lumumba and Jackson itself, Mr. Johnson did so with crazy bond deals that paid a great deal of cash up front - and stuck later administrations with the bill.
Mayor Lumumba announced in his budget presentation last week that Jackson's debt service will increase 38% next year.   Look at the GOB 2010 series bonds in the image posted below.   The annual payment is $992,087.  However, the payment skyrockets to $4,200,954 next year - an increase of $3,208,067.

Click on image to enlarge

What happened? How did Jackson wind up in such a bind?  It's very simple.  A disgraced financial advisor, Porter Bingham, smooth-talked Mayor Johnson and the City Council into restructuring some bonds.  He promised a bunch of cash to line their pockets - while lining his own with some nice fees, of course.  Some future Mayor would have to worry about actually paying for them.  Let the good times roll and roll they did as Mr. Bingham and Harvey's crew all went to a nice Jackson restaurant to celebrate when the deal closed.  The wine flowed freely that night. 

Think of this bond deal as a cash-out refinance of a house with a sub-prime ARM.  The homeowner gets $100,000 cash when the loan closes.  He can spend the money fixing up the house, buying a new car, going on a nice vacation, or anything else his heart desires.  He will pay an interest rate of 4% for a few years.  However, the rate will jump up to 12% after eight years.  Suddenly his mortgage payments double or even triple as he gets killed by a sudden jump in interest rates.*  His income didn't increase but his bills did and that is how you got the Great Recession of 2008.   Jackson's bond "restructuring operated in the same manner.

The Clarion-Ledger reported in June 2010:

The city is anticipating a $9.8 million shortfall. The council took a step Monday to help plug that hole by voting 5-1 to restructure $25 million of the city's bond debt. Johnson told council members the city could see $5.4 million in savings with the deal. The deal stretches out some of the city's debt over more years. The gross cost of the deal to taxpayers is $10.8 million, but city officials peg the present value cost - a calculation that measures the value of the deal over time - at $1.3 million.

Despite the long-term cost, Johnson said it is the only way to get cash now to help balance the budget until the economy improves. "Is it ideal? No, but we are not in an ideal situation right now," he said. City officials are contemplating further cuts to make up the rest of the $9.8 million.

Ward 1 Councilman Jeff Weill, who voted against the plan, said he is concerned about the increased debt it places on the city a decade from now. Ward 7 Councilwoman Margaret Barrett-Simon spoke for the majority by saying she expected revenue from growth downtown will allow the city to shoulder the debt. "I don't think we really have a choice," she said."
The schedule posted below spells out what was wrong with this deal.


Check out the fourth column in the schedule posted above.  Jackson got $5.5 million in 2011-2013.  Those years just happened to coincide with the term of the Harvey Johnson administration.  The payment to Jackson fell to $1.9 million in 2014.  However, the swing from Jackson getting money to Jackson paying money took place in 2015 as Jackson had to make an annual payment of $957,675 for four years.  The payments jump to $4.5 million per year for five years and finally end with a payment of $6 million (Mayor Lumumba's debt service schedule didn't provide the six million dollar payment for 2024.) 

  The schedule posted above is a projected schedule and not the payments that were actually made.  However, the numbers won't differ that much as one gets the idea of what was going on in this fiasco.  JJ warned what would happen if this bond deal stood. JJ reported on June 18, 2010:

Unfortunately for Jackson, the city council was given very little time to consider this matter. Rick Hill was supposed to bring this presentation to the work session Monday. Didn't happen. It was given to the council members less than a half hour before the regular meeting Tuesday. Our city council thus had only a few minutes to study the strengths and weaknesses on a TWENTY-FIVE MILLION DOLLAR LOAN!!! What exactly are the details of this refinance? Here ya go:

1. The city faces a $9.8 million deficit for fiscal year 2011.
2. Here is a breakdown of the fees:
Baker Donelson (Anthony Simon): Bond Counsel. $150,000
Malachi: Financial Advisor. $80,000
Rice Financial Products: Underwriters $5.50 price discount per bond ($140,000).
Tony Gaylor, Betty Mallet: Underwriter's Counsel. $95,000.
3. Malachi projects upfront savings of $5,520,779 for FY 2011.

It should be mentioned that nothing was opened up for bidding. Jackson might have been able to get lower fees, lower interest rates, or better terms but it will never know because it didn't ask.

Page 14 is where the devil appears. Jackson will have borrow $26,544,903 in general obligation bonds. However, read the savings column in the table posted above. Jackson will save half a million dollars a year for several years. Unfortunately, Jackson will start paying nearly a million dollars a year for four years. Then it will pay nearly $2 million and then around $4.5 million a year for four years and finally $6 million for the final year. Net cost IS $10,829,286. You read that right. For a few million dollars now, Jackson will PAY nearly ELEVEN MILLION DOLLARS down the road.

 Its not unreasonable for council members to have problems understanding this stuff. Retired cops, school principals, loudmouths, and even lawyers have problems comprehending bond deals. However, they should have at least tabled the proposal so they could study it for a week or call in an independent adviser whose fee did not depend on whether a deal was closed. Even more disturbing is a councilwoman stating she hopes the downtown projects pay off. Hopes? What happens if they don't, Mrs. Barrett-Simon? Where are you going to come up with the five or six million a year to pay off the interest on these bonds? Page 17 states the old principal amount was $23,575,000 with interest costs of $2,969,903. Jackson will thus pay an extra eight million dollars in interest just to save some money this year while city council members hope "expected revenue" from unfinished projects will materialize.
Ah, the Bond Pimps were involved in this deal as well.  Tony Stovall was the point man at Rice for this deal.  Tony Gaylor usually comes in with legal services on these deals and did so this time.  The SEC banned Mr. Bingham and his company, Malachi Financial Products, for life from participating in municipal bonds and suspended Mr. Stovall for six months for their rape of Rolling Fork.  Earlier post on SEC ban of Bingham. 

The question is how many more ticking bond bombs are set to go off around Missisisppi, thanks to these guys.  Unfortunately for Mayor Lumumba,  this bomb went off on his watch and now he has to pay Harvey's bill.  

Kingfish note:JJ attempted to obtain comment from the Lumumba administration but was unsuccessful in doing so. 





What's funny is someone will get mad because I called these thieves "bond pimps" yet never once get mad about how they actually ripped off Jackson. 


*The numbers used in the example were created from scratch and are not the figures used in the actual bond deal.

12 comments:

Anonymous said...

Patiently waiting for the state government to be blamed for this as well.

Anonymous said...

Sorry baby chok, no money from anyone but your voters on this one.

Can you say default?

Anonymous said...

I would bet my right arm that it wasn’t “smooth talk” that convinced these mayors to use this “fraudulent” service. Maybe som others will also do jail time?

Anonymous said...

Kingfish +1,000,000 points
Bennie T and Harvey J: -400,000 points

Kick that Can Down the Road said...

Lots of grease made it happen.

Anonymous said...

If it makes you feel any better… it looks like they ended up getting a better interest rate and the combined debt service ended up being more like $34.8mm instead of $37.4mm.

Anonymous said...

Negotiate with this jailed crook with an offer to reduce or eliminate jail time, you will get some answers.

Anonymous said...

Faced with a choice between:

1. Refinance with new bond pimps, or...
2. Selling off rotting and non-performing city real estate, combined with efficient bill collection and sound budget management,

Lil Choke makes his instinctive choice and celebrates.

Anonymous said...

Attn 12:58 PM I am sure investors will line up to invest in “rotting and non performing city real estate” in the “rotting and non performing” city of Jackson.

Anonymous said...

That's why Mayor Johnson never tried to get SRF loans. Don't need all the "extra" palms (i.e. Bond Counsel and other smooth talkers)! SRF just a simple 20 year repayment with 2% interest! But bonds are so much better!!!

Anonymous said...

Nothing like a little shuck and jive to make a man come alive.

Anonymous said...

Well, Harvey, you asked for it when you signed off on the Lumumba narrative by signing your name to that racism-alleging complaint to the EPA.

Now it's time to exhume those financial skeletons you forgot you left buried all over Jackson when you were calling the shots.


Recent Comments

Search Jackson Jambalaya

Subscribe to JJ's Youtube channel

Archives

Trollfest '09

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.


In order to help clean up the legal profession, Adam Kilgore of the Mississippi Bar will be giving away free, round-trip plane tickets to the North Pole where they keep their bar complaint forms (which are NOT available online). If you don't want to go to the North Pole, you can enjoy Brant Brantley's (of the Mississippi Commission on Judicial Performance) free guided tours of the quicksand field over by High Street where all complaints against judges disappear. If for some reason you are unable to control yourself, never fear; Judge Houston Patton will operate his jail where no lawyers are needed or allowed as you just sit there for minutes... hours.... months...years until he decides he is tired of you sitting in his jail. Do not think Judge Patton is a bad judge however as he plans to serve free Mad Dog 20/20 to all inmates.

Trollfest '09 is a pet-friendly event as well. Feel free to bring your dog with you and do not worry if your pet gets hungry, as employees of the Jackson Zoo will be on hand to provide some of their animals as food when it gets to be feeding time for your little loved one.

Relax at the Fox News Tent. Since there are only three blonde reporters in Jackson (being blonde is a requirement for working at Fox News), Megan and Kathryn from WAPT and Wendy from WLBT will be on loan to Fox. To gain admittance to the VIP section, bring either your Republican Party ID card or a Rebel Flag. Bringing both and a torn-up Obama yard sign will entitle you to free drinks served by Megan, Wendy, and Kathryn. Get your tickets now. Since this is an event for trolls, no ID is required. Just bring the hate. Bring the family, Trollfest '09 is for EVERYONE!!!

This is definitely a Beaver production.


Note: Security provided by INS.

Trollfest '07

Jackson Jambalaya is the home of Trollfest '07. Catch this great event which promises to leave NE Jackson & Fondren in flames. Sonjay Poontang and his band headline the night with a special steel cage, no time limit "loser must leave town" bout between Alan Lange and "Big Cat"Donna Ladd following afterwards. Kamikaze will perform his new song F*** Bush, he's still a _____. Did I mention there was no referee? Dr. Heddy Matthias and Lori Gregory will face off in the undercard dueling with dangling participles and other um, devices. Robbie Bell will perform Her two latest songs: My Best Friends are in the Media and Mama's, Don't Let Your Babies Grow up to be George Bell. Sid Salter of The Clarion-Ledger will host "Pin the Tail on the Trial Lawyer", sponsored by State Farm.

There will be a hugging booth where in exchange for your young son, Frank Melton will give you a loooong hug. Trollfest will have a dunking booth where Muhammed the terrorist will curse you to Allah as you try to hit a target that will drop him into a vat of pig grease. However, in the true spirit of Separate But Equal, Don Imus and someone from NE Jackson will also sit in the dunking booth for an equal amount of time. Tom Head will give a reading for two hours on why he can't figure out who the hell he is. Cliff Cargill will give lessons with his .80 caliber desert eagle, using Frank Melton photos as targets. Tackleberry will be on hand for an autograph session. KIM Waaaaaade will be passing out free titles and deeds to crackhouses formerly owned by The Wood Street Players.

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!!!

This is definitely a Beaver production.

Note: Security provided by INS
.