Jackson Jambalaya

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.