Daily Archives: September 4, 2010

Museum Block, Peoria County

Urich memo raises questions about museum bonds

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If you pick up a Journal Star this morning, you’ll see a “First in Print” article about the museum bonds debate:

Delays in issuing bonds, coupled with changes in the public financing of the Peoria Riverfront Mu­seum, could result in $1.6 million to $3.4 million in additional taxpayer costs, according to a memo is­sued by Peoria County Administrator Patrick Urich on Thursday…. According to Urich’s memo, feder­ally backed Build American Bonds will rebate 35 percent of taxes paid on the bonds issued before New Year’s Day. Urich projects any stall on issuing those bonds until next year could cost $2 million to $2.5 million.

The rebate could be extended at a lesser amount, which would potentially reduce taxpayers’ savings.

“It will cost the taxpayers money if we have to delay,” Urich said Friday.

The type of bonds has been the subject of debate since last week. General obligation bonds, according to Urich, save taxpayers money over a longer period of time because their interest rate is lower. With revenue bonds, the interest rate — and the risk to the bond holder — increases.

Question: Why didn’t Urich tell the voters about all the glories of G. O. bonds before the April 2009 referendum? Just to refresh your memory, here’s what the County said during the weeks leading up to the referendum in town hall meeting after town hall meeting:

If the referendum passes, the County Board has committed to issuing up to $40 million in Revenue Bonds for the museum…. Only money collected from the sales tax increase can be used to pay the Bonds off each year. If the annual payment cannot be met with the sales tax collection, the bond holders bear the burden, not Peoria County or the tax payers…. Why would anyone take the risk to invest in Bonds that may not be paid off annually? As with all investments, the higher the risk, the greater the return. A diverse risk portfolio is a prudent investment strategy, and Revenue Bonds represent a component of that strategy.

Note that the County didn’t say “general obligation bonds” or “Build America Bonds.” They said “Revenue Bonds.” They were very clear and specific. They acknowledged then that Revenue Bonds carry a greater return (that means a higher interest rate) for the bond-holder, but that the trade-off is that the bond-holder carries greater risk. The made it a selling point to the community that “the bond holders bear the burden, not … the taxpayers” if sales tax receipts were insufficient to cover the bond payments.

Now I want to know what has changed since the town hall meetings? Don’t tell me that Build America Bonds are new since then, because they’re not. Build America Bonds were established as part of the American Recovery and Reinvestment Act which President Obama signed into law on February 17, 2009. That was before the referendum, and before the town hall meetings which took place in March and April of that year.

If Revenue Bonds are such a bad, expensive funding mechanism, why did the County promote it in March and April 2009? Why did they sing the praises of mitigating risks to the taxpayer then, but now claim there are no risks to mitigate?

One last question. How can Build America Bonds be used on this project in the first place? The rules for these bonds specifically exclude “private activity bonds,” which are defined as bonds where “more than 10 percent of the proceeds of the issue are to be used for any private business use,” including non-profit businesses. The preamble to the County’s bond ordinance makes it clear that the bonds will “finance the acquisition, construction, and installation of facilities and improvements constituting the art, science, and education components of a new Peoria Riverfront Museum, and related facilities, improvements and costs.” The Peoria Riverfront Museum is a private, not-for-profit organization incorporated June 7, 2010, in the State of Illinois. It’s unclear to me how this project qualifies for Build America Bonds.

City of Peoria

Caterpillar puts local pharmacies out of business (also, some thoughts on incentives)

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From the Journal Star:

After 50 years, Tingleff Pharmacy will close permanently at 1 p.m. Saturday.

The pharmacy at 3617 W. Harman Highway lost 60 percent to 65 percent of its customers after Caterpillar Inc. instituted a new prescription drug plan in January. The plan designated specific national pharmacies instead of allowing employees to choose their own pharmacy, said owner and pharmacist Rick Tingleff, the son of founder Dick Tingleff.

“Caterpillar was the catalyst when they pulled benefits from the independents and gave WalMart and Walgreen’s the business,” he said.

Hometown Pharmacy, with offices in Creve Coeur, Morton and Chillicothe, was another local pharmacy that cited the Caterpillar change as a reason for closing earlier this year, Tingleff said.

In a somewhat related story, the Winston-Salem (North Carolina) Journal recently reported that, despite that city, county, and state giving Cat a combined incentive package worth just under $75 million to locate a manufacturing plant there, Cat didn’t allow any local general contractors to bid on the construction of the plant. A local TV personality there also criticized the deal because of Cat’s prescription drug policy:

…CAT isn’t opening its doors freely to local stores and vendors. For example, Caterpillar has an exclusive contract with Walgreens and Walmart to fill employee prescriptions. That leaves other chains like Target and Rite Aid out in the cold, and excludes local mom-and-pop drug stores from doing business.

The author, Jim Longworth, also criticized economic incentives in general as “nothing but corporate welfare, legalized extortion.” I found this paragraph particularly interesting:

And so, for now, at least 40 states are entrenched in the incentives game where they feel obligated to offer perks, lest they lose to a competing state. But according to UNCG professor Andrew Brod, that fear isn’t justified. “It’s hard to conclude that a company that is getting incentives from State X, wouldn’t have gone to State X anyway.” So why offer incentives? Brod theorizes, “Offering incentives to lure large companies gives politicians the chance to claim credit with little risk they’ll be blamed for a deal that falls short of its promise. It’s very important for them especially in times like these, to appear to be doing something. It’s easier to do something whose rewards and benefits are hard to assess, than to just do nothing.” [emphasis added]

How many times have we heard in Peoria that “something is better than nothing”? The question that should be asked when that statement is made is, “better for whom?” The answer according to Dr. Brod is “politicians.”