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Watchdog Objects To HUD Loan For Boutique Cary Hotel
Publisher's note: The author of this post is Dan Way, who is an associate editor for the Carolina Journal, John Hood Publisher.
CARY A Cary watchdog group plans to ask the General Assembly in 2015 to patch what it views as loopholes in state law that allowed Cary officials to help finance a boutique hotel with taxpayer money. The project was slammed as wasteful spending in a high-profile national report.
"The general statutes are very specific in bidding process, and the whole management of public dollars, and they have completely ignored it," said Cindy Emens, a member of Cary Watch.
The citizens group has a long list of objections with how the town approved the $14.2 million, 45-room, four-diamond Mayton Inn and restaurant.
Emens said taxpayers have no recourse in objecting to what Cary Watch considers an illegal use of taxpayer funding for some economic development projects. She said the attorney general's office says there is no trigger mechanism empowering it to enforce statutes requiring project developers to submit bid proposals and post performance bonds.
Cary Watch members have discussed their concerns with state Rep. Nelson Dollar, R-Wake, Sen. Josh Stein, D-Wake, and Vance Holloman, deputy treasurer at the State and Local Government Finance Division of the Treasurer's Office.
The U.S. Department of Housing and Urban Development, which often redevelops impoverished areas, is providing a $1.4 million loan to Cary to help build the downtown hotel.
U.S. Sen. Tom Coburn, R-Okla., cited the project as one of the 100 most wasteful uses of taxpayer money in his 2014 Wastebook: What Washington Doesn't Want You to Read. The projects in the list total $30 billion.
Asked why a loan is in the Wastebook, Coburn's office replied:
"This is an unusual arrangement in which the federal government makes the taxpayer both the lender and the one responsible for repaying the loan if the recipient does not. With an $18 trillion national debt, taxpayers have already [been] put at enough risk for Washington's unnecessary borrowing schemes.
"Only government bureaucrats and politicians would think it is a good idea to spend HUD funds on a posh boutique hotel to pamper the well off when thousands in North Carolina are homeless or lack stable housing," the spokesman added.
"We're certainly amused, I guess, to be on the list of 100 most wasteful projects," said Colin Crossman of Durham, who is building the Mayton Inn with his wife, Deanna. The $1.4 million loan is "pretty de minimis" in comparison to other projects on the list, he said.
Crossman said there were several inaccuracies in Coburn's report, including criticism that he got the project through a no-bid process.
"We followed all of the legal requirements" under the state economic development statute, which does not require a bidding process when paying fair market value for land, Crossman said.
Emens disagrees, based on a review she and her husband - both of whom are retired city planners - conducted. The state constitution bars giving "special favor to any particular party, and this was a special favor to the Crossmans," Emens said.
"This is all in violation of the bidding procedures" required by state statutes, she said. There were no solicitations for proposals or bids, and no performance bond posted. The town cited trade secrets to deny Cary Watch requests to view market studies and cost-benefit analyses to verity the project's viability.
Critics say the city sold the hotel site to the Crossmans for less than half the price the city paid for it and has promised to forgo more than $1 million in development fees and spend more than $300,000 on demolition, grading, and landscaping for the project.
In all, Emens said, taxpayers could lose closer to $6 million if the project fails, not just the $1.4 million HUD loan.
"The statutes say that there should be indemnification for the taxpayers whereby they could take the land back and could recover the value of the public investment," Emens said. "But they've completely circumvented that."
"I don't consider it a wasteful project at all. It's an economic development project that's an important piece of our downtown redevelopment effort, and also it will serve to create jobs," said Cary Town Manager Benjamin Shivar.
"We have distressed areas within town, and we're an entitlement CDBG [Community Development Block Grant] community, so we do have funds that are used for low- and moderate-income housing support and other projects," Shivar said.
"The census tract that the downtown is located in is our most distressed, poverty-stricken census tract in Cary," said Phil Smith, long-range planning manager in the town's Planning Department.
The HUD Section 108 program financing the hotel project "is specifically directed at economic development," raising property values in the downtown area, and creating jobs, Shivar said. It is the first time Cary has participated in that program.
"We are always concerned with the optics connected with the expenditure of taxpayer dollars. However, hotels and the hospitality industry are normally good job and economic generators," said Jereon Brown, a spokesman for HUD in Washington.
Crossman said the hotel and full-service restaurant would create 60 jobs.
The Section 108 program is designed to be a source of financing for local economic development, housing rehabilitation, public facilities, and large-scale physical development projects that benefit low- to moderate-income people and "to encourage private economic activity by providing the initial resources," Brown said.
The town used CDBG funds, intended for affordable housing programs for the poor, as collateral for the HUD loan.
Smith said forfeiting CDBG grant funds would be "the last resort." The town would have revenue available from hotel owners' payments from business proceeds, and liens on the property and the business assets.
The town will pay up to $325,000 for demolition, rough grading, and streetscape work, and to relocate two historic homes onto the site, said Ted Boyd, Cary's downtown manager. The town will waive normal development fees and tax payments.
The town is using seller financing for the $951,000 purchase of the hotel parcel. Boyd said the principal and interest will be repaid to HUD. The town is charging an additional 1 percent interest to be used by the town as program income for future CDBG-eligible activities.
Town and HUD officials were asked whether well-heeled travelers would pay premium rates to stay in the worst section of town.
"We have analyzed the business plan of the hotel, and we feel that there is an acceptable risk based on the projections and the business plan that they have presented us," Smith said.
"This project was thoroughly evaluated and met our underwriting criteria before we considered providing a portion of the necessary funding," Brown said.
"Our goal is to redevelop our downtown to make it a more vibrant area," Smith said. "The area is distressed because of the older surrounding neighborhoods. We want to revitalize those."
Go Back
Local activists say taxpayers should not be on hook for luxury inn
CJ Photos by Don Carrington
Some of the costs of construction and property acquisition for The Mayton Inn are covered by a $1.4 million loan guaranteed by the U.S. Department of Housing and Urban Development.
"The general statutes are very specific in bidding process, and the whole management of public dollars, and they have completely ignored it," said Cindy Emens, a member of Cary Watch.
The citizens group has a long list of objections with how the town approved the $14.2 million, 45-room, four-diamond Mayton Inn and restaurant.
Emens said taxpayers have no recourse in objecting to what Cary Watch considers an illegal use of taxpayer funding for some economic development projects. She said the attorney general's office says there is no trigger mechanism empowering it to enforce statutes requiring project developers to submit bid proposals and post performance bonds.
Cary Watch members have discussed their concerns with state Rep. Nelson Dollar, R-Wake, Sen. Josh Stein, D-Wake, and Vance Holloman, deputy treasurer at the State and Local Government Finance Division of the Treasurer's Office.
The U.S. Department of Housing and Urban Development, which often redevelops impoverished areas, is providing a $1.4 million loan to Cary to help build the downtown hotel.
U.S. Sen. Tom Coburn, R-Okla., cited the project as one of the 100 most wasteful uses of taxpayer money in his 2014 Wastebook: What Washington Doesn't Want You to Read. The projects in the list total $30 billion.
Asked why a loan is in the Wastebook, Coburn's office replied:
"This is an unusual arrangement in which the federal government makes the taxpayer both the lender and the one responsible for repaying the loan if the recipient does not. With an $18 trillion national debt, taxpayers have already [been] put at enough risk for Washington's unnecessary borrowing schemes.
"Only government bureaucrats and politicians would think it is a good idea to spend HUD funds on a posh boutique hotel to pamper the well off when thousands in North Carolina are homeless or lack stable housing," the spokesman added.
"We're certainly amused, I guess, to be on the list of 100 most wasteful projects," said Colin Crossman of Durham, who is building the Mayton Inn with his wife, Deanna. The $1.4 million loan is "pretty de minimis" in comparison to other projects on the list, he said.
Crossman said there were several inaccuracies in Coburn's report, including criticism that he got the project through a no-bid process.
"We followed all of the legal requirements" under the state economic development statute, which does not require a bidding process when paying fair market value for land, Crossman said.
Emens disagrees, based on a review she and her husband - both of whom are retired city planners - conducted. The state constitution bars giving "special favor to any particular party, and this was a special favor to the Crossmans," Emens said.
"This is all in violation of the bidding procedures" required by state statutes, she said. There were no solicitations for proposals or bids, and no performance bond posted. The town cited trade secrets to deny Cary Watch requests to view market studies and cost-benefit analyses to verity the project's viability.
Critics say the city sold the hotel site to the Crossmans for less than half the price the city paid for it and has promised to forgo more than $1 million in development fees and spend more than $300,000 on demolition, grading, and landscaping for the project.
In all, Emens said, taxpayers could lose closer to $6 million if the project fails, not just the $1.4 million HUD loan.
"The statutes say that there should be indemnification for the taxpayers whereby they could take the land back and could recover the value of the public investment," Emens said. "But they've completely circumvented that."
"I don't consider it a wasteful project at all. It's an economic development project that's an important piece of our downtown redevelopment effort, and also it will serve to create jobs," said Cary Town Manager Benjamin Shivar.
"We have distressed areas within town, and we're an entitlement CDBG [Community Development Block Grant] community, so we do have funds that are used for low- and moderate-income housing support and other projects," Shivar said.
"The census tract that the downtown is located in is our most distressed, poverty-stricken census tract in Cary," said Phil Smith, long-range planning manager in the town's Planning Department.
The HUD Section 108 program financing the hotel project "is specifically directed at economic development," raising property values in the downtown area, and creating jobs, Shivar said. It is the first time Cary has participated in that program.
"We are always concerned with the optics connected with the expenditure of taxpayer dollars. However, hotels and the hospitality industry are normally good job and economic generators," said Jereon Brown, a spokesman for HUD in Washington.
Crossman said the hotel and full-service restaurant would create 60 jobs.
The Section 108 program is designed to be a source of financing for local economic development, housing rehabilitation, public facilities, and large-scale physical development projects that benefit low- to moderate-income people and "to encourage private economic activity by providing the initial resources," Brown said.
The town used CDBG funds, intended for affordable housing programs for the poor, as collateral for the HUD loan.
Smith said forfeiting CDBG grant funds would be "the last resort." The town would have revenue available from hotel owners' payments from business proceeds, and liens on the property and the business assets.
The town will pay up to $325,000 for demolition, rough grading, and streetscape work, and to relocate two historic homes onto the site, said Ted Boyd, Cary's downtown manager. The town will waive normal development fees and tax payments.
The town is using seller financing for the $951,000 purchase of the hotel parcel. Boyd said the principal and interest will be repaid to HUD. The town is charging an additional 1 percent interest to be used by the town as program income for future CDBG-eligible activities.
Town and HUD officials were asked whether well-heeled travelers would pay premium rates to stay in the worst section of town.
"We have analyzed the business plan of the hotel, and we feel that there is an acceptable risk based on the projections and the business plan that they have presented us," Smith said.
"This project was thoroughly evaluated and met our underwriting criteria before we considered providing a portion of the necessary funding," Brown said.
"Our goal is to redevelop our downtown to make it a more vibrant area," Smith said. "The area is distressed because of the older surrounding neighborhoods. We want to revitalize those."
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Conservatives have attacked the AG over the Marriage Amendment when he did not act. He had warned ahead of the vote that is could well be unconstitutional. The Federal Judge ruled it to be JUST SUCH!
In my view, when Conservatives of NC are showing this much criticism this long before the 2016 election ~~~ they are scared NC voters are starting to see their destruction of the Progressive nature of NC in the past and before their rule.
Abraham Lincoln: "You can fool all of the people some of the time / you can fool some of the people all of the time / you can NEVER FOOL ALL OF THE PEOPLE ALL OF THE TIME."