In my Week in Review column last week I endorsed in principal the proposed deal whereby the city would acquire ownership of eight bridges that are now owned by Enel. A friend writing under the pseudonym Hans Hammermill left a thoughtful comment on that post suggesting that the city should pursue a better deal with Enel. The vote on the current proposal will be held at this Tuesday night’s council meeting. While I support the proposal coming before the council, I also wanted to share a different view, so here’s what Mr. Hammermill wrote:
My father used to always say to me “It is not what you do but how you do it that matters.” As Dick astutely outlined in this great post, Lowell has a long history of doing the right thing the wrong way the first time around.
I think we’re seeing this same pattern with the eight Enel bridges. Unlike the past, however, we have the opportunity to try do it right on the first try this time.
To understand, let me give a little bit of background on the deal. Enel believes the city over-valued their property and has sued the city to re-pay up to $7 million in past taxes (this is called an abatement). To avoid going to court, the city has been negotiating a deal to relieve them of some of their broken bridges and to a new tax agreement. Then the city will apply for a federal grant to pay to fix the bridges.
The proposed deal has three parts:
1) A TIGER grant from the federal government
2) A ‘purchase and sale’ (P&S) agreement for the bridges
3) A PILOT ‘payments in lieu of taxes’ agreement. Basically a deal to remove Enel from
the tax rolls and accept regular payments instead.
The three are linked. To apply for a TIGER grant the city needs to own the bridges. In order to own the bridges, the city needs to make a deal with Enel.
#3 (the PILOT agreement) is the key part, it is the most expensive and risky part and is the part we know the least about. Enel currently pays $1.2 million a year in taxes (6th largest tax payer in the city) and the city is looking to enact a 20-year PILOT agreement with them. The PILOT agreement is still in negotiations however at one point the aim was to cut Enel’s payment to the city in half; so that would peg the cost of this deal at around $12 million.
We could be paying a premium, but is this the best deal the city is likely to get? The city is indeed in a weak position, however it appears to be putting itself in a weaker and weaker position to avoid revealing details of the PILOT agreement to the public. Again, how this is done is what matters.
For example, the bridges and abatement do not need to be negotiated together. In fact, negotiating them together put Enel in a stronger position. Enel does not need the bridges but the residents of Lowell do, that means Enel could use the broken bridges as leverage for a bigger abatement. The advantage for the city, however, is they can hide the cost of buying the bridges in the abatement settlement.
Another example is the city voted on 2/3 of the deal on the May 26th city council meeting (#1 and #2 above) without a commitment from Enel (#3). As the city manager stated, the PILOT was still in negotiations. This puts the city in an even weaker position because the council made a promise to their constituents in an election year without any firm commitment to back it up. That gives additional leverage to Enel for a larger abatement.
Then there is the most important question of all: what happens if we don’t get the TIGER grant? 94% of all TIGER applications are rejected. From what I understand it will void the P&S (#2 above) but what about the PILOT agreement (#3)? Would we still be on-the-hook to pay for the 20-year tax break? It is one thing if we pay a premium for something we need; it is quite another to pay a premium for nothing. It seems prudent to understand this.
Lastly with no ‘plan B’ the city effectively has all its eggs in one basket which puts it in an even weaker position with Enel.
There is a simple solution to all this: reveal the goals of the PILOT agreement, update the city budget to reflect the true cost and devise a ‘plan B’. This is simple, straight-forward and will put the city in a stronger position with Enel. It also opens up the conversation for what possible alternatives there could be for a ‘plan B’.
This is also common sense: years ago when I applied for a top secret security clearance the defense department did an in-depth investigation on my history. They wanted to see if I had any secrets; the idea was that if I had secrets foreign governments could use that as leverage over me. When one does not have secrets they’re in a stronger position.
So in summary, it is clear the Enel bridge problem must be solved but it is completely unclear if this is the best or only path. We know very little about the most important part. What we do know, however, is that the city has a history of jumping into things without fully thinking it through and we have the opportunity to get it right the fist time here (or at least, unlike the past, have a solid ‘plan B’ in-hand and ready to go).
(The following is a subsequent comment left by Hammermill on June 5)
The details of the PILOT agreement are in this week’s economic development subcomittee meeting packet and are up for vote this Tuesday. Thankfully there is a reasonable opt-out in the PILOT if the TIGER grant fails (the most important part).
Beyond that it is quite a bit more expensive then I had expected and there still is no ‘plan B’ if the TIGER grant fails.