Thursday, November 5, 2015

How much for your soul, Davidson?

There's a great line in the the movie,”The Usual Suspects”, where the con man Verbal tells the interrogator interviewing him, “the greatest trick the devil ever pulled was convincing the world he didn't exist.”

As the Town of Davidson works its way through the planning process of the controversial Downtown Catalyst Project, the true costs for its consulting services falls in the same category as the line from that movie.

Consultants from the Development Finance Initiative at the UNC School of Government have been working with the Town since the middle of 2014 to come up with a plan to develop 3.5 acres of land around the current town hall site.  One of the early selling points of the study has been the relatively modest cost of the consulting work.  In multiple presentations and news articles the cost of these services has been stated as being only $50,000.

In the grand scheme of things the “cost” for this work “doesn't exist.”  However, that also is not entirely true.

The “Letter of Agreement” between the town and DFI lays out the services DFI will provide including the work already completed, any revisions certain to come after the recent round of negative public feedback, and the bidding process with developers.

There is also a section about how DFI is paid.

The first portion of the payment is the $50,000 paid when the contract started.  However, there is a second portion.  This portion could be considerably more lucrative.

From the contract...

“The second portion of the fee (the ‘Contingent Fee’) shall be contingent on the execution of an agreement (the ‘Development Services Agreement’) between the town and a third party (the ‘Developer’) regarding the responsibilities of either the Town or the Developer regarding any aspect of the development of the Project or any portion thereof.  The Contingent Fee shall be an amount equal to 1% of the total costs of the development of the Project, as further described below.  The 1% fee shall be paid from the Developer to DFI.”

The contract goes on to provide language that must be included in any agreement between the Town and developers to ensure the DFI gets paid “no later than 30 days following execution of the Development Services Agreement” – well before the actual project is completed.

According to the town’s Economic Development manger, Kim Fleming, this 1% fee is paid on the private development portion of any project.  Any public funding is not subject to the fee.

For a project like the Catalyst Project, that 1% fee could run into the hundreds of thousands of dollars.  Look at examples at both extremes of what has been discussed to date to see what that could mean to DFI’s payday.

The project idea recently floated including the Hotel and a full buildout to the property’s “highest and best use” was presented as up to a $60 million effort – almost entirely private investment.  Compare that to the roughly $7.6 million it would cost to build a parking deck and expand the existing town hall which would likely be entirely public funding.

1% of $60 million is $600,000.  0% of $7.6 million is $0.00.

Regardless what the actual numbers turn out to be, DFI clearly has real incentive to propose and push for the biggest project possible while at the same time looking to build at least something with the private sector to cover their costs.

One can also see any consulting fees paid by a future developer being passed through to the Town in various ways.  The simplest way would be for the developer to offer that much less for the property if the Town sells it for any project.  They could also offer the Town less space or ask for higher rents for the Town portion of the project.  Regardless how it happens, Davidson taxpayers will likely be the ones who “pay”.

Davidson has been down this road before listening to consultants on big decisions.  It was possibly the biggest mistake on the road to forming Mi-Connection.

The town can not afford to let that kind of mistake happen again.

This post first appeared in the Herald Weekly at

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