Thursday, July 3, 2008

Why Kwame Used Eddie And Needed Barbara-Rose


Kwame for US Senator---it has to be a sure-thing!

It is clearly the modern remake of James Stewarts' movie "Mr. Smith Goes To Washington"

Make no mistake about it, the guy is a sheer genius. Or rather, the people behind him who dream up these schemes make him look like one. But heck, he chose and hired them! With their brains and his speaking ability that is capable of hypnotizing Councilwomen and attendees at functions such as the Mackinac conference, the guy is a shoo-in when a Senate opening appears!

We poor mortals have no idea what is really going on. We do see bits and pieces of it over time but they are isolated events that make it difficult for us to see the entire picture since it is so hard to put together. We can try and guess, and that is what I attempt to do in my BLOG to provide you with some insight, dear reader. Sometimes I'm right and sometimes I'm not.

However the fun is trying to figure it all out and put it together. Every so often, one gets a EUREKA moment when one can see everything clearly. All that one can do at that point is sit back and look at everything that has been done with admiration or perhaps contempt, depending on the situation.

It is a shame however the politicians have to act that way and cannot trust their electorate but I guess that's the way things are these days in modern politics. We are nothing but pawns in their political game to be used and abused as appropriate by the players.

With the Tunnel deal with Windsor, at the least, I trust that after his financial manoeuvrings are completed, Kwame will take pity on Windsor taxpayers and walk away from the transaction. After all, while he may still carry a grudge and he may still want to take out his Hendrix animosity on Eddie, why take down 200,000 Windsorites as well! Revenge may be sweet but heck, we Windsor taxpayers helped sponsor so many Detroit events to help him out!

Let me explain.

Why would Kwame borrow money from Windsor, $75M for the Tunnel deal, if the Detroit Council's attempt to borrow $78M in fiscal stabilization bonds was said by the Detroit Mayor to cause a "Moody's downgrade?"

I find that hard to understand. A borrowing is a borrowing is a borrowing isn't it.

Is there more behind this deal with Windsor than meets the eye? Does Kwame even care if it gets done? Or does it serve a useful purpose for him even if it never gets done.

After all, why should the Province loan money to a City for which Michigan for

  • "the fourth consecutive...withheld [revenue sharing money] from the city because of its lateness in completing its required annual audit..."

Remember that:

  • "The deal doesn't sell the tunnel outright, but gives the mayor 120 days to iron out details.

    Kilpatrick was so happy it passed he popped into the City Council meeting to hug Collins and kiss her ring."

Here are some clues as to what may be happening behind the scenes that made getting Council onside so crucial to Kwame. The Detroit Free Press gave me my first hint:

  • "Deputy Mayor Anthony Adams said the city would probably have to end the 2007-08 year with a deficit because the city needed approval Monday to book the $65 million from the sale in the 2007-08 fiscal year...

    Collins said she told the mayor she would change her vote now, but would vote against the final sale because she dislikes the new authority's ability to sell the tunnel, the loss of revenue from the tunnel and the loss of city control.

    "He said, 'I'll take what I can get now,' " she said."

Then I saw this in Crains Detroit:

  • "Two Detroit City Council members changed their minds Tuesday and voted "yes" on Mayor Kwame Kilpatrick's sales plan for the city’s half of the Detroit-Windsor Tunnel.

    Kilpatrick said the action allows Detroit to begin the new fiscal year with a balanced budget."

Without actually receiving one penny from Eddie, Detroit's deficit was wiped off the books! Ahhhh, isn't accounting wonderful! Kwame has a balanced budget as promised. Who cares if the Windsor money ever comes in. As far as Kwame is concerned, he just bought 4 months worth of time thanks to Barbara-Rose. That goes along with the year he received since June of last year even though no deal was ever done with Windsor. Why Eddie and his lawyer, Cliff Sutts, were his biggest allies as they restructured the deal how many times trying to get this deal done. Fortunately for Kwame, they never gave up or backed out of it.

Kwame did not need to hypnotize Eddie. He just played to Eddie's ego and Eddie's need to show he could do a sophisticated financial transaction.

Why does Kwame need 4 more months? Why was he happy he could take what he can get now?

It was this article in the Bond Buyer that gave it all away to me. There was a nice play on words in the sub-headline. Was that a Freudian slip using the word "bridge" not "tunnel" or did it really mean just an "interim" deal that actually may never happen. Here are some key excerpts:

  • It's Never Dull in Detroit
    In Switch, Council OKs Mayor's Bridge Sale

    Bond Buyer Wednesday, July 2, 2008

    By Caitlin Devitt

    ...After months of debate and three formal rejections, the City Council yesterday narrowly reversed its earlier decision and approved a measure that would advance Mayor Kwame Kilpatrick's plan to sell the city's half of the Detroit-Windsor Tunnel. The tunnel sale would generate a one-time cash payment to eliminate a $60 million deficit in the $3.04 billion budget for fiscal 2009 that began yesterday. The council's last-minute vote meant that the city was able to avoid layoffs of up to 1,300 city employees.

    The vote also means that the council would likely abandon its original deficit-elimination plan - the sale of $78 million in fiscal stabilization bonds. The mayor had repeatedly said he would block that plan, which he said was responsible for the city's recent bond rating downgrade by Moody's Investors Service in the wake of the council's deficit borrowing plan...

    Officials also face a lawsuit filed by retired police and firefighters who have sued to stop the city from shifting $75 million out of their pension fund to shore up the city's budget...

    Despite the city's headaches, it has successfully returned to the bond market over the last few months with its first new-money and refunding issues since 2006. On Monday the city sold roughly $130 in tax anticipation notes to cover operating costs for the city as it ends its fiscal year. In late May the city sold $218 million in general obligation debt in what was its first new-money transaction since late 2006. About half of the bonds were insured by Assured Guaranty Corp.

    Yields on the insured, unlimited-tax GO bonds ranged from 1.9% with 5% coupon in 2009 to 4.93% with a 5% coupon in 2028. And at the end of April, the city began the process of restructuring roughly $800 million of insured variable-rate water and sewage revenue bonds in a transaction insured by Berkshire Hathaway Assurance Corp., marking the new insurer's first appearance insuring bonds in the primary market.

    But the months-long battle over how to eliminate the city's current $60 million deficit could be repeated in another bond proposal being pushed by Kilpatrick. Under the proposal, the city would issue roughly $360 million in casino-tax backed revenue bonds to finance an economic stimulus plan mayor says is crucial to revitalizing the city's economy.

    While officials said they wanted to go to market quickly when they first introduced the plan in early April, the inability to balance the budget became a stumbling block. The proposal is currently awaiting a hearing by City Council, where Cockrel has already criticized the plan as akin to putting $360 million on a credit card.

    Despite the criticism, the administration remains determined to move forward with the plan, spokesman James Canning said Monday. "We'll be glad to work with them," he said. "Utilizing a growing revenue source such as casino revenue to improve city facilities is a great plan and we want to move forward with it."

    One of the city's most immediate concerns as it begins a new fiscal year is the prospect of laying off up to 1,300 city employees to wipe out the current deficit. On Monday, when the city council rejected a measure that would allow the city to move forward with the sale of the tunnel, deputy mayor Anthony Adams told the council that the layoffs were now "inevitable."

    On Monday, as it closed out the fiscal year, the council voted 5 to 3 to reject the tunnel proposal, marking what seemed to be the end of a long push by Kilpatrick to accomplish the deal, which he first proposed in 2007, and which he reportedly touted to rating agency analysts as key to gaining stable financial ground. Under his plan, the city would sell its stake in the tunnel for $75 million to a new holding company, the Detroit Tunnel Authority. The transaction was expected to generate $65 million in a one-time cash windfall after insurance and other transaction costs.

    After the council vote, Adams told the council that the layoffs of up to 1,300 employees were now "inevitable." Perhaps to avoid the discouraging prospect of those layoffs, two council members yesterday decided to reverse their no votes and approve the measure, which allows the city to set up the tunnel authority. Kilpatrick still needs to win approval within the next 120 days from the council for the remaining financing and operational details of the deal, but the mayor heralded the reversal as a major victory for the city.

    "This tunnel agreement would be the final piece of the puzzle to put the city on stable financial footing and start moving forward," said Canning.

    The lateness of the vote means the city will likely carry a $60 million deficit until the tunnel transaction is completed, said city officials.

    The council is now unlikely to pursue its original counter-proposal to sell $78 million in fiscal stabilization bonds to plug the shortfall

    Kilpatrick blamed the Moody's downgrade on that plan, and said Fitch Ratings and Standard & Poor's were "waiting in the wings" to downgrade the city if the bonds were issued.

    In late May, Moody's cut its rating on Detroit's unlimited-tax general obligation debt to Baa3, the lowest investment-grade credit rating, and stripped the city's limited-tax GO debt of its investment-grade rating.

    Fitch rates the city BBB and maintains a negative outlook on the city's general obligation debt. Standard & Poor's maintains a BBB rating on the city's unlimited-tax debt and BBB-minus on the limited-tax bonds. The outlook is stable.

    Another key to balancing the 2009 budget - one approved by both the mayor and the City Council - was threatened last week by a new lawsuit filed by the city's retired police and firefighters. The lawsuit challenges the city's plan to transfer $75 million from the police and fire pension fund into the city's general funds.

    Kilpatrick proposed the idea in April, saying the city's police and fire pension funds are overfunded by $400 million. Under the agreement, the pension board said it would increase some of the benefits to active police and fire employees, but not for retirees, a decision that in part prompted the lawsuit...

    "It's going to be an interesting and exciting year in Detroit," said Ben Burns, director of the journalism program at Wayne State University journalism and former executive editor of the Detroit News.

    Burns predicted that the swirling political scandals would ultimately not impact the city's economic development, which he said is moving forward on several fronts.

    "I think that Detroit's public image nationally tends to be bizarre even though what's going on in Detroit is usually similar to any big urban city on the Rust Bucket Riviera," Burns said. "It's that way because we have such interesting, eccentric people that get in office. At the same time, we have a lot of very solid citizens who are working to make Detroit a better place to live. Detroit will keep on trucking."

So here are the key points that I think you should understand in all of this:

  • the hope of a Tunnel deal was necessary to "balance" the Detroit budget and to eliminate Detroit's deficit


  • deal or no deal by June 30, the Mayor can claim a balanced budget since the 2 sides are working on a deal


  • without one penny coming in, the Mayor has been able to claim that the budget will be balanced for a year and now for another 120 days


  • this transaction was important for the bonding agencies to keep Detroit's rating up and interest costs down and since Kwame made promises to them


  • there was a need to kill the Council bonding proposal since not only would it increase the cost of borrowing for the City but also interfered with the proposal that the Mayor had to get financing


  • it looks now as if the Council proposal will be put on the back burner


  • the Mayor is out there borrowing money now, the first time since 2006, and is trying to flog during $360 million of bonds, a transaction that the Mayor wanted to have completed quickly


  • those bonds are backed by Casino revenues


  • they better hurry with those bonds since the Wall Street Journal reported that casinos are in big trouble in Vegas and elsewhere, including the one in Greektown that filed for Chapter 11 bankruptcy protection


  • I would expect that this bond deal will be completed within 120 days, the time period that Kwame received from Council


  • don't you find the number $75M from Windsor and $75M from the "overfunded" fire and police pension plan which will go into general revenues amazingly co-incidental


  • did Kwame ever need Windsor's money and were the pension funds his backup plan


  • the pension fund lawsuit only started on June 26


  • the plan re the fund was "approved by Mayor Kwame Kilpatrick, the City Council and the pension board for the police and fire retirement fund" so Council knew about $75M being available for general revenues even while they were supposedly struggling with the Tunnel deal


  • the issue is not whether the City is entitled to the money but whether the retirees are entitled to additional benefits


  • is Windsor money merely icing to Kwame's cake?

As you know, Michigan is attracting moviemakers with tax incentives. This Tunnel story is Hollywood in real life. What a script. What an ending. What a rush.

With Anthony Adams as the "bad cop " threatening 1300 layoffs and Kwame the "good cop" who kisses the ring of one of Detroit's Councillors as she changed her vote and that of a colleague to support him, Kwame saves the City of Detroit just as it seemed that it was all over. Hundreds of millions of dollars come pouring into the City to make it a success story without the City getting into an unreasonable debt situation. And he keeps the Tunnel too!

Why, I can just see the last scene in the movie. Here's how it goes as we see the Detroit Mayor picking up the phone:

  • "Hello, Northwest Airlines. This Kwame Kilpatrick. I'd like to book a flight to Washington, DC. To the US Senate, please. First class, of course, all the way!"

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