Monday, August 28, 2006

A Nagin Quote That Should Be Criticized

From today's Picayune:
The federal loan almost certainly comes with better terms than the private line of credit, even though Nagin has said he thought the terms offered for the private loan were acceptable in view of the city's weak economic position. Because of the city's poor credit rating, the banks in the consortium had requested $3.75 million in upfront fees, much higher than the industry standard.

Those costs -- along with what Nagin viewed as political gamesmanship -- conspired to hold up approval of the private loan, which needed the approval of the State Bond Commission.

"That got caught up in post-election politics," Nagin said. "We were in front of the Bond Commission, and certain individuals showed up that had not participated in the commission in a long time and started raising all these questions about the upfront fees, and it got placed on hold."

Actually, certain individuals also started raising all these questions about interest rates:
But Kessenich said New Orleans will pay a steep premium for the three-year loan. Instead of borrowing the money at 4 percent, as is typical for a municipal deal of this size, the city is likely to pay interest of about 6 percent, Kessenich said.

Just to put that $3.75M in perspective:
Under the revised proposal, the four participating banks would earn $3.75 million in upfront fees, instead of the roughly $300,000 original estimate, according to a top executive with one of the banks, who asked not to be identified.

Let's recap: a few days before the election, Nagin announced a $150M loan package at "very favorable" terms. Those terms were assumed to be 4% interest and $300,000 in upfront fees--6.3M in total costs, according to my calculations. On election day, too late for most people to notice*, we found out that the terms were 6% interest and $3.75M in upfront fees--$12.75M.

Must have been post-election politics that made certain individuals raise all these questions about an extra $6.45M.

I have no idea what the city paid its adviser on the deal:
Peter Kessenich, the city's long-term financial adviser, is recommending that Nagin and other city leaders agree to the new terms ....Kessenich, managing director of Public Financial Management Inc. in Atlanta,

But I do have to wonder how that compares to the million dollars that the city seems to have balked at paying for an audit.

One last item from today's paper:
Nagin said last week that FEMA is almost ready to approve another $120 million "community disaster loan," mirroring one the city received from the federal government shortly after Katrina.

Federal Emergency Management Agency spokesman Aaron Walker confirmed the mayor's report, saying he expects the new loan to be made official this week.

Makes me wonder if the mayor was ready to commit to an expensive loan package before exhausting all opportunities for a cheap one. Of course not, that would have been pre-election politics. Guess I'm just one of those individuals raising all these questions because of post-election politics.

*Two self-complimentary links in one day. I guess bravado comes easier typing alone than talking to a group.

Update or Clarification:
If $6.5M seems like a small amount to quibble about, today's Picayune also informed us that:
But Grant said it would be "most dangerous" to grow overly confident and prematurely rehire large numbers of the workers laid off last fall. Nagin, who gave much of the credit for the city's improved situation to Finance Director Reggie Zeno, said he hopes to "stretch out" the federal loans "and within two years become self-sufficient. That's why we're trying to hold the line on expenses" and to be "very judicious" in approving increases in staffing or pay, he said.

And there's quote that I've been beating to death for a month:
"A small amount of money in pay is holding up billions of dollars for our city," developer Angelo Farrell said.

The Times Picayune has also run editorials about saving $800,000 and judges wasting $200,000. The point is, if the mayor is willing to spend money like a drunken sailor when the city is "headed-to-the-poorhouse broke," I, for one, don't trust him to manage a boom. Believe it or not, cities, states and individuals often go broke after booms, especially poorly managed ones.

Great work on this one, david. I'll be referring to it sooner than later, I'm sure.
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