Tuesday, March 28, 2017

Benson's Big Easy Street

NOTE:  If you don't have time to read...jump to the video at the bottom of the post for a quick synopsis. 

Having interviewed Mayor Landrieu in late September of 2016 regarding his intent to sell and/or lease the New Orleans Public Belt railroad, I pressed him on why he seemed so determined to sell, or “privatize”, many of New Orleans' largest public assets.  His general response was that the City was in dire financial straits when he took office and desperate actions were needed to pull it out of the hole.  Landrieu also continually referenced the wisdom of “public/private partnerships” and how cities all around the country were utilizing them to great benefit.  

I decided to go back and look at some of the public/private ventures in which the City has engaged over its history (namely since the 1984 World’s Fair) and examine if these ventures were truly beneficial to New Orleans or if they turned out to simply be windfalls for the private investors who acquired public assets. Upcoming stories will examine some of these deals.  
In the interview, Mayor Landrieu also expressed that he doesn’t feel the City has gotten a lot out of existing agreements with major entities that benefit from their relationship with New Orleans, particularly the Port of New Orleans.  But he also mentioned one entity that surprised me, the Louisiana Superdome....so I looked into it.

The Roadmap to the Glory Days of New Orleans Slush

The Superdome is owned and operated by a public entity itself, the Louisiana Superdome Exposition District, owned by the State of Louisiana.  It oversees many state assets other than the Superdome including the Smoothie King Center, the New Orleans Saints Training Facility in Kenner, The Alario Center in Westwego, the TPC of Louisiana Golf Course in Avondale, and the Shrine on Airline Highway in Kenner where the Baby Cakes play baseball.  
The LSED has a storied history as a public entity.  Back in 2012 when I was reporting on Congressman Cedric Richmond and political operative Ike Spears corruption with two non-profits they ran in the early 2000’s, I came across a grant program that had been instituted by the LSED from 2000 to 2004.  The program was essentially a giant (approximately $2.9 million annually) slush fund that was set up for New Orleans metro area politicians to dole out cash to their own special interests…mostly non-profits that were run by politically connected people controlling strategic voting blocs.  
The LSED grant program was terminated in 2004 having rained about $14.8 million down on politicians’ special interests in its five year run. In 2005, the LSED put an end to the grant program stating they needed the money for renovations to the Dome and other pending expenses…much to the dismay of politicos around the metro area.  
Still, the master grant list is a virtual road map of the period exposing “con-profits”, politician’s special interests and how the “game” operated before former U.S. Attorney Jim Letten began his white collar/government corruption sweep of the City. 

When the Saints almost went marching out

New Orleanians who lived through Katrina have no shortage of traumatic stories and memories they carry with them to this day.  But one trauma-inducing event that many people have suppressed or even forgotten about was the threat by the owner of the New Orleans Saints, Tom Benson, to move the Saints out of the city in the wake of the storm under the prospect of greener pastures in San Antonio, Texas.  

Forgive me, but this was a real dick move in a period when the City was on its knees gasping for breath.  Benson had already made continual threats to move the franchise before Katrina and The Federal Flood provided the opportune disaster capitalist moment to leverage the threat of a Saints exodus to his advantage.  
The State managed to pacify him in the immediate wake of the storm with various concessions and eventually went on to orchestrate a deal in 2009 in which Benson would purchase the 26-story Dominion Tower skyscraper next to the Superdome and the State of Louisiana would occupy 320,000 of the 480,000 square feet in the building, leasing office space at above average rates for various state agencies.  The total purchase, through Benson’s company, Zelia LLC., was $42.1 million which included the tower, a 2000-space parking garage and 400,000 sq. foot, open-space promenade area which Benson renamed “Champions Square”.  As of August 2012, the company which leases space in the buliding for Zelia stated that the tower was over 97.6% leased.  

Easy Street...courtesy of Louisiana

The 2009 deal between Benson and the State/LSED consisted of two parts.  

The first was an extension of the Superdome lease by LSED through 2025 and an $85 million dollar disbursement to the LSED by the State of Louisiana for improvements to the Dome as well as scaled payments to the Saints pending the amount of money the team generated annually from 2011 to 2024.  

The second part of the deal involved the newly acquired Dominion Tower and properties purchased by Benson’s Zellia, LLC.  In addition to the State agencies leasing over 70% of the office space in the tower, a state organization called the Louisiana Office Facilities Corporation (essentially an extension of the LSED) agreed to lease the New Orleans Center property which included the Mall and area now known as Champions Square, as well as the aforementioned parking garage for $2.3 million annually.  The LSED agreed to take on the operations of  the parking garage, mall and Macy’s retail store, retaining all revenues up to the $2.3 million mark (to compensate for the rent to Zelia), then any additional revenues would be split with Zelia 50/50.  The agreement called for Zelia to be responsible for any initial renovations and repairs to the properties with the LSED maintaining daily operations and maintenance.  
Benson/Zelia agreed to a $10.5 million dollar investment in the property over a three-year period (from 2010) and the LSED committed to making $85 million in capital improvements over the following two years with a completion date of 2011.

Public/Private Partnerships: The Road to Prosperity for the Private 

After ratifying the agreement in an LSED Board of Commissioners meeting, Commissioner Robert Bruno stated the deal was (paraphrased from meeting minutes), “One of the most complicated, creative, bipartisan examples of a public/private partnership that could ever be imagined.”  
Ron Forman, then President of the LSED Board of Commissioners and CEO/President of the Audubon Institute said (paraphrased from meeting minutes), “Without Mr. Benson’s willingness to invest, it could not have happened.”

How would one not be willing to invest in a multi-million dollar contract that placed any business risk solely on the State of Louisiana?  The deal guaranteed a near full occupancy rate of Benson Tower on top of a guaranteed 2.3 million dollars a year lease for the Champions Square property and the parking garage in which Zelia doesn’t even have to manage (The management of the properties is contracted to the company SMG by the LSED).

All Benson had to do was purchase the properties and the state took on any and all business risk to guarantee Zelia a financial windfall.  

A Three-Way Street?
Great deal if you can get it but after filing a public records request with the City of New Orleans in respect to the Champions Square footprint it appears Benson didn’t even have to purchase/lease or own the total area which is currently incorporated into the venue.  

The entire 1400 block of LaSalle Street has been closed to the public

and incorporated in to the Champions Square footprint
An entire city street, the 1400 block of LaSalle which lies between Benson Tower and the Superdome, has been appropriated into the Champions Square venue….sans any contract with the City.

The street has been completely closed to automobile traffic with numerous permanent structures erected by the LSED including gateways  on both ends of the street.  During concerts and events in the Square these gateways are closed to the general public and used as a ticketing entrance for private events.

One of two permanent "Gateway" structures on each end

of the 1400 block of LaSalle Street 

Even the map at Champions Square show LaSalle Street as an

official part of its footprint

The problem being there is no contract with the City to utilize the street, temporarily or permanently…not even a cooperative endeavor agreement.  This is problematic not just for the revenue lost by the City, it’s also a violation of Article 7, Section 14 of the Louisiana State Constitution.  

I filed a public records request with the City to see what agreement we made with Zelia and/or the LSED that allowed them to incorporate the street into the Champions Square footprint and it turned up nothing….zilch. 

I also filed a public records request with the LSED to see if they had any contracts with the City for the use of the street and to see their contract with Zelia, LLC.  While the LSED contract  with Zelia mentions Champions Square, there is no mention of the use of LaSalle Street.  Therefore, there is no contract that would allow Zelia or the LSED to use it, much less build permanent structures and close it to the public.

After receiving the LSED/Zelia contract I asked their current administration (they were quick to point out they have an entirely new board since the 2009 agreement was established) a series of questions about the nature of the contract and the appropriation of the 1400 block of LaSalle.

In respect to what is known regarding the use of the street, the LSED provided me with a “good faith” letter they sent to the City in 2011 regarding their construction plans for LaSalle which stated they would be pursuing a long-term lease of the property.

The City Real Estate Administrator, Marha J. Griset, replied that they were agreeing to enter into a long-term lease under the following conditions: A deposit shall be made, the City Planning Commission will grant approval, and the City Council will endorse the lease (ordinance).  Also that the LSED must continue with the process towards the signing of the long-term lease.

That didn’t happen and the LSED moved forward with their construction on the street without an official lease, purchase or city ordinance.  Six years later the City has not been compensated for the street and no ordinance officially exists.  

Lost Boulevard

If the City of New Orleans is as cash-strapped as Mayor Landrieu suggested when I interviewed him, why have we left millions of dollars on the table in respect to 1400 LaSalle?
When I asked the LSED if the City has received any compensation for the use of the street from them or Zelia they replied:

"The City of New Orleans has received the economic benefit of (i) the improvements that were made to LaSalle Street, (ii) the ongoing maintenance, repair, etc. of LaSalle Street, and (iii) increased tax revenues derived from events that occur at Champions Square. " 

It’s kind of hard to understand how shutting a city street off to the public, taking it out of commerce (including parking meters and fines), installing permanent fixtures....all to generate income for a private venture...is an “improvement” or benefit to the City.  
If I fix the potholes on my own street, can I put up two gateways on each end and charge people to use it?

The loss of 1400 LaSalle to the City without any compensation or contract is bad enough but the fact that a state entity, the LSED, has financed millions of public tax dollars to “improve” the street solely for the benefit of Zelia, a private entity, is a double-whammy to taxpayers. 

You essentially have a public entity (LSED) paying rent for a public street (CNO) to a private entity (Zelia, LLC) who doesn’t actually own the street to begin with.  
As I stated above….great deal if you can get it.

Down This Road Before

There is also a corollary to this issue in the private purchase of the 500 block of Fulton Street.  Harrah’s Casino had made significant “improvements” to Fulton Street but the City required them to purchase the street in order to take it out of public commerce.  If Harrah’s is required to purchase Fulton why would the Mayor allow a billionaire, in Benson, to take over 1400 LaSalle (per the LSED) for free? 

Crunching the numbers

I asked an accountant friend of mine to look at the LSED/Zelia contract to see how much the LSED has paid Benson under the contract since 2011.  While these numbers are not official, my friend estimated that the LSED has paid Zelia  at least around $14 million since the inception of the lease with an estimated $33.5 million due over the remaining life of the lease through 2026.  That would put the total amount of the contract around $47.5 million over a fifteen year period. 

However, The LSED also has a separate marketing fund for which it is responsible but doesn’t seem to be subject to state audit or public disclosure through the Legislative Auditor.  Individuals seeking more information on the marketing fund are directed to the LSED.  The reason this is significant is that the marketing fund also makes rent payments that look to be either profit sharing or revenue sharing arrangements for the Champions Square events, I believe this is part of the 50/50 profit split mentioned above but I’m not sure.  

As an example, in fiscal year 2014, LSED paid $2.3 million for the lease, but the marketing fund also paid $1.9 million.  For fiscal year 2016 the amounts were $2.5 million paid by the LSED and $2.0 million paid by the marketing fund. However, elsewhere these lease payments by the marketing fund are shown as revenue for Champions Square.

Hence, the total amount paid to Zelia by the LSED to date may be significantly higher than $14 million.  

No one rides for free...unless you're a billionaire
The appropriation of the 1400 block of LaSalle has taken on a new relevance in 2017. 

In January the Mayor informed many of the non-profit festivals in New Orleans that the City would no long waive various permit costs, including street closures and parking meter rental loss, to these festivals.  It greatly affected many of the festivals that already had fixed budgets in place for 2017 and are now facing thousands of dollars in added expenses. 

The non-profit entities are now being hit with multiple permitting fees for the use of public streets while Tom Benson has been given an entire street by the City, with the State paying him for its use.  


I asked Mayor Landrieu’s Deputy Mayor of External Affairs, Ryan Berni, if the Mayor was aware of the issue…here’s his response:

“We have been working with the State for the last several years on a property swap that would include the street and the State’s portion of Duncan Plaza.  For a number of reasons, it hasn’t been settled due to the values of the property not matching up.  It is something we are still working on with LSED and the State.”

The only problem with that is that no one I spoke with at the LSED mentioned anything about that deal, so I’m not sure who is negotiating with the City on the matter.  Nor could I find any documentation of the deal. 

Land swap deal aside, we’ve gone seven years with no contract in place and millions of dollars left on the table.  In fact, millions of state tax dollars have been paid to a private entity who doesn’t  even own the public property in question.  

For New Orleans it appears public/private partnerships are how financial champions are made.  More to come on this.

If you don't have time read it all....just watch this short video for the basic skinny on the story...

1400 LaSalle from Jason Berry on Vimeo.

 Relevant Documents not linked above:

The actual Lease between the LSED and Zelia, Inc.


Unknown said...

It's amazing how, no one is accountable. A major street block is stolen in plain sight and no one asks a question. They are doing the same thing in the 2100 block of St Philip, which was a very useful bus route for people, but the through way has been blocked for an enterprise. And the newest one; giving a private company all the street space for the so-called bike share, which is being called additional public transit but is actually just for tourists based on the rollout routes. The city of New Orleans has no share in the profit. Wow! Thanks for report American Zombie.

mominem said...

Another interesting development is that the City has recently begun holding up property owners who have balconies extending over city sidewalks demanding payment and other agreements for the use of "air rights" by holding up building permits for needed repairs and in some cases work essentially ordered by the Vieux Carre Commission. In some cases the structures that have been in place for as long as anyone can remember (like Napoleon House).

Frontier Preachers said...

I have to wonder about liability issues for the 1400 LaSalle property. If you attend a function at Champions Square and are injured, whom do you sue? This messy "It's not really mine" way of doing business exists in more places than we know about. When my neighborhood association tried to find out who was responsible for defending the levee banks on Bayou St. John from subsidence caused by nutria tunnels, they were given a bunch of finger points from one agency to another. Eventually they raised money and hired professionals including a nutria specialist to deal with the problem, but it's not fixed permanently.

The power people targeted and succeeded in ridding themselves of Letten, and I feel the IG is under constant threat of losing his seat as well. Watchdog wanted! Thanks, Zombie. Keep doing what you're doing - and watch your back.