260 Chat

Serving the 260 Highway corridor
Payson, Pine, Strawberry
and others.


Hockey Prep School in Payson? Or Town funding boondoggle?
Read 44794 times 0 Members and 1 Guest are viewing this topic.
December 20, 2017, 08:24:33 PM

January Chamber Lunch to Feature Consultant for
SH Prep Academy and New Community Center
Date:  Tuesday, January 9, 2018
Time:   11:00 to 11:30 am networking
11:30 to 12:30 lunch and speakers
Location: The Mazatzal Hotel and Casino
The featured speaker will be consultant, Ron Chambless from Community Partners, LLC. Ron will provide an update on the proposed High School Prep Academy for elite athletic training, and the private/public partnership feasibility study for a new Payson Community Center. He will discuss community impact, timelines and other strategic issues related to this project.

The February Luncheon will feature Craig Swartwood talking about what is coming up in 2018.

Thank you so much for that information and welcome to the conversation.

There is also a meeting as follows:

Public meeting to review parks plan 5:30 p.m. Jan. 17 at Payson Nazarene Church, Tyler Parkway

Again, welcome to the conversation.


December 21, 2017, 05:47:59 PM
Time for some fun with pictures and numbers to understand the proposal.  The Roudup reports the following:

Tentative plans call for a roughly 28,000-square foot community/activity center plus a pool...

Chambless said they have already secured a backer who would loan the money to build the community center/pool. Membership and use fees would help pay back the loan and they estimate they would need to bring in about $600,000 to $700,000 annually to make the project work. (1)

In my travels, I have had the chance to work with many forensic accountants.  Most accountants will tell you 2 +2 = 4.  A good forensic account will say “what do you want it to equal?”  The point is, an expert will say what you want or need; some will even tell you the truth.  On the sell side?  All good.  Buy side?  Not so much.  Keep that in mind. 

Now, for this we are simply going to accept those numbers stated by Mr. Chambless as reality.  No questions.  Well, OK, one question. 

A North American Hockey Rink is 200’ x85’ or 17,000 square feet. (2)  So, that leaves 11,000 square feet.  An Olympic pool?  50m x 25m or 1250 sq.m. or 13,454 square feet. (3) I can only conclude there is no plan for an “indoor pool” as we are now in excess of 28,000 s.f.. No room  for bathrooms, bleachers, snack stands, multi-purpose rooms, etc.   We seem to be missing some square footage or Mr. Chambless has never seen a hockey rink?

So, how big is 28,000 s.f.?  A frame of reference we are all familiar with would be good.  The Home Depot patio section is roughly 150’x180’ or 27,000 sf.  Add in some parking, and well, we are talking about a fairly good size area.  Where does one place that in Rumsey Park? 

This will help.

Home Depot Patio area - Open roof area only. 

Patio and a bit of parking removed.

Home Depot patio and a bit of parking at Rumsey Park.  Same scale

Ohhhh, that is good size and remember, that does not include the pool.    Pool?  About the size of the tennis courts to the right.

Parking, that may be rough.  Getting the prep school kids to the rink may be rough.  From the 26 acres to Rumsey?  All weather, rain or shine?   But, as long as we are “imaginering” solutions with unlimited budgets, lets get some mass transit?  Light rail?  Oh wait – a Trolley!  I want to drive the trolley!  Ding ding ding!

All aboard!   

* * *
(1) http://www.paysonroundup.com/news/local/focus-groups-meet-to-discuss-parks-plan-prep-school/article_56c98d40-64e7-53b3-990d-d67c07d87e07.html

(2) https://en.wikipedia.org/wiki/Ice_hockey_rink#North_American

(3)  https://en.wikipedia.org/wiki/Olympic-size_swimming_pool


December 21, 2017, 07:44:09 PM
Enough with pictures, let’s get to some numbers!    What is the cost of a 28,000 square foot Rec Center with pool and hockey rink?   Well, it depends.   I know, I know. 

Using some basic estimating guidelines from a well-respected estimating software company it looks like a Rec Center with hockey rink and pool, comes in at just about $6.9 million.   For those that want the full valuation method, it is attached in pdf in both summary and detail right down to the number of sodium lights and wall mounted soap dispensers.  (You need to be “logged in” as a user to have access to the .pdf full breakouts.)  But, here is a snap shot of a quick thing I put together:

Some caveats.  The pool is calculated at about $200.00 a sf for a Swimming pool - Commercial - Municipal (community) that includes:

Sprayed concrete, rebar, plaster finish, pumps, filter, heater, chlorinator, tile, and labor to install. Excludes: Pool cover, deck, wave machines, special features.
Quality: 8" concrete, 12" at perimeter, #4 rebar at 12" OC both ways.  Municipal pools are generally larger w/high grade copings, deep areas, dive boards, wading pool, race lanes, larger ornate tiled areas.
Average life expectancy 25 years

This is no grand palace Rec Center.  It is standard quality, some minor upgrades, but not over the top and no furnishings, etc.  No desk, no chair and no computer.  Not perfect, but we are getting close.  Contingencies?  Yes, better plan on some.  Additional items like parking lots, landscape, hardscape, etc?  Dig problems / dirt work?  Well, let’s just round it up to an even $10.0 m.   We are now really solid in the ballpark, nice, some cushion for overages and outdoor pool upgrades. 

Back to Mr. Chambless and the “$600,000 to $700,000 annually to make the project work.”

Time for math.  Assuming a debt of $10.0m, and a 30 year bond, 2% rate (that good municipal bond rate) allowing about $3,000 a month in insurance and backing out property tax we are pretty close to a debt service payment of about $40,000.00 a month.  No maintenance, no frills, just debt service.  (Yes, I cheated with a “mortgage calculator” my HP17IIB is in the shop.)

So, $600,000.00 / 12 = $50,000.00.    Hmmmm…..    Not much left to keep the lights on or the floors swept.  Let’s try this:  $700,000.00 / 12 = $58,333.33 per month in projected revenue.  Back out debt service of $40,000.00 a month and we are left with just under $20,000.00 for wages, utilities, maintenance, etc.  Not many high paying jobs there at the Rec Center are there?  Going to need to schedule some Pokemon / Comic Con conventions and sell a hot dog for what like $8.00?  Maybe raise the bed tax for all the hockey tournaments?

Let’s revisit Mr. Chambless’ success with the city of Glendale.  This will be fun!

Initial Successes @ FRAC:
The summer 2014 Membership Drive:
785 new members compared to 225 in June 2013
88 new Silver Sneaker members
$38,576 in monthly revenue vs. $16,640 in June 2013
Quality marketing and branding in the community
Staff Teams leading the initiatives and event  (1)

OK, we have $38,576 in revenue after a marketing campaign.  Divide that by the total number of residents in Glendale of 226,721 (2) and we see a per citizen revenue of $0.17.  Wait, is that right?  Less than a quarter ($0.25) per citizen in anticipated uptake? 

Well, how many folks are in Payson? According to the 2016 CAFR we have a population of 15,345. (3)  Well, that works out to be $2,610.91 in revenue from citizen’s use / uptake. So the shortfall from citizen uptake?  $55,722.00 per month. 

Something tells me we need a smaller Rec Center, a bigger town or a few more hockey prep schoolers?  The first 12 students, that money is gone.  Just gone.  MOAR Hockey Prep School Players Please!

Parenthetically I note the City of Glendale had success with the “Silver Sneaker Members.”  Great group, keeping active is important as you age.  Last time I drove down the Beeline, I noticed the local business “Anytime Fitness” had a special deal for “Silver Sneaker” members?   Hmmmm, not exactly Chamber of Commerce stuff when the Town will be poaching customers from a local business.   Maybe they can discuss that at the upcoming Chamber of Commerce lunch?

* * *
(1) https://www.glendaleaz.com/boardsandcommissions/documents/102014ParksRecreationAdvCommission-F.pdf
(2) https://suburbanstats.org/population/arizona/how-many-people-live-in-glendale
(3) https://www.egovlink.com/public_documents300/payson/published_documents/Financial-Reports/TOP-CAFR-FY16.pdf


December 22, 2017, 08:23:11 AM
Time for a reality check.  Does Payson need a new Rec Center?

I understand the 600 elite prep school hockey players do, (still laughing at that) but does Payson need a new Rec center?  Is that need being met currently? Or, is this a "want?"  I mean I "want" a new Mercedes, I need a new Hyundai.  See the difference?

Well, lets see about our "needs." From the fine people at the Town’s Park and Recreation Department.

Payson boasts year-round recreation classes, special events, camps, skate complexes, leisure activities, swimming pool, tennis courts, disc golf courses, sports fields, and much more! We strive to meet the recreational needs of every resident in Payson and its visitors. So come enjoy your parks and experience the best Payson has to offer!

Youth as well as adults sports, various sports. Organized with pricing
Taylor Pool - $2.00 per person

Rumsey Skate Park (Free) (1)

Well, look at that.  Excluding hockey, looks like it may be a complete show already?

Silver Sneakers? Well, there is always the Payson Senior Center.  Cheap too!  Membership is for a year is $15.00 per person.  You can get lunch, activity groups, support groups, bingo, cards, Zumba! (2)  (I love Zumba!  ;))  Wow, if I did not know better, it sounds like the Senior Center is almost just like a Rec Center.  No ice rink, but hips. Yeah, the hips get expensive.   :-\ 

Let us not forget our good friends at the Tonto Apache Nation.  They are always very generous with their facilities.  The “Testicle Festival” makes me smile almost as typing “600 Student Elite Hockey Prep School.”  At the least the “Testicle Festival” is real; I know this. I have been. 

Tonto Apache offers a gym, swimming pool, Jacuzzi and basketball courts. (3) The pool can be rented for parties and events.  Additionally they offer Zumba classes at the gym. (Yea!  More Zumba!  ;))  The cost is noted to be minimal, however they do not advertise this on their website.

Now, if you are in a swankier part of town, and don’t mind the HOA dues, well, there is always Chaparral Pines.  Let’s see……

Only 75 minutes from world-class dining, sporting events and shopping in Scottsdale and Phoenix, Chaparral Pines offers a healthy, relaxing way of life that is perfect for those in search of quality living. The community boasts a wide variety of recreational amenities and activities designed to please every member of the family. The eight-acre Trailhead Park offers complete recreational facilities, including: swimming, tennis, basketball, volleyball, a fitness center and an activities field. Barbecue and picnic areas overlook the children's playground.

The entire community is connected by a trail system that provides direct access to the adjoining Tonto National Forest - providing a virtually unlimited natural setting. The forest offers hiking, trail rides, camping, fishing, tours of the area Native American ruins and just observing the region's wildlife in its natural habitat. (4)

75 Minutes?  Wow!  They drive fast.  They also have a championship golf course.  Stay clear of the elk. (No Zumba! though.   So much for that option. >:( )

Well, with a population of 15k+/- looks like we have lots of options! Bully for Payson.

* * *
(1) http://www.paysonrimcountry.com/parks---rec
(2) https://www.paysonseniorcenter.org/membership.html
(3) https://www.facebook.com/pages/Tonto-Apache-Tribal-Gym/126665480757331
(4) http://www.chaparralpines.com/


December 24, 2017, 09:20:06 AM
Time to circle back for a moment.  This post was deleted from the Roundup comments section.   

BTW, Resolution No 3065 of the 09/21/17 Council meeting, funding all of this, appears at best suspect as they did not follow the “Procurement Policy” and it appears to fall outside of “Professional Services” designation as Community Center Partners, LLC (CCP) does not appear to be a qualified “registered professional.”  There was no RFQ, RFP or Selection Committee.  How the council can spend $125,000.00 without some of that is beyond me.  But, that is just my take. (1)

The resolution was discussed in the 09/21/17 meeting and passed by all.  Let us explore that a bit? 

The town Charter is pretty clear.  The first element for passage of a resolution ordinance is notice and legal review:

   (A)   Before presentation to the Council, all ordinances, resolutions and contract documents shall be reviewed as to form by the Attorney.
   (B)   Before presentation to the Council, all Council decisions requests shall be reviewed by the Manager.
(`82 Code, § 2-5-1) (Am. Ord. 839, passed 10-17-13) (2)

The posted agenda for that meeting: 

According to the Town’s records it was on the agenda prior to the meeting.
Here is a video of that meeting (4)  Fast forward to 34:30 to avoid the other stuff.    Edit -  that link may not work, here is the default - find the 09/21/17 meeting video. http://www.paysonaz.gov/Video/Council-Meetings.html)

Some highlights:
41:45 – Mayor Swartwood: “Part of the rec center would be two ice skating rinks. It is very, very hockey based.”
43:50 Council Member Barbara Underwood:  “To build a pool.” “We can say goodbye to Taylor Pool.” 
48:50 Town Counsel / Attorney Mr. Hector Figueroa: Clearly indicates that he has reviewed the contract and that all the details cannot be divulged as “we don’t know them.” 
50:52 Town Counsel / Attorney Mr. Hector Figueroa:   The original master plan was signed by Craig Swartwood in 1993.  The town voted on the master plan.

Vote at 54:30

All council members voted in favor of this plan.

So, twenty minutes of discussion for $125,000 expenditure? Mr. Figueroa cannot divulge information on a $125,000.00 commitment of town funds?  Now, I would encourage that you watch the video. You can draw your own conclusions if this qualifies as “discussion.” Or if it is more appropriately described as “steam rolled.”

But, again, is the consulting contract with CCP legal?  Review this post for requirements of a Professional Service Contract.  Here is a snip:


The process for engaging professional services from an architect, assayer, engineer, geologist, land surveyor, or landscape architect, is governed by ARS Titles 15, 28, 34 and 41. Engineering projects under $500,000 and architect, landscape architect, assayer, geologist or land surveying projects under $250,000 may be awarded by any of the following processes. For projects exceeding these dollar amounts Section 1.6.1(c) must be used.

c) Request for Qualifications – The department issues a Request for Qualifications (RFQ) and advertises in the newspaper for the project. A selection committee will evaluate the statements of qualifications and performance data submitted in response to the RFQ. The selection committee may also conduct discussions with no more that (sic) 3 firms deemed to be the most qualified based on competence and qualifications only. The selection committee shall not request or consider fees, price, man-hours or any other cost information in the selection of the short list or order of preference. The committee shall prepare a short list in order of preference. The Town shall enter into negotiations with the highest ranked firm taking into consideration contract terms, scope, complexity, compensation, etc. If the parties are not able to negotiate a satisfactory contract, the Town shall terminate negotiations and enter into negotiations with the next firm on the short list. This process is continued until an acceptable agreement is reached. (5)

No RFP, no RFQ, No Select Committee.  I don’t understand how CCP qualifies as a “Registered Professional.” 
Here is a list of professions.

One would anticipate Town Legal would be readily familiar with the “Administrative Policy / Procurement Policy.” 

Onto some bigger questions and time to play “what if:” 

What if this agreement between the Town and CCP ensures future work on the project to CCP paid for by the Town?  Does that then require a select committee?  Is capping the initial contract at $250,000 a work around to that pesky town code?  What if the scope of work far exceeds a “master plan” and allows for acting on behalf of the town with financiers, contractors, attorneys, and other governmental agencies?  That is, moves far beyond “planning” and into development?  What if the contract has placed that authority, and the procurement process outlined above, in the hands of CCP and outside of the council?  Does that require more input than an agenda item placed 30 hours before a meeting and twenty minutes of “discussion” by the council?  What if the agreement allows for monetary / revenue concessions does that then get subject to the procurement requirements?

Time, and a little more digging, will tell I suppose? Stay tuned.

* * *

(1) http://www.260chat.com/town-government/hockey-in-payson/msg2305/#msg2305
(2) http://library.amlegal.com/nxt/gateway.dll/Arizona/payson/paysonarizonacodeofordinances?f=templates$fn=default.htm$3.0$vid=amlegal:payson_az
(3) http://www.paysonaz.gov/Council/agendas/2017/09-21-17-A/09-21-17-A.htm
(4) http://payson.granicus.com/MediaPlayer.php?view_id=17&clip_id=2118
(5) https://www.egovlink.com/public_documents300/payson/published_documents/Fiscal%20Policies/504-Procurement-Policy-replaces-102.pdf


December 24, 2017, 12:29:31 PM
We know there are three players on this deal.

1. The Town of Payson
2. Community Partners LLC / LEON J PLOSZAJ
3. Varxity Development / Lane Moore, Chief Executive Officer

By implication, there is another player not being discussed and two “absent from the conversation.”  They are the “26 Acres” and Rim Country Educational Alliance / Foundation.  So, let’s take a look at both and see if we can come a little closer to understanding?
First the “26 Acres.” Mayor Swartwood has stated that it is under contract i.e.: Escrow.  So let’s take a look at the 26 Acres. 
That property is owned by the TTLC Timber Ridge LLC.  It last sold in 2013 for 2.1 million.  TTLC Timber Ridge LLC is basically a division of The True Life Companies. 

The True Life Companies appears to have several areas of development and various communities throughout the United States. (1) 

They also have a very complex structure.  No doubt for tax purposes and various legal issues.  How complex?  You decide. 

At one point it was reported that the property was scheduled for 150 Unit Single Family Residential Subdivision.  A lot of money was put into the project. (2)

Now, I fully understand that if it makes financial sense, projects are started, stopped, bought and sold.  That may well be the case.  The cynic in me?   Best just to accept the statements at face value the property is under contract / in escrow.

* * *

(1) http://www.thetruelifecompanies.com/land-group-community-list.cfm
(2) http://www.paysonaz.gov/Departments/CommunityDev/Planning-Zoning/agendas/2014/10-13-2014/S14-002.pdf


December 24, 2017, 06:58:51 PM
So who is absent from the conversation? 

One thing that strikes me is the absence of Rim Country Educational Alliance / Foundation. Not a Peep. This is a group that is actively seeking a school partner.  Never mind ASU, they were willing to have an American Charter as a participant.  A private, for profit school not at the college level. 

There is no doubt that Community Partners LLC / Mr. Ploszaj is well aware of the Alliance / Foundation.  How do we know this?
CCP said Ploszaj has more than 30 years experience in planning, development and real estate projects.
Ploszaj, then with dck Capital Solutions, worked with the Rim Country Educational Alliance to buy land for a university and draw up final plans for both buildings and infrastructure.

Ploszaj said dck completed its work on the university project with engineering, financing and development plans. Ploszaj said the project is defunct until the Rim Country Educational Alliance finds a university partner. (1)

Mr Plosnak (sic) is no stranger to Payson. His primary position is with DCK Capital Solutions, a firm specializing in large construction projects. While I cannot verify this, several Payson sources have told me that DCK is involved with the effort to build the new university in Payson. Given that the university does not seem to be progressing as planned, is it reasonable to speculate that the Educational Alliance has shifted focus to a prep school project? (2)

So, Mr. Ploszaj wants to facilitate Varxity coming to Payson, knows full well of RCEA / RCEF and instead chooses to solicit the Town of Payson? 


Part of the discussion involves potential use of a Private Activity Bond.   The town has no advantage over RCEA / RCEF there.  They are a separate legal entity with full authority to issues bonds, that would presumably include assistance in placement of a Private Activity Bond?   

RCEA has no powers over persons or entities that reside and/or do business outside of its limited enumerated boundaries.

RCEA has specific powers that include:
•   Make and enter into contracts, leases and other transactions with one or more of the Members;
•   Employ agents, employees, consultants and advisors, and contract for professional and other services;
•   Acquire, hold, encumber, lease, and dispose of real and personal property;
•   Acquire, construct, manage, maintain, operate, and lease buildings, works, infrastructure and improvements;
•   Incur debts, liabilities, and obligations;
•   Issue bonds in accordance with ARS §11-952-02;
•   Sue and be sued;
•   Accept grants, gifts, and donations of real and personal property and funds;
•   Exercise, in the name of the entity, any common governmental and/or proprietary powers of its Members;
•   Engage in electrical generation and transmission activities, but not distribution;
•   Pay development fees;
•   Invest funds.

RCEA cannot pass debt along to Members; nor can RCEA engage in or contract for services that would compete directly with Gila County Community College.  (3)

There are added benefits to working with RCEA / RCEF. Like what? Well, they are well on the way to being a certified gold site via Arizona Commerce Authority.  What is that?

In today's competitive site selection process, the properties with infrastructure and permitting in place are often the most attractive to companies looking to expand. To quickly identify the most ready-to-develop and occupy sites and buildings outside of Greater Phoenix and Greater Tucson, the Arizona Commerce Authority has created its Certified Sites program. The program’s certification requirements are based on industry standard among the corporate real estate and economic development trades. Whether you are searching for available properties or wanting to showcase a “shovel-ready” site, begin the process today. (4)

The Arizona Commerce Authority is the jumping off place for any business to locate or expand in Arizona seeking public assistance / co-partners. (5)  Look at the resources! 

How can Community Partners LLC / Mr. Ploszja not direct his client to this resource? How can Community Partners take $125,000.00 in fees from Varxity when there are apparently more suitable locations looking for what Varxity is offering in the same area? Why did RCEA / RCEF pass on this grand deal despite being in the market for just such a suitor?  Why would Varxity want a poorly located 26 acres, in lieu of a larger campus, planed complimentary development, already with a “Silver Status” via the Commerce Authority?  That does not make sense to me. The only advantage the Town has over RCEA / RCEF is the Rec Center.  That is it.  The Rec Center. 

The silence of RCEA / RCEF speaks more than we know?

We need to concentrate on the Rec Center for the keys to this deal?

* * *

(2) http://www.paysonroundup.com/opinion/letters_to_editor/doe-letter/article_a1955823-d931-5c32-86ca-b52d33832e16.html
(3) http://www.rimcountryeducationalalliance.org/about.html
(4) http://www.azcommerce.com/a/sites/
(5) https://www.azcommerce.com/


December 25, 2017, 09:12:55 AM
Wow!  How did I miss this?    Doe Letter published 10/06/17 - Well worth the read.

It appears I am not the only one with concerns?  Thank you to community member Chick Doe for taking the time to address some concerns.  I wish I was as articulate and concise.  AN EXCELLENT READ. In part as follows:

I have read your recent article and the press release issued by our town manager, LaRon Garrett, regarding the contract that the town council approved to develop a master plan for Rumsey Park. While both were of interest there were many details and relationships omitted. This makes me wonder just how transparently our town management and council operates.

I also have to question a statement about the $125K that the town is going to pay for the plan. Mr. Garrett stated that this amount is already in the budget and would not cause a financial strain. The implication of this statement is that if it is in the budget it is OK to spend the money.

I have worked in industry for a long time and we made many budgets, but at no point was it allowable to spend money solely because it was in the budget. The expenditure had to be reasonable and justified.

The contract to prepare a Rumsey Park master seems to have many pertinent questions that should be resolved and the parties involved thoroughly vetted before the town council approves any money for such a plan. I have questioned one council member that was not aware of many of the questions raised in this letter. I am sure there are others. Yet they went ahead and approved the contract and expenditure.

Again, so articulate and concise.  Great writing and well done. 

But how did I miss it? 

Well, again, it appears that the Roundup is less than interested in dissenting opinions.  Here is the title of the letter they assigned. 

“Doe Letter.”  Honesty there would be a higher click through rate had they placed the headline as “don’t click here.” The purpose of a title / headline is to engage the reader.  That’s how I missed it.  The headline, while accurate, gave no indication of the content or subject matter. 

To quote Chick Doe:  “I hope that the Roundup takes the effort to look deeper into these issues and reports back on all of the backgrounds and intertwined relationships between the various parties involved.”

That is clearly not on the Roundup agenda.  With a little luck we will get to the truth?

* * *

(1) http://www.paysonroundup.com/opinion/letters_to_editor/doe-letter/article_a1955823-d931-5c32-86ca-b52d33832e16.html


December 25, 2017, 09:53:40 AM
Crazy, I found another letter to the Roundup that I missed. How did I find it?  A search for “prep.” 

Dont fall for this song and dance - Letter to the editor 11/24/17

Thank you to community member Marcia Mackey for taking the time to address some concerns. The “Music Man” reference is a nice touch. 

Ms. Mackey’s letter in part:

Now, I’m not saying these people are crooks, but just who are they, anyway? Does Payson need a prep school or a hockey rink? PLEASE, people, let’s step back and take a deep breath here. (1)

Thank you again Ms. Mackey for being involved. 

(1) http://www.paysonroundup.com/opinion/letters_to_editor/don-t-fall-for-this-song-and-dance/article_f1052d02-33bc-5d96-8c7d-7a4c1e1a76e7.html


December 25, 2017, 10:43:12 AM
Risk-Neutral.  Risk-Neutral.   That sounds almost too good to be true.  But yet that is clearly a talking point.

Ron Chambless, executive vice president/COO with CCP, said any plan would be risk-neutral to the town. (1)
Possible funding source includes a private activity bond. Planners say it will be “risk neutral” with town putting out zero capitol. (2)

Funding of the rec center, which we don’t really need, seems to be the clear goal here? 

Time for a basic understanding of municipal bonds.  I promise, I won’t make it too boring. But, yes, muni bonds are about as exciting as watching paint dry.  So, here is the deal.  I will keep it short, and have all sorts of reference should you need it. 

First – Private Activity Bond. This is a conduit bond - not really a government debt.  Last week, I had a wonderful conversation with the Project Manager for Arizona Finance Authority.  The gentleman was very very generous with his time and knowledge.  Gave me a much better insight to a “Private Activity Bond.”  If you really want to learn more please check some of these sources.  (3)

The upshot?  This is a way for private entities to secure lower finance rates as the interest is not subject to income tax.  Very limited or no risk to the issuing agency other than reputational risk.  There are also political considerations.  Essentially the government agency only acts as a conduit.  Think large scale projects like hospitals – makes sense at the end of $100m project for every point off on the interest side. You have to overcome placement costs, etc.   

But, we are talking about an elite 600 student hockey prep school here.  Each student paying $50,000 per year (still laughing at that).   That is not a hospital.  That is not a $100m project.   

Here is the rub.  The bond is worked privately, Bond Counsel, Underwriters, private placement, all nice and tidy, then brought to the agency via the conduit (in the case Town of Payson) for approval.  Private underwriter?  Not to scoff at this idea too much, but Varxity has nothing more than a dream.  No track record, no history, not much to place a private bond with.  I doubt Morgan, Chase or others will give any proposal much more than a cursory look? There are better finance avenues for such a startup than a Private Activity Bond. 

Why would a developer, such as Varxity, give the city $10m in a rec center?  They are not building a nuclear waste plant or prison.  What is the pay off?  To save $10m in interest on a project, that would have to be a huge project.

So why not place it as a revenue bond by a credit worthy agency and lease back? Oh wait…….

Keep repeating that phrase - Risk-Neutral.

* * *

(1) http://www.paysonroundup.com/news/local/prep-school-land-in-escrow-community-meetings-planned/article_a773963f-2d29-585c-abc4-e975c5700ba1.html
(2) http://www.paysonroundup.com/news/local/focus-groups-meet-to-discuss-parks-plan-prep-school/article_56c98d40-64e7-53b3-990d-d67c07d87e07.html
(3) https://www.everycrsreport.com/files/20160330_RL31457_d2b66a3a84896985c646b06f03bcdebcc9dad790.pdf


December 25, 2017, 11:17:52 AM
Risk-Neutral?  That depends on one’s perspective. 

So what other types of financing does the Town have access to? 

Generally speaking government debt comes in two flavors excluding a “conduit bond.”   The first of the government debt is a general obligation bond.  Risk-Neutral?  Well, for the lender.  Not so much for the citizens.  As close to debt servitude as one gets. 

General obligation bonds. These bonds are not secured by any assets; instead, they are backed by the “full faith and credit” of the issuer, which has the power to tax residents to pay bondholders. (1)
Municipal bonds can be categorized into two types: general obligation (GO) bonds and revenue bonds. GO bonds are secured by the “full faith and credit” of the government, that is its full property taxing power. There is a legal obligation to use its taxing power, if necessary, to repay the debt, and in the event of a default the holders of GO bonds have a right to compel a property tax levy to meet the obligation. GO bonds are generally considered to be very low risk for investors, and they usually sell at the lowest rates of interest. (2)

A General Obligation bond is pretty well the full backing of the town to pay it back.  That is property tax, sales tax, levies, etc.  That one gets issued by the Town.  The rub?  That one requires an election.  That’s right, voter approval. Now, if my fellow citizens want a new Rec Center, and they vote for it, well, so be it. 

So, if the goal of this deal is fund a new Rec Center why not just issue a General Obligation bond for $10m / $20m and call it good?  Again, the pesky voters.  You know, the folks that don’t have the required vision?  The folks who suspect that it all gets done right?  The folks who get to pay for it?

Payson is drain the swamp country.  Payson is make America great again country.  Payson overwhelmingly supported President Trump.  It appears that Payson has, at its very core, a sensibility of smaller government and less government debt.  I would not anticipate that a general obligation bond for financing of a recreation center and/or a politician’s wish list would be successful. 

“Risk-Neutral” for a politician?  Not even close.  They may propose a bond and loose the vote?  Not good.  But what if they really really want a new Rec Center?  How to minimize the chance of voter “revolt?”  (Or “educated voter” I guess it depends on your desires?) How to make this a “Risk-Neutral” deal for a politician?  Yes, “Risk-Neutral depends” entirely on your perspective. 

* * *

(1) https://www.investor.gov/introduction-investing/basics/investment-products/bonds#Fraud
(2) https://www.azleg.gov/briefs/Senate/MUNICIPAL%20BONDS%20AND%20STATE%20AND%20LOCAL%20%20AND%20COUNTY%20DEBT.pdf


December 25, 2017, 12:18:59 PM
The second from of Bond?  Revenue Bond.  Risk-Neutral?  Depends on the revenue. 

A bond that is payable from a specific source of revenue. Pledged revenues may be derived from operation of the financed project, grants, or excise or other specified non-ad-valorem taxes. Generally, no voter approval is required prior to issuance of such obligations. Only the revenue specified in the bond contract is required to be used for repayment of interest and principal. (1)

Wait that is a big word.  Let’s take a peek?

A direct tax calculated “according to value” of property. Ad valorem tax is based on an assigned valuation (market or assessed) of real property and, in certain cases, on a valuation of tangible or intangible personal property. In virtually all jurisdictions, ad valorem tax is a lien on the property enforceable by seizure and sale of the property. An ad valorem tax is normally the one substantial tax that may be raised or lowered by a local governing body without the sanction of superior levels of government (although constitutional or statutory restrictions such as tax rate limitations may limit this right). (2)

More? Well OK, from the Arizona State Senate Issue Brief May 7, 2015

Revenue bonds are legally secured only by a specifically identified revenue source rather than the full faith and credit of the government. If that revenue source is inadequate to make the debt service payments, the government is not legally obligated to use any other revenues for the bond payments. The government may pledge a certain portion of specific tax revenues or may use revenue generated from the operation of a project financed with the bonds to pay the principal and interest. Thus, revenue bonds are typically used to finance revenue producing projects such as sports venues, convention centers, hydroelectric projects or airports. The revenues subsequently generated from the operation of the project are used to pay off the bonds. Usually, revenue bonds do not require voter approval, although an election may be required by law in particular cases. (3)

To the extent that this is reported as a “revenue neutral bond” it does not require a referendum?  It does not allow for citizen input into the process?  The only input that is relevant is the town council?  As a reminder, the town council voted for the contract with Community Development Partners in apparent violation of the town charter and the procurement policies.

Fun fact:  Arizona Revised Statutes Title 9 allows for issuance of a revenue bond for a rec center if your town is small enough. 

2013 Arizona Revised Statutes
Title 9 - Cities and Towns
§ 9-521.01 Recreational facilities
Universal Citation: AZ Rev Stat § 9-521.01 (through 1st Reg Sess 51st Leg. 2013)
9-521.01. Recreational facilities
A. For the purposes of this article only, the term “utility undertaking”, in addition to the definition prescribed in section 9-521, shall mean recreational facilities.
B. “Recreational facilities" means swimming pools, parks, playgrounds, municipal golf courses, and ball parks.
C. Provisions of this section shall apply only to municipalities of seventy-five thousand or less. (4)

So we have an apparent lack of will to issue a general obligation bond, and we have a proposal that Varxity pick up the balance?  We should do a study that shows how viable this would be?  My guess is, but for the involvement of Varxity, we have lack of sufficient revenue to issue a revenue bond? 

The potential issuance of a revenue bond, with only Mayor Swartwood and three additional council members, appears to be a deliberate circumvention of the intent of bond laws? 

Risk-Neutral?  Depends on the revenue.  But is there a hidden risk that makes a revenue bond anything but Risk-Neutral? 

Let’s discuss Double Barrel Municipal Bonds. They are far from Risk-Neutral for tax payers. And it is looking like one is pointing right at us?

* * *

(1) http://www.msrb.org/Glossary/Definition/REVENUE-BOND.aspx
(2) http://www.msrb.org/glossary/definition/ad-valorem-tax.aspx
(3) https://www.azleg.gov/briefs/Senate/MUNICIPAL%20BONDS%20AND%20STATE%20AND%20LOCAL%20%20AND%20COUNTY%20DEBT.pdf
(4) https://law.justia.com/codes/arizona/2013/title-9/section-9-521.01/


December 25, 2017, 12:50:53 PM
So what is a Double Barrel Bond?  This is NOT good. 

DEFINITION of 'Double Barreled'
A municipal general obligation bond in which the cash flows are pledged by two distinct and different entities. One entity will make interest payments, and the other, the principal payments. These are municipal general obligation (GO) bonds as opposed to revenue bonds because they are ultimately backed by the issuer and its taxing power.

Double-barreled bonds are sometimes referred to as "combination bonds".  (1)

Combination Bond
A municipal bond with the coupon and principal guaranteed both by the general revenue of the municipality issuing the bond and by the revenue of the project the bond finances. If the revenue from the project is less than expected and is not enough to make payments, the municipality will make them instead. A combination bond is intended to reduce the risk to the bondholder to the least possible amount; therefore, interest rates on them are fairly low. It is also called a double-barrel municipal bond. (2)

O. M. G.  I will repeat that – O. M. G. 

So, does this happen? 

Yes, yes it does. 

With no vote, Taxpayers Stuck with Bonds.  Via the New York Times.   Well worth the read. (3)  Kind of funny they mention hockey rinks?

So where would one find that level of detail?  Trust me, not in the Council minutes.  Likely in the Bond Indenture Agreement.

Indenture Agreement
What it is:
An indenture agreement is the formal contract between a bond issuer and the bondholders. It sets forth the details of all the terms and conditions of the bonds, such as the exact day of their maturity, the timing of the interest payments and how they are calculated, and the details of any special features.
How it works (Example):
Indenture agreements vary from issue to issue, but in general they are very technical documents. This is because the role of the indenture is to prescribe every detail of the bond's provisions as well as the day-to-day management of the bond. (4)

Where is that located?  Buried deep in a prospectus far from prying eyes.  Start digging.  (5)

Clearly the rules and statements have changed along the way in this process.  Why not change “Private Activity Bond” to “Revenue Bond” vote and get the grand new Rec Center? 

Three council members and the Mayor could subject Payson to a $10m, / $15m general obligation bond?  That sound right to you?

That sound “Risk-Neutral?”

Something tells me we get to see that gun go off if the deal continues? 

* * *

(1) https://www.investopedia.com/terms/d/doublebarreled.asp
(2) http://financial-dictionary.thefreedictionary.com/Double+Barrel+Municipal+Bonds
(3) http://www.nytimes.com/2012/06/26/business/surprised-taxpayers-are-paying-for-bonds-they-did-not-vote-on.html
(4) http://www.investinganswers.com/financial-dictionary/bonds/indenture-agreement-970
(5) https://emma.msrb.org/Main/QuickSearch


December 25, 2017, 01:17:58 PM
So, ran across this blurb from Mr. LaRon Garret. 

“Town Manager LaRon Garrett has said even if the school falls through, the town will have a parks master plan after footing just half the bill.” (1)

Only a bureaucrat can budget $50,000.00, agree to $125,000.00, and then blow sunshine telling folks it is a "half price" bargain.    

Nothing that can't be accomplished with other people's money.

* * *

(1) http://www.paysonroundup.com/news/local/focus-groups-meet-to-discuss-parks-plan-prep-school/article_56c98d40-64e7-53b3-990d-d67c07d87e07.html


December 25, 2017, 01:48:14 PM
As long as we are having fun.  Anybody notice anything here?  Compare / contrast?