Wednesday, December 1, 2010

Hamilton County to Raise Property Taxes


Must Consider Chapter 9 Bankruptcy

Yesterday the Hamilton County Commissioners unanimously agreed to support a property tax increase to provide more taxpayer money to the stadium fund. The property tax rollback was promised to the voters as a condition for passing the 1996 Stadium Sales Tax increase, but the Commission has stated they will break this promise when they meet tomorrow. Not only is COAST extremely disappointed by this development, but The Cincinnati Enquirer has also condemned the plan, stating that, "It is poor policy that has the effect of raising property taxes on homeowners during a tough economy - not to mention reneging on the promise the county made to voters in order to get the stadium deal passed in 1996."

Part of the Commissioners' stadium plan relies on the teams accepting a ticket surcharge - their approval is required under terms of their lease agreements with the county. The Bengals have made it clear they will not approve such a charge. The Commissioners stubbornly proclaim confidence that the teams will ultimately agree to it regardless, prompting The Enquirer editorial to ask, "In which parallel universe exactly?" This lack of cooperation will burden taxpayers greatly. The less money the teams contribute to the stadium shortfall, the more that the Commissioners will raise our taxes.

COAST is disappointed that the Commission has chosen to hit the easy button and raise property taxes instead of fully investigating all options to modify a lease agreement that is extremely abusive to the taxpayers. The lease provides $8.5 million/year to the Bengals for football operations, charges the Bengals no rent, guarantees a certain amount of ticket sales, requires a payment of nearly $11 million/year to the Cincinnati Public Schools, and as noted earlier, requires team approval for ticket surcharges. In addition, any money that would be earned from naming rights would go to the Bengals.

The lease was negotiated by an effete group of former Commissioners Bob Bedinghaus, John Dowlin, and Tom Neyer. The lead negotiator was Bedinghaus, who now happens to be employed.......by the Bengals. It can be argued that the Bengals occupied both sides of the negotiation. If this lease was negotiated at fair market terms, we would be facing, at most, a small stadium fund deficit, if one at all. The current Commission would rather raise taxes than take the steps necessary to reform this crooked lease.

Hamilton County can declare a Chapter 9 Municipal Bankruptcy, which can be used to significantly modify or possibly even end the lease agreement that is the source of our financial troubles. The purpose of this section of the bankruptcy code is to allow financially-distressed municipalities to reorganize and adjust its debts and other obligations, so as to spare the taxpayers and local economy from the significant harm that is caused by higher taxes and/or big service cuts that would be required to repay these obligations.

In order for Chapter 9 to help our county, it would have to be able to include the Bengals lease agreement in the filing. Based on the information in the government's Chapter 9 bankruptcy site, it is rather clear that not just debts, but other agreements are allowed to be included: "The municipal debtor has broad powers to use its property, raise taxes, and make expenditures as it sees fit. It is also permitted to adjust burdensome non-debt contractual relationships under the power to reject executory contracts and unexpired leases, subject to court approval, and it has the same avoiding powers as other debtors. Municipalities may also reject collective bargaining agreements and retiree benefit plans without going through the usual procedures required in chapter 11 cases."

The bankruptcy plans are subject to court approval, but it is also stated in multiple points of the Chapter 9 website that the court plays a minimal role in the process. "Due to statutory limitations placed upon the power of the court in a municipal debt adjustment proceeding, the court is far less involved in the conduct of a municipal bankruptcy case (and in the operation of the municipal entity) while the debtor's financial affairs are undergoing reorganization."

It further states, "Indeed, due to the severe limitations placed upon the power of the bankruptcy court in chapter 9 cases (required by the Tenth Amendment and the Supreme Court's decisions in cases upholding municipal bankruptcy legislation), the bankruptcy court generally is not as active in managing a municipal bankruptcy case as it is in corporate reorganizations under chapter 11. The functions of the bankruptcy court in chapter 9 cases are generally limited to approving the petition (if the debtor is eligible), confirming a plan of debt adjustment, and ensuring implementation of the plan."

Chapter 9 Bankruptcy gives Hamilton County its only option of fixing its stadium fund deficit and crooked lease agreement without raising taxes on Hamilton County residents. As of last week, the Commission has not as much as consulted with an attorney who is a Chapter 9 expert. It is shocking to us that the Commission would refuse to fully investigate this option to solve our county's financial problems. We do not dispute that Chapter 9 bankruptcy carries its own problems, but how can the Commission reject an idea without properly investigating it?

COAST calls on the Hamilton County Commissioners to fully investigate the possibility of a Chapter 9 Bankruptcy filing.
To do this, the county needs to consult an attorney who has performed this work in the past. While this would incur the expense of hiring a good attorney for several hours of consulting, it's a small and worthwhile expense compared to the $700 million of higher taxes that we face otherwise.

Considering the size of the stadium fund shortfall, Hamilton County Commissioners owe it to their constituents to leave no stone unturned. They must fully investigate all options that spare us another Stadium Tax increase. The County does not necessarily have to file Chapter 9 to make it work for them. By issuing a credible threat to declare Chapter 9 and end the lease, the teams would then have strong incentive to negotiate with the county and try to preserve some of the sweetheart provisions they currently enjoy. Otherwise, the teams have no incentive to compromise. COAST strongly encourages the current and incoming County Commissioners to put the taxpayers first for once and fully investigate all options to fix the stadium fund deficit.

11 comments:

  1. Think the state would allow it? Ohio seems to prefer Fiscal Emergency. Bankruptcy would appear to be a business investment killer.
    Also, doesn't the county prosecutor demand to be the legal representation of the county? Why wouldn't Deters take the county to court for getting outside advice?

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  2. While we aren't sure that this is the best option, it is one that at least needs to be explored. It is also our understanding that it would be necessary to consult with an attorney that has experience in this field. The stadium fund has put the county in a dire situation and all options should be explored prior to asking the taxpayers, once again, to carry the burden.

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  3. The Commissioners are pathetic. How can they refuse to look at the only option available to avoid soaking the taxpayers with another tax increase for the Bengals and Reds, while having no problems raising property taxes and breaking their promise to the voters? Sad sad sad. Thank you COAST for this informative piece.

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  4. So let me get this straight. Cincinnati gets behind the 8 ball with the stadium and COAST's brilliant idea is bankruptcy?
    What happened to "pulling ourselves up by our bootstraps"? You would go apes&!t on any po' folk who wanted to file bankruptcy because they were stupid.
    You do realize bankruptcy isn't free money right?
    The "free market" would have to "correct" itself by making life more difficult for those who are actually fiscally responsible individuals.
    And the beautiful part to this story is the stadium fiasco was a Republican idea.
    Glad to know we can count on COAST to just suggest bailing and pass the buck.

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  5. Taxpayers always come lastDecember 3, 2010 at 9:59 PM

    A Chapter 9 bankruptcy filing, if properly utilized, would focus on changing or eliminating the corrupt stadium lease that is literally bankrupting Hamilton County. The beneficiaries of that lease are the Reds and Bengals, who are owned by Bob Castellini and Mike Brown.

    Supporting a bankruptcy means putting the interests of Hamilton County taxpayers ahead of the interests of Castellini and Mike Brown. The Commissioners won't pursue that option because it would hurt their rich friends and cost them some campaign money. COAST is siding with the regular folk over the ultra-wealthy.

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  6. That sounds like class warfare to me. Or at least redistribution of wealth.

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  7. The stadium deal and recent property tax increase is class warfare - everyone is taxed twice to give more money to ultra-wealthy Bob Castellini and Mike Brown.

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  8. So will COAST support an expiration of the tax cuts for those making 1 million or more a year?

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  9. Dumbest. Idea. Ever.

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  10. From a 1998 report by the Public Policy Institute of California following the Municipal Bankruptcy of Orange County, CA, which still resulted in the county seeking a huge tax levy after-the-fact to cover settlement costs and bankruptcy expenses:

    Municipal bankruptcies should be avoided by local governments and state
    governments, even if extraordinary efforts are required.
    A bankruptcy offers only
    limited protection, can have far-ranging consequences for local governments, and can
    impose penalties on others, including the state, by association. By rushing to bankruptcy,
    Orange County ruined its credit, worsened relations with other local governments, and
    virtually painted itself into the corner of costly litigation in order to repay those
    governments. San Diego County was also faced with a large paper loss in its county pool.
    However, it was able to prevent a run on the pool without filing for bankruptcy. County
    leaders informed pool participants that they would have to take a share in the current losses
    if they withdrew funds right away. Alternatively, they could wait until the financial markets
    cooled down and their investments regained value. The participants chose to wait. Other
    municipalities in trouble should also consider the less costly model of state and local
    government working together to avoid bankruptcy and bond default. Methods could
    include the state government extending credit, guaranteeing the safety of local bonds, or
    otherwise keeping open the local government's access to credit markets.

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  11. Coleman, Orange County fixed their problem with minimal impact to the taxpayers. It's nice to know that some government-funded agency didn't like it, but Orange County took their medicine and fixed the problem.

    Hamilton County needs to take its medicine and deal with the short-term pain, rather than exploit taxpayers with higher taxes through the year 2032.

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