I offer a few more comments to put into perspective the request to the City by the developers of One Beverly Hills (OBH) for up to $550M in tax free municipal bond financing under the Mello-Roos legislation. This is supposedly for completion of the “infrastructure” that OBH has already committed to provide with its own resources.

Former Mayor Bob Wunderlich had this to say:

“As a former member of City Council and a finance professional, I was in favor of the project and continue to think it will be a good project for the City. This is expected to be a lucrative project for the developer, to provide revenue for the City, to support the City’s future as a destination for international travelers, and to provide benefits for residents. That said, why is this being brought forward now?

“The City and the developer negotiated an agreement. This was not part of it. Now the developer seeks a change. The developer is a savvy business. The argument being made is that this bond will lower the developer’s cost of capital. That is likely true, but that would have been known from the beginning. If the developer wanted this financing, this should have been on the table as part of negotiations from the outset.

“I am also bothered by the purported assurance that there is no risk to the City. As soon as someone tells me there is no risk, then I (and everyone else should) become immediately skeptical. Moreover, the City does not have infinite debt capacity. There is an opportunity cost. Issuing a bond for this project restricts other projects for which a bond might be issued.

“Given the apparently substantial savings this would result in for the developer, if the City goes forward with this, and I do not think it should, [emphasis supplied by me] at a minimum there should be careful analysis of adequate compensation for the City. It appears that has not been done. Also at a minimum, much more light should be shed on this than going forward with an approval at a near-term City Council meeting.”

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OBH is trying to change the bargain after the fact it made three years ago and is asking the City to provide an enormous amount (far more than the City’s annual operating budget) of low cost financing; OBH keeps saying that there is “no risk to the City” but has not yet provided a detailed written opinion from a reputable law firm that the City can rely on that says that or at least defines our risks including the risk that the bonds will be found to be an unlawful gift of public funds;

There has been no public discussion or explanation of why or how the issuance of up to $550M in tax exempt bonds is in the City’s interests; and

There has been no public discussion or explanation that will allow evaluation of whether the $10M that will apparently be paid to the City (out of the bond proceeds, not by the developer who is benefitting) is adequate compensation for the value that the City is providing and the risks that the City is taking.

Former City Treasurer Eliot Finkel has calculated the present value benefit to OBH of both the full amount of $550M of City Issued tax exempt bonds and, alternatively, 50% of the full amount of $275M as compared with alternative financing. Even though these are proposed to be 30 year bonds, the present value for just ten years and using a 3% inflation rate of using City issued bonds for OBH financing rather than conventional financing (that Mr. Green estimated would cost 5% more), is $234.5M for $550M and $117M if only $275M of bonds are actually issued. Note that I believe that the benefit of this off balance sheet financing is worth far more than Mr. Green’s estimate but for these calculations, I accept Mr. Green’s estimate.

Let’s discuss these issues publicly in the light of day.

Finally, if OBH is threatening, implicitly or explicitly, that it will walk away from the project or not complete it as planned and promised to the City when the Development Agreement was signed and the entitlements were issued, and leave the City with a big hole in the ground, let them say that. In other words, does OBH assert that if the City does not provide this uniquely attractive financing, the project will not be completed? I suspect that they will not make that threat and if they did I would not believe them.

In any event, if we accede to this demand, we can anticipate that in a year or two, OBH may come to the City and claim that the project is no longer feasible with two towers of only 32 and 28 stories and, therefore, would like to build towers of 52 and 48 stories or something similar.

The City has kept its extraordinary bargain which involved unprecedented entitlements. My view is that OBH should keep its side of the bargain without the City’s unprecedented financial assistance.

Let me know what you think by emailing me at Petero@ostroff.la.

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I have also been trying to learn more about the unfortunate apparent divide between the BHPD rank and file officers and Chief Stainbrook. In early June, 102 of 130 officers eligible to vote took part in a vote of no confidence in the Chief and nearly 80% of those voting expressed no confidence. Deputy City Manager Keith Sterling released a statement that the City is taking the complaints seriously and referenced the current labor negotiations between the City and the Beverly Hills Police Officers Association (BHPOA). On July 18, counsel for the BHPOA sent a letter to Chief Stainbrook demanding that he cease and desist from allegedly defaming, retaliating against or interfering with the efforts of BHPOA President Christian Bond to find alternative employment.

I am hopeful that I will be able to speak directly with Chief Stainbrook and Officer Bond to learn more details. Understandably, Mr. Sterling has been speaking for Chief Stainbrook. Neither Officer Bond nor the lawyer for the BHPOA have responded to my requests that they comment or elaborate on the issues. As you might expect, I shall persist.