Follow the Money

Thanks to Council questions and the public's concern, an Executive meeting has been called for Mon Aug 27 at 7pm to discuss the purchase price of Miles Carter's LLC's parcel, the old Alexanders. After reviewing public documents leading up to the purchase for $900,000, I can’t help thinking I’m watching a Cups and Balls magic trick. In the famous trick, there are 3 balls and 3 cups. Eventually all 3 balls end up in one cup. The secret to the trick is one cup has an extra ball that the audience does not see. Without the extra ball, the trick can’t work – check it out in the Secret to Cups and Balls.

Before I explain, I encourage you to read Councilman Langman’s latest post on Wd 7 Blog to understand how the purchase process normally works. 

Ready for the trick now? Here's what Law Dir. Frey, CS&ED Dir Pietravoia and Mayor Cervenik focused Council’s attention on (keep your eyes on the balls, now):

BALL #1- McDonalds: In the fall of 2011, rumors surfaced that McDonald’s was moving to the Alexanders parcel. A set of plans was to be presented at the Nov 2011 Planning & Zoning meeting. The Development Dept was working with McD to get the project plans in front of P&Z asap. By then the City had an idea it might need the parcel, but still thought it could improve the Wastewater Treatment Plant (WWTP) without Alexanders.

BALL #2-the EPA: In January of 2012, the City presented a plan at the Jan 18 Service Committee meeting. That’s when it was revealed to Council that the residential properties abutting WWTP would have to be acquired. A furor erupted. By the time the Mayor met with affected residents on Feb 23 a whole new plan was in place. This new brilliant plan would not only save their homes, but in the long run, it would reduce the City’s expenses. Of course, it would be a lot more expensive to implement and now the City would need the Alexanders parcel. Focus shifted from City siezure to EPA approval.

BALL #3-the Appraisal: Sometime early this month, Council heard from the City that EPA approved the new plan. The City’s need for Alexanders caused Carter’s deal with McDonalds to fall through. Just prior to the Aug 8 meeting, Council learned that two appraisals had been done – one for the vacant parcel ($715,000) and one for the land assuming a McDonalds lease was in place ($900,000). In short, because McDs was ready to move on a lease/purchase, Frey told Council that Carter should be recompensed $900,000.  

Now I told you at the beginning that the success of the trick requires a 4^th ball that the trickster hides from the audience. Here’s what an examination of public documents shows:

BALL #4- The Inside Track: The first discussion of the City’s need for the Alexander’s parcel was in late 2009-early 2010 prior to the March 2010 submittal of a plan to the EPA. The Alexander’s parcel was not part of the submission, but the City was prepared to go that route. In Dec 2010, Miles Carter’s LLC purchased the Alexanders parcel for $600,000. Three months later in March 2011, Carter contributed $1,000 to Mayor Bill Cervenik’s re-election. Prior to that the last donation I could find from Carter to Cervenik was $50 in 2003.

By Summer 2011 the City knew the EPA would not accept the City’s original plan. It also knew it would have to acquire the Alexander’s parcel. In Sept 2011 Carter contributed another $500 to Mayor Cervenik’s re-election. Through Dec of 2011 the City continued the pretense that McDonalds was a done deal. It continued the pretense that EPA was leaving the City in the dark. Late in 2011 the City hired an appraiser. At this point, Carter probably knew more about the City’s plans than Council did.   

Now remember, for the trick to work, attention must be focused on the three visible balls while all the while, the fourth ball is controlling the outcome.

EXECUTION: At the Aug 8 Special Council Meeting, Law Dir Chris Frey did his magic trick before seven Council members. He kept Council focused on McDonalds, the EPA and the Appraisals they had not seen. Four Councilpersons applauded the trick by voting YES to the $900,000 price – President Holzheimer-Gail, Wd 1 Caviness, Wd 5 McLaughlin and Wd 6 O’Hare. But three Councilpersons wanted a closer look at the Cups and Balls trick and voted NO – Wd 2 Scarniench, Wd 3 Jones and Wd 7 Langman. 

Dir. Frey’s Cups & Balls trick would have been a complete success had Wd 8’s VanHo not left the meeting prior to the vote. With no super-majority, that forced the legislation to go from an ‘emergency’, executed immediately, to a 30-day wait before the Mayor could sign off and the purchase agreement be executed. There’s still time for Council to put legislation on the Sept. 4^th agenda, rescind its vote and put the purchase price on hold. Should Miles Carter be fairly compensated for the Alexanders parcel? Absolutely. Should the price be more than he paid? Absolutely. But Council owes it to the rate payers who are financing this deal to honor the process and negotiate the best deal on their behalf. Hope to see you Monday night in Council chambers. 

Oh What a Web Frey Wove

On August 8, Council approved paying $900,000 for the old Alexanders parcel to be used for the Wastewater Treatment Plant improvements required by the EPA. The legislation will go into effect 30 days from passage unless Council rescinds its vote.

First, a correction to the original post Pay To Play – It was Wd 7 Councilman Langman, not Council President Holzheimer-Gail who fronted the idea to put off a vote until Council had more info. That idea was voted down and the price approved by a narrow 4-3 vote (see Pay To Play post).

In the 12 days since the legislation passed, there have been a number of interesting developments:

- It was Wd Councilman O'Hare that pushed to end the debate and vote. The day after he voted FOR the purchase at $900,000, O’Hare drew up a list of questions for Law Director Frey relating to the appraisals which Council received after the vote and the MacDonald’s lease. Too little too late Councilman.

- Some members of Council have asked for a follow up meeting to review the purchase based on new info received. In response, Council President Holzheimer-Gail sent out an email on Aug 13 saying she would hold an Executive Committee meeting, but would like it coupled with a Service Committee meeting. That meeting has yet to be scheduled. The issue though is not whether Council should approve purchase of the property. The issue is whether Council should pay almost $200,000 more than the property was appraised at. Given the 30 day window on the legislation, this matter should be considered as soon as possible.

- Regarding the appraisal that was the basis for the $900,000 offer, the Jan 6 supplemental appraisal assumed, “that the lease between 36907 Westminster Road LLC and MacDonalds USA LLC has been fully executed (signed) and was effective January 6, 2012.”  The assumption was wrong. In an email to Council Dir. Frey admitted that, “The McDonalds lease was never completed…”.  The price also reimburses Miles Carter’s LLC (the Seller) for demolition of Alexanders and carrying costs.

- The second and lower appraisal was submitted twenty days later on Jan 26, 2012 and valued the parcel at $715,000.

- Despite Director Frey’s insistence that commercial values in Euclid won’t change that much, the Plain Dealer reported Aug 20^th that in fact, commercial properties in Eucld DID go down.  

Councilperson Scarniench and Langman made a good point when they asked Law Dir. Frey why Council had not received the appraisals for their review. Frey’s response was to admit that it would have been better for Council to have appraisals, but since no one asked for the appraisal, he didn’t bother to send them. Well, given the fact that the appraisals were 7 months old and the higher appraisal was based on a faulty assumption, I can see why Frey was loathe to provide Council with the info. Council should have done its due diligence though. It should have asked for the appraisals before voting.

Councilpersons Caviness and McLaughlin are on record as saying that even if they saw the appraisals, they would probably go along with the price based on the Law Director’s argument. I wonder if they still feel that way.

In reviewing the discussion, it should be pointed out that the reason for the rush was so the City could apply for a loan from the OH Water Development Authority (OWDA) to buy the property in time for its August meeting. The loan will be financed with the sewer rate increases. The parcel will be used for the Headworks and Sludge Force Main which have EPA approval. Engineering studies need to start.  It’s a 6 year project. Why couldn’t Council wait One More Week before voting?

The fact that Caviness, McLaughlin, O’Hare and Holzheimer-Gail approved the purchase price without enough information to make an informed decision does not speak well to the council members’ judgment.  Councilman McLaughlin even went so far as to say that while every dollar counts, he shrugged off opposing Council members’ concerns by saying this is only .1% of the total project cost. This logic for overpaying by nearly $200,000 is unsettling at best and irresponsible at worst.

Council’s approval of the $900,000 purchase price was based on 1) A faulty assumption; 2) a 7-month old appraisal and 3) the need to apply to OWDA for a loan in time for its August meeting. The irony is that OWDA meets every month. By stripping the ‘emergency’ out of the legislation, the City can’t meet the August date anyway.

New sewer rate increases are coming as early as next month. If you’ve got 49 minutes, I encourage you to watch the meeting on ECTV Video On Demand. Discussion on the purchase begins two hours and four minutes into the meeting. If after watching it, you’re as uncomfortable as I am with the way 4 members of Council neglected their due diligence duty I encourage you to contact your council person and urge them to call a meeting to review this decision. Then attend the meeting and voice your concerns. It’s your money they’re spending.

Pay To Play – Euclid Style

Last March Council voted to raise the sewer rates some 32% to cover the cost of WasteWater operations, waterlines and to begin bringing the City into compliance with the EPA.  



Despite a $715,000 appraisal, on Aug 8
Council approved purchaseing
 Alexanders for $900,000 4 to 3



A key element of implementation of the long term plan is the old Alexanders Restaurant property. An underground retention basin will use the current City-owned land plus part of Alexander’s to hold excess storm water until the plant can process it properly. That’s the simple version. The City can acquire the private parcel thru a negotiated purchase or thru use of eminent domain for a public purpose. That being said, the property is pretty useless to the current owner Miles Carter who incorporated 36097 Westminister Road, LLC in November 2008.

Last night Council narrowly approved the purchase of Alexanders for $900,000. The parcel is 53,057sq.ft - a little over one acre. By comparison, in 2010 the City purchased St. Roberts’ 8 acres for $675,000.

Carter’s LLC bought the parcel in Dec 2010 for $600,000. The LLC spent much of 2011 maneuvering a deal to get McDonalds in there.

Miles Carter is a smart businessman. He owns the shopping area across the street. Carter probably knew the City was in negotiation with the EPA regarding improvements to the Wastewater Treatment Plant. So why did he purchase a property that was potentially worthless depending on what the EPA and the City settled? Why did he pursue MacDonalds to buy the parcel for $1.1 million? To my way of thinking, there are 3 possibilities.

1- The City never informed Carter of the risk. 2- Carter knew the risk, but hoped to dump the land and make a cool half million before MacDonalds learned of the risk. 3- There was a tit for tat agreement between the Mayor and Carter.   

In 2010 when Carter was negotiating for the Alexander’s property, the Development Dept had to know about it. If the Administration knowingly let Carter buy the land and pursue a MacDonalds deal without informing him that the City might need it for public use – well, that doesn’t look good for the City.

On the other hand, if the City did inform Carter of the potential seizure and Carter lured MacDonalds in without informing Corporate so he could up the value of the land, well, that doesn’t look good for Carter.

On the third hand, if the Mayor struck a deal with Carter to increase his profits in exchange for a contribution, well that doesn’t look good for the Mayor. It’s also possible that after years of watching the Mayor reward contributors like CT Consultants, K&D, Spies and Mavec with huge profits and sweet deals at taxpayer’s expense, maybe Carter decided to try his hand at Euclid’s particular form of Play to Play.

In 2011 Miles Carter made two contributions to Bill Cervenik’s campaign totaling $1,500. Not a big deal except that Carter hadn’t contributed anything more than $50 to Cervenik for years. That $1,500 donation very well could have gotten Carter an extra $150,000 profit. 

The City had two appraisals done on the Alexander’s property. The first came in at $715,000. The second appraisal came in at $1.1 million and was based on MacDonalds’ moving in. The City offered Carter $900,000 to compensate for MacDonalds, demolition of Alexanders and carrying costs. But MacDonalds had pulled out at the City’s recommendation back in December of 2011. 

No buyer, no property value – Carter was stuck. So why didn’t the City negotiate for the lower price?

Well anyway, enough questions were raised last night that Holzheimer-Gail suggested a second meeting 8/13. Wd 5 McLaughlin - a guaranteed vote for the Mayor - though, wouldn’t be able to make the meeting. Without McLaughlin to hold his hand, no one was sure how Wd 6 O’Hare would vote. It was a risk the Council Prez could not take. A ‘compromise’ to change the legislation from an ‘emergency’ where the Mayor could enact it immediately to a simple ordinance that required a 30 day wait before signing was offered. But Council would have to vote on it right away. It passed 4 (Caviness, McLaughlin, O’Hare, Holzheimer-Gail) to 3 (Scarniench, Jones, Langman). Lynch is still in India and Van Ho had left early.

When I asked Wd 1 Councilwoman Caviness why she cast the game-changing vote instead of insisting on trying to negotiate a lower price, her response was that by changing it from emergency to a general ordinance, the City could spend the next 30 days negotiating a lower price. The woman has no clue how legislation works. Pretty scary.

When I asked Wd 6 Councilman O’Hare why he didn’t ask if the City had tried to get the parcel for less, he said there was no point because of the MacDonalds $1.1million deal. Not as scary, but definitely shameful.

So, in 30 days unless something changes, Miles Carter’s LLC will have turned a 50%, $300,000 profit on a parcel in a little over a year and a half, in a market that’s not moving much, for land that cannot be developed. Financing for the million dollar loan will be made with the money raised from the recent sewer increases. 

It’s Gonna Be A Long Winter

Last night’s (8/8) Special Council Meeting had 11 items on the Agenda. There were no Administration communications. No Council comments after. No public comments after. There were 8 council people present and about six folks who spoke to the Agenda. And the meeting still lasted three hours. And people wonder why we still don't have a Dog Park....