The price of Pinnacle

Dewey Henry could barely contain his frustration. Flushed with anger, the economic development director for Wayne County tromped out of a county commission meeting three weeks ago, making no attempt to hide his contempt for the legislative body.

“Lies,” he railed. “Lies, lies, lies.”

What had him in a lather was the commission’s decision to delay voting on a proposal that Henry’s boss, County Executive Ed McNamara, covets as a key piece of his legacy. Come 2003, McNamara, the long-reigning king of Wayne County politics, will be gone from office. But before he leaves, McNamara wants to create an airport-related development he believes will transform the economic outlook of southeast Michigan.

While Henry railed about lies, more than a few commissioners grumbled that the real chicanery was foisted by McNamara, the consummate old-school pol who handed them a retooled proposal at the last minute, then poured on the political pressure in an attempt to push through a speculative project critics say places the county at further risk of red ink.

The Pinnacle Aeropark is envisioned for a 1,200-acre site near Romulus. Plans show a hotel, an 18-hole golf course, retail shops, light manufacturing and transportation-related businesses just south of the airport. But that’s just the start. A consultant hired by the county is studying the potential to create several Pinnacle-like developments blossoming throughout 25,000 mostly rural acres bookended by Detroit Metro Airport on the east and Willow Run Airport on the west.

Before this grandiose plan can get off the ground, there must be a resolution to the blistering dogfight between Democratic Party powerhouse McNamara and opponents on the Board of Commissioners, led by their chairman, Ricardo Solomon, who’s vying to succeed McNamara as county executive.

The land needed to build Pinnacle has already been assembled by the county. What’s needed now is a structure to oversee its development. For the past year, McNamara has been negotiating with the commission, seeking its approval for a plan he says will accomplish just that. But the commission continued to delay, so now McNamara, who seems to have GOP Gov. John Engler flying as his unlikely wingman on airport issues, is poised to fly around combative commissioners and land the help he needs in the state Legislature.

McNamara proposes creating an independent authority with a 10-member board to oversee Pinnacle. He, as county executive, would appoint three members, the county commission would select two, and the Michigan Economic Development Corporation would name the other five. But Solomon and a majority of his fellow commissioners are balking at what they say is too much state presence on the board, and claim that they are being asked to hand over control of an asset while remaining saddled with its debt.

Foes also fear that McNamara and Engler, who are both leaving office next year, aim to establish a powerful quasi-government agency that could be insulated from meaningful accountability. A similar arrangement is in the works for governance of the airport itself. (See accompanying story.)

The fifth wave

John D. Kasarda, director of the Kenan Institute of Private Enterprise at the University of North Carolina, sees airports as the fifth wave of urban growth. The nation’s first major cities, such as Boston and New York, grew up around seaports. Then came the industrial revolution, and transportation provided by rivers and canals fueled the growth of cities such as Pittsburgh and Buffalo. After that railroads helped turn inland towns such as Kansas City into major hubs. The fourth wave came as the interstate highway system expanded, spreading development from cities into the suburbs.

Now, contends Kasarda, we are in the early stages of the next great revolution of transportation-related development.

“Speed and agility have become so critical to the new economy that air commerce is quickly becoming its logistical backbone,” wrote Kasarda in a study of the subject. “Airports will be the cornerstones of dynamic new forms of 21st century urban development.”

Time, more than ever, is money. Which means that the closer a manufacturer or company headquarters can be to air transport, the better.

“Firms of various types will bid against each other for accessibility predicated on the utility each gives to reducing the time and cost of moving people and goods to and from the airport,” explains the professor.

Kasarda envisions the rise of the “aerotropolis” — planned, multifaceted developments emerging as a result of their proximity to airports. It is already happening. There is Los Colinas, a development near Dallas/Fort Worth International Airport that houses operations for more than 400 multinational companies, including IBM, Xerox and Sprint. Kasarda also points to development around Inchon International Airport in South Korea, where “the government is creating a 24-hour aviation city,” the centerpiece of which will be a project called Media Valley, which is designed as a center for global high-tech industries. Predictions are that more than 2,000 companies will locate there within three years.

But its not just goods processing and distribution facilities being drawn to airports, according to Kasarda.

“Airports are also becoming magnets for corporate headquarters, regional offices and professional services (such as consulting) that require employees to undertake considerable long-distance travel,” he explains.

Companies specializing in advertising, legal services and auditing, which send employees far and wide or fly in clients, are also attracted to airport-related developments.

The good news for Wayne County, says Kasarda, is that it is well-positioned to catch this next wave of development and ride it to an economic boon.

Hired by the county last year as a consultant, Kasarda is studying the potential for developing the land between Detroit Metro and Willow Run airports.

“This appears to be a remarkable opportunity for Wayne County and southeast Michigan,” says Kasarda. “The Pinnacle project fits into the strategy of protecting the existing industrial base while, at the same time, going on the offensive and attracting new-economy jobs.”

Although it might not seem so to anyone looking at a Mercator map, one huge advantage provided by Detroit Metro is its accessibility to markets in Asia. Because the shortest distance from the United States to the Orient is over polar air routes, travel time from Detroit to, say, Tokyo, is only about an hour greater than it is from Los Angeles.

And because so much of the land near the airport is undeveloped, planners have a virtual blank slate on which to create a project tailored to the needs of interested corporations.

Despite these advantages, the figurative flight path toward landing Pinnacle has been anything but clear.

Dewey’s dream

Dewey Henry can’t remember exactly when he began dreaming of a project like Pinnacle, but it was sometime around 1996 or ’97 that he began the long, slow process that he hopes will bring hotels and office buildings to the farmland south of Metro Airport. The beginnings, he admits, were anything but scientific. He sat at a desk with a map and marker, then began tracing an outline of land he thought the county would be able to acquire.

As is almost always the case, it turned out to be more costly than anticipated.

Because the county ended up paying more than expected to assemble land south of the airport, the project was reduced from more than 1,800 acres to 1,266 acres for phase one. After McNamara’s team persuaded commissioners to allocate $30 million to the project in 1999, it came back a year later and received another $20 million. About $40 million of that was budgeted for land acquisition. The rest is for infrastructure improvements such as water and sewer lines, and associated costs such as legal bills.

The catch is that the county, in essence, had to borrow the money from itself.

Spread out over 20 years, with interest payments added in, the investment will cost the county $80 million by the time the money is all repaid, according to a report produced by the Economic Development Department.

In addition to increased land costs, another major setback occurred in 2000. The original plan was to find a “master developer” to oversee the project. Six groups submitted plans. A review team whittled those down to two proposals. According to county documents, “it became obvious that the ideal master developer team would be a combination of the two shortlisted firms.” Those two teams — one led by the Shostak Bros. land development company, and the other led by industrialist Heinz Prechter — agreed in writing to share the project. But the two groups could not reach final agreement, and the plan had to be scrapped.

The eventual solution was to create an independent authority to oversee the project. Which brings us to the reason why Dewey Henry was nearly apoplectic at the County Commission’s April 18 meeting.

Question of authority

The proposal to create an independent Pinnacle authority was laid on the commission’s table a year ago. From the outset, however, Solomon, chairman of the county commission, had problems with it. The major sticking point has been one of control. Under the proposed agreement, the Engler-controlled Michigan Economic Development Corp. (MDEC) would appoint five members to the 10-person Pinnacle board. County Executive Ed McNamara, who is in his last year in office, would appoint three members before his exit, and the commission would make two appointments.

The state’s equal presence is justified, say proponents, because the MDEC is committing $10 million toward Pinnacle at start-up. The project was also designated as one of 11 Smart Parks across the state. Such parks get to keep taxes derived from increased land values that normally go to schools or the county’s general fund for 15 years. That money would go toward infrastructure such as sewers and roads — up-front improvements that are necessary to attract private developers.

Eventually, the state’s total investment is estimated to reach upward of $60 million.

The problem is that such “tax increment” money doesn’t get generated in significant amounts until a project reaches culmination; it’s when new businesses are up and running that the taxes begin to mount. In the case of Pinnacle, the lion’s share of state tax money won’t be realized for 10 to 15 years. So the Pinnacle authority would have to issue bonds that would eventually be paid back by the anticipated tax revenues.

In addition, the county would hand over the land it has assembled to the authority. And the authority, once created, would be similar in many ways to an independent corporation with a board of directors — except that this board, say critics, would be beholden to no one.

The consequences could be immense.

As a staff report to the commission pointed out: “Pinnacle has the potential to be worth tens of billions to the long-term economy of the whole region, if it is used to cultivate an international manufacturing and trade nucleus. But that potential can be lost forever if this land is dished out to the first fast-buck, well-connected people who come along.”

What’s caused Solomon and some of his fellow commissioners to balk, they say, is that $50 million in assets are being relinquished by the county, but the county would be the one stuck with the debt.

“Going ahead with the project structured this way would not be responsible,” maintains Solomon. “From the government’s perspective, there’s no real oversight once the Pinnacle authority is established, even though it is the taxpayers’ money that is being put at risk.”

McNamara and his crew say that there are two ways the bill can be paid. One is through the eventual sale of the land. The problem with that is that the proposed authority could sell land below cost to spur development. It could even give away up to 50 acres per year to so-called “end users” if it thought the development offered enough economic stimulus in the form of jobs created and potential tax revenues to make the giveaway worthwhile.

Such land grants are not unheard of. The City of Detroit, for example, gave a prime piece of downtown property to Compuware as an enticement for locating its world headquarters there. While such an approach could benefit Pinnacle in the long run, it would do nothing to help the county relieve its $50 million debt.

The other source would be excess revenue from the county’s tourist tax, established in the mid-’90s to pay off bonds used to help local governments’ funding share for the new baseball and football stadiums. To get the best possible interest rates on those bonds, a substantial cushion was built in, with the tax on hotel rooms and rental cars expected to bring in about 70 percent more than was actually needed to cover the stadium debt.

Whatever was left over was earmarked for economic development projects. It’s that excess, currently about $2 million per year, that would be used to repay the county for its Pinnacle investment

But those revenues are not a certainty. Following the terror attacks of Sept. 11, those tax receipts took a nosedive. McNamara’s team is predicting they will rebound enough to cover the county’s debt. If not, the money will have to come out of the county’s general fund, which pays for such essential services as police protection. With the county already dealing with a $20 million shortfall, Solomon is reluctant to risk even more red ink on Pinnacle.

It doesn’t help that many on the commission feel betrayed by the secret deal McNamara cut to turn control of the airport over to an authority.

Furthermore, the state’s status as an equal partner in decision-making is being questioned. While the county’s entire $50 million is being put up at the outset, the state’s share at start-up is only $10 million. The state’s equity will grow as eventual tax revenue is rolled into the project. The state, which is slated to receive a percentage of money generated by land sales, will also roll that cash back into the project until its share of investment equals the county’s. But critics complain that, since the county is taking most of the risk at the outset, it should have a majority of appointments to the Pinnacle board, whose members would serve staggered terms ranging from one to six years.

At this point, given the economic slowdown, Solomon wonders whether it’s wise to be pursuing Pinnacle. He’s also hesitant to proceed with a plan that would be dominated by the appointees of McNamara and Engler, two politicians on their way out of office. “If this deal goes sour,” cautions Solomon, “all they’ll be able to do will be to say, ‘I’m sorry.’”

But the impending departure of Engler and McNamara isn’t the only deadline looming. The legislation creating Smart Parks expires in December, and if Pinnacle isn’t up and running by then, warns McNamara, all the benefits that come with the designation will be lost. The state’s $10 million contribution is also being placed in jeopardy.

Which is the reason given by McNamara to justify the end run he’s making around Solomon and the commission.

Brinksmanship

McNamara pushed hard for the commission to vote on Pinnacle at its April 18 meeting. McNamara, who rarely attends commission meetings, signaled the situation’s gravity by showing up. Adding to the pressure was an additional $10 million in bond money dangled as an incentive to pass the Pinnacle proposal. That money would go toward sprucing up downtown Detroit for the 2006 Super Bowl and funding a variety of urban renewal programs. Representatives of nonprofit groups that would be the likely beneficiaries were paraded before the commissioners, with each of the citizens passionately imploring the commission to vote yes.

A handful of the 15-member commission voiced outright support. “We’ve been flirting with this project for the better part of three years,” said Commissioner Joseph Palamara, D-Wyandotte, who equated the process to a long courtship. “At some point you have to decide whether you’re going to get married or not. I want to marry the state of Michigan on this project.”

But Palamara and four other declared proponents did not have the votes to get the matter decided then and there. It was decided to wait one week, allowing commissioners to more closely examine the final version of the agreement, which many said they had just received that morning. The vote never came.

Following the commission’s decision, McNamara announced that he was taking the Pinnacle proposal off the commission’s table and turning to Engler for help. A Michigan Senate bill that would allow the state to unilaterally create the Pinnacle authority had been hanging like a sword over the commission since February. The bill, which is only skeletal, has been idling since its introduction. Frustrated by the commission’s stalling, McNamara announced that he’s ready to see the bill move forward.

“The commissioners are playing politics with the interests of the citizens of Wayne County,” declared McNamara in a statement released last week.

“We are working closely with the governor, the legislators and the MEDC to preserve the benefits of legislation that would finance Pinnacle. We will not be deterred by the commission’s inaction and are certain that we will be successful in implementing this significant and strategically important development for the citizens of Wayne County.”

For Commissioner Edward Boike, D-Taylor, a proponent of the project, the danger now is that the Legislature will create an authority structure that gives even less power to the commission. But he doesn’t blame McNamara for turning to the Legislature, saying the commission forced the issue by continuing to drag out the debate.

“There was always going to be a vote next week, and then the next week and then the next week,” said Boike.

Solomon is unsure what, if anything, can be done should Engler and McNamara combine forces and push the legislation through.

Solomon bristles at the accusation that he’s playing politics with the issue. The fact that he’s running to fill the seat being vacated by McNamara, he says, has nothing to do with the position he’s taken.

“This is about policy, not politics,” he says. “This is about fiscal responsibility and a fair political process.”