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Austin Revitalization Authority awaits results of upcoming audit

Friday, October 9, 2009 by Kimberly Reeves

Remember the old adage, “Hope for the best but plan for the worst” ? Surely that was one thought Acting Director Greg Smith was pondering last night as he led the Austin Revitalization Authority’s board of directors through the maze of possibilities if an upcoming audit sheds a less than favorable light on the non-profit group.

Chair Charles Urdy declared that the long-awaited city audit would find nothing untoward in ARA’s finances, even if it might determine the non-profit organization, in the city’s view, was overleveraged.

“There will be nothing negative to report in an honest audit,” Urdy said. “We’ve gone over the things we were supposed to do, and we’ve done them. We also know that we often find those things that are initially reported as negatives ending up being wrong. Look at the health care bill. They talked about death panels, and it was just not true. I think that’s what they’re going find in our case, too.”

However, ARA’s reality was that the agency was suffering from a significant credibility problem, regardless of the audit. As Urdy noted, it’s much easier to be sympathetic with Ms. B’s Restaurant and her plight being evicted from her 11th Street space than it was to talk about the thousands she owed in rent. That kind of story could generate six months of negative publicity for the ARA, while all the sympathy went to the restaurant owner.

It’s an unfair slam against a project that has produced some results, Urdy said.

“If you’re honest, you know that this has been the only thing that has worked, even marginally, to develop 11th and 12th streets,” Urdy said. “The city has tried everything it knew how to do over all these years, and nothing ever happened until they came up with this idea.”

And, in the view of many on ARA’s board, the city often has been the bad actor in the task of redevelopment. For one thing, the City of Austin asked ARA to foot the bill on infrastructure improvements on 11th Street, to the tune of $400,000, and managed to forget the debt. It still has yet to fully reimburse the costs. And, when it comes to 12th Street, the city has made no move to upgrade the infrastructure for new development, or even provide interested parties with a clear estimate of such costs.

How can prospective developers have any idea what redevelopment might cost on 12th Street if the city continues to ignore the needs of the corridor, members asked.

The City Auditor’s Office is expected to issue its findings on ARA’s financial stability at the end of the month. By Smith’s calculation, that would give ARA a mere weekend to review the findings and provide its rebuttal to the Auditor before the document is forwarded to the Council Audit and Finance Committee and, ultimately, Council during the first week of November.

ARA has two standing agreements with the city. One is the tri-party agreement that is a somewhat evergreen document that was recently renewed by ARA, the City of Austin and the Urban Renewal Board. The second is an operations contract signed by the city and ARA, which provides ARA with a viable operating budget. That operations contract ended on Sept. 30.

Smith told the group it should prepare for the possibility of non-renewal of the contract, which could lead to a $10,000-a-month gap in revenue for ARA. The city gave ARA a five-year contract term, with a promise that the group would become self-sufficient. When that didn’t occur, it gave ARA a second five-year contract. It’s unlikely the city would renew that contract, even for a one- or two-year term, if an audit shows a less-than-favorable financial picture for ARA.

Board Member Edwin Rummels was not inclined to run from the challenge. If the city were to suggest ARA was overleveraged, Rummels said the group should acknowledge the fact and say the financial position was intentional, and complicated by the fact too many projects had been delayed.

ARA will have a balloon payment of $5.5 million on one of its office buildings in 2012, but the organization would be able to claim a $2.3 million tax credit, which would put the group in a good position to refinance, Smith said. The goal always has been to refinance the project once it was proven to be viable, Smith said.

Urdy, who has been with ARA since the beginning, was a bit irked ARA would be put in a position to defend itself under such circumstances. None of the early financing terms should be a surprise to the city, regardless of the auditor’s findings. The city always was, in essence, the senior partner on the ARA’s early financing. Under what circumstances would any bank have signed off on ARA’s loans without the full faith and credit of the City of Austin? Urdy asked.

Member Larry Jackson suggested it might be time to have an impartial outside party gauge what it would actually take for ARA to be a viable self-sufficient organization rather than rely on others to paint ARA as a poorly managed and irresponsible developer who had failed to heed good business practices.

“People don’t blame the city on this. They blame us,” Jackson said. “If we have tenants who owe us thousands in rent, the people blame us. They never will see the problem from our perspective. They’re going to see the people down there at the city as the good guys, and we’re the ones who mismanaged everything.”

Member Valerie Thatcher did counsel that the group could certainly learn from, and improve upon, its business practices. ARA should be far better, and a lot less nice, in areas such as rent collection, where things tended to slide too much.

In the final activity of a lengthy meeting, Smith asked the board to rank activities, understanding the potential impacts of a negative or a neutral audit. Those projects likely impacted by a negative audit would be development of Block 18, of which ARA owns the East Room at 1154 Lydia.

Other projects that might be viewed negatively, with a bad audit, would be development along 12th Street at Navasota and Angelina, as well as the infrastructure improvements on 12th Street. In all likelihood, ARA would not be in charge of three final historical rehabs in Juniper-Olive Historic District.

In terms of its financial state, ARA probably would be better positioned to serve as the co-developer, rather than the financial developer, of properties it does not own along East 12th Street, Smith said. ARA already has done some work in this area. For instance, the Urban League and Center for Public Policy Priorities are interested in sharing a building at the corner of 12th and Angelina. Plans are still in the early stages.

If ARA were to proceed without city support, the non-profit group still has some control over the East Room property and could assist the newly reconstituted Anderson CDC in the construction of affordable houses and rental units.

The updated list of priority projects will be presented on Oct. 20.

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