Cites ‘appearance of short-term gain’ vs. long-term liability
By Roger McCredie- A recently created website compares the city’s ambitious riverfront development plan to a Ponzi scheme, saying it will appear to generate immediate benefits at first while creating enormous long term debt.
The website, Asheville River Gate (www.ashevillerivergate.com), was created by Mari Peterson, wife of riverfront property owner and former Asheville vice mayor Chris Peterson. The name appears to allude to the post-Watergate trend of adding “-gate” to a word or phrase to denote an alleged scandal.
Chris Peterson has been a vocal critic of the Riverside Drive development plan since its unveiling last fall, and particularly since February, when it was revealed that a proposed rerouting of the road called for taking most of the land surrounding the popular 12 Bones restaurant and reducing the rest to an “uneconomic remnant” that could then be condemned. Peterson owns the 12 Bones property itself. The restaurant is owned and operated by Brian King and Angela Koh.
The stated purpose of the website, which began operation on March 21, is “to provide vital information that may affect property owners and stakeholders along the planned riverfront redevelopment. You may be for or against it. That is your opinion …
“We are not against riverfront development, increasing tourism, greenspace, bike lanes, & all the wonderful benefits of the Asheville Riverfront Redevelopment plan. But, we are against building in a known flood zone, spending tax payers money on areas that will be damaged and against condemnation of private property owners,” the introduction adds.
“This project is going to cost between 20 million and 60 million at least (probably more), will dramatically change the French Broad River landscape, displace many artists, increase the cost of doing business on the river and effect both private and public land owners. Lots of agencies (NCDOT, FEMA, etc), organizations and our City of Asheville are involved. Given the past history of the City of Asheville’s planning and redevelopment process (like the $2 million park), we wanted to provide a place to keep this project accountable,” it concludes.
About the same time, the Asheville Area Riverfront Redevelopment Commission, a joint city/county/private business entity that has been quietly meeting to plan riverfront development since 2010, released a breakdown of anticipated grants and other funding that would indeed place the initial tab for riverfront improvements at $50 million, with more than half the money coming from the City of Asheville. The release added that AARRC is looking to generate an additional $200 million in private-sector and public contributions for its contemplated system of greenways, bike paths and other gentrification components designed to line the riverfront on three sides of the city.
Following this announcement, on March 26, the website led with a post entitled, “Asheville River Arts District Ponzi Scheme.”
The term “Ponzi scheme” is used to describe “a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned by the operator. Operators of Ponzi schemes usually entice new investors by offering higher returns than other investments, in the form of short-term returns that are either abnormally high or unusually consistent.
“Ponzi schemes occasionally begin as legitimate businesses, until the business fails to achieve the returns expected. The business becomes a Ponzi scheme if it then continues under fraudulent terms. Whatever the initial situation, the perpetuation of the high returns requires an ever-increasing flow of money from new investors to sustain the scheme.” (Source: Wikipedia)
The technique is named for American financier Charles Ponzi, who did not originate it but first succeeded spectacularly with it in the early 1920’s. The most elaborate Ponzi scheme in history, engineered by securities magnate Bernie Madoff, defrauded thousands of investors of a total estimated at $65 billion.
So how is the funding of a stretch of Asheville’s riverfront related to a type of investment swindle usually associated with personal gain in areas of high finance? “Asheville River Gate” maintains there’s a second type of Ponzi scheme, modeled on the original, that pertains to municipal growth and is often found at work in cities’ plans for gentrification or expansion. The website lists three points that characterize the municipal version, all of which, it says, are present in the AARRC’s plans:
“1) Transfer payments between governments: where the federal or state government makes a direct investment in growth at the local level, such as funding a water or sewer system expansion. DONE & DONE! US ECONOMIC DEVELOPMENT & CLEAN WATER MANAGEMENT TRUST FUND
“2) Transportation spending: where transportation infrastructure is used to improve access to a site that can then be developed. DONE & DONE… RADTIP [RADTIP – the River Arts District Transportation Improvement Project, funded by a $14.6 million federal grant received by AARRC last fall, includes the rerouting of a 2.2-mile section of Riverside Drive and construction of the traffic roundabout that will take most of the 12 Bones property.]
“3) Public and private-sector debt: where cities, developers, companies, and individuals take on debt as part of the development process, whether during construction or through the assumption of a mortgage. DONE & DONE & WILL DO SOME MORE!” the website says.
A link directs website visitors to www.strongtowns.org, the site of a watchdog group concerned with municipal long-term indebtedness.
“What we have found,” that website comments, “ is that the underlying financing mechanisms of the suburban era — our post-World War II pattern of development — operates like a classic Ponzi scheme, with ever-increasing rates of growth necessary to sustain long-term liabilities … the local unit of government benefits from the enhanced revenues associated with new growth. But it also typically assumes the long-term liability for maintaining the new infrastructure. This exchange — a near-term cash advantage for a long-term financial obligation — is one element of a Ponzi scheme …
“ … As with any Ponzi scheme, new growth provides the illusion of prosperity. In the near term, revenue grows, while the corresponding maintenance obligations — which are not counted on the public balance sheet — are a generation away,” the cited source says.
Thus, according to the Peterson website, the AARRC is creating infrastructural additions and improvements – a quarter of a billion dollars’ worth, all told — that will require a crippling amount of future maintenance and upkeep that can be financed only by massive tax increases down the road.
Peterson has also claimed that several members of the AARRC have direct vested interests in the property involved and stand to benefit financially if their property is seized by eminent domain under the provisions of the federal TIGER grant that underwrites RADTIP, or by selling their property in advance. He has stated that since this information has been available to the members for several years, profiting from it would amount to “insider trading.”
Moreover, he says, the entire project is knowingly being carried out on a recognized flood plain that has suffered two catastrophic floods within the past century.