Just how high are the stakes on the Parkhouse sale?

In a word: HUGE.

Since the sale of Parkhouse "pervades every aspect" of the 2014 Montgomery County budget, it's worth taking a look at the single biggest budget issue that Montgomery County faces:

Logan Square Shopping Center, aka "Studio Centre," aka "Norristown Centre," aka Giant Economic Development Boondoggle.

Back in June of this year, Natalie Kostelni penned an article for the Philadelphia Business Journal chronicling the tragic history of the Norristown Studio Centre, the too-good-to-be-true project that was going to single-handedly undo years of mismanagement and economic decline in Norristown. Like the quick fix that project promised, the County Commissioners are looking for a similar quick fix to fill the $24.5 budget hole that the project created. Kostelni's article (linked here) is worth reading in its entirety, but for a sense of scale as to how dire the County's fiscal crisis is as a direct result of this project, this passage is worth quoting at length:

The county finds itself on the losing end of the deal even though it had been warned. A March 18, 2009, memo from John F. Nugent, the executive director of the Montgomery County Redevelopment Authority, questioned why the county was committing so much money toward the project and why it would enter into an arrangement in which the county would be subordinate to the primary lender. Regardless, the commissioners signed off on the agreement.

“We were told by our experts allowing the first lender to have a higher priority than the county was needed to have the deal happen,” said Joe Hoeffel, who was serving as a county commissioner at the time and fully supported Studio Centre. Hoeffel contends that in spite of the county being on the hook, the money helped keep USM Services and its jobs in Norristown.

“There are 400 jobs and a Class A office building and a parking garage,” Hoeffel said. “That’s why I call the project a successful job creator for Norristown.”

Bruce L. Castor Jr., who was a commissioner then and currently holds the same post, also backed the project.

“I liked that the tax credit would bring glitz and glamour to the northern end of Norristown,” Castor said. “That was a Rendell thing and I thought it was a good idea.”

However, Castor said he didn’t know he was signing off on a deal that put the county funds in such jeopardy. He blames Hoeffel, a political nemesis, for the situation.

Josh Shapiro, a current county commissioner, said attempts were made to renegotiate the county’s secondary position after the fact, but that was rejected by the lender.

Bleak Future

Montgomery County District Attorney Risa Vetri Ferman is also looking into the matter. This is based upon recent public disclosures about decisions and actions undertaken by the past commissioners related to the Logan Square project, she said in an email. It is also prompted by a December 2011 report issued by a Montgomery County Investigating Grand Jury that addressed the conduct of some county government officials and employees and allegations of political corruption.

In the meantime, the foreclosure process is expected to take six to nine months and has left the county reeling. It recently put forth a bond issue and its exposure on the Logan Square debacle was listed as a liability.

Also of concern is how the situation will affect the amount the county and Norristown receive from the U.S. Department of Housing and Urban Development and its Community Development Block Grants funds. Since HUD loans were part of the funds given to Studio Centre and the project is unable to generate enough money to make payments on the loan, the payments will come from future CDBG money earmarked for the county and Norristown.

Translation: This one deal could haunt Montgomery County over the long term. The county is also dealing with the reality that it may not realize any return from the money it gave the developer for Studio Centre and even recoup any of the $24.5 million.

“We will follow whatever options and legal remedies that we have,” said Uri Z. Monson, chief financial officer for Montgomery County.

"Whatever options and legal remedies" clearly includes the sale of Parkhouse and apparently only the sale of Parkhouse. With it's $39 million price tag, that neatly fills the hole created by Studio Centre with enough left over to pay down the existing $8 million in debt on Parkhouse and the $6.23 million on outstanding contracts.

Adding insult to injury is the fact that the County must pay $528,000 in annual interest payments alone on the Logan Square loans.

A $528,000 interest payment on a redevelopment project that foreclosed in May. The county-guaranteed loan for Logan Square - better known as the former Sears shopping complex at Markley Street and Johnson Highway in Norristown - will cost the county $9.4 million through 2030.

Another failed investment in Norristown, this one in a sewer project, will cost the county $110,000 in 2014, according to Monson.

Those two projects, approved under the previous administration, have also cut into the 2013 budget. The county recently made an $8,883 payment for the sewer project, and the county Redevelopment Authority made a $363,362 payment for Logan Square.

Moody's downgraded Montgomery County's bond rating in August. Another downgrade would raise the interest rate.

It's not only in the County's fiscal best interests to plug this budget hole as quickly as possible, but it would be best for all parties involved in the original transacation to make this project disappear down the memory hole as quickly as possible.

Because, where did that $59 million go?

It did not go into paving the parking lot, I can tell you that much.

As a matter of fact, other than the renovated Sears building and the parking garage, it's difficult to see where, in fact, that money went. Montco resident Walter Interrrante filmed the "before" images back in 2007:



Here is the "after" image, taken today, 11/23/13:

On October 31, 2013, the Logan Square property was sold to the developer for $8,000 dollars.

Logan Lender, a Wayne firm, bought the two parcels for a total of about $8,000 after filing a foreclosure suit in Montgomery County Court in May against Johnson & Markley Redevelopment, a New Jersey firm led by developer Charles Gallub.

The 24.5-acre property sold as two parcels, which includes where USM, a facilities maintenance company, has offices. Together, the parcels were valued at about $37 million, reflecting Logan Lender's investment.

It's worth noting that just this year, the Montgomery County Commissioners broke ground on yet another economic development project that would, as Commissioner Leslie Richards said, "change the way Norristown is perceived."

Where have we heard this before?

The project got started with $11.5 million this year. An additional $20 million contract is slated to be awarded in August 2014 and a third $20 million contract is due to be awarded in late 2015 for this project.

Am I missing something here? If it was an economic development project that dug Montgomery County's fiscal hole, then shouldn't economic development funds be used to dig them out? Surely, the County should not be "investing" in economic development projects until it cleans up the mess from the last project.

And it certainly shouldn't be using Upper Providence's open space to do it.

Look, I get that the current County Commissioners inherited a mess from the previous Board. Lord knows, they can't sit in a meeting together for five straight minutes without reminding everyone of that. The fact remains, however, that they all ran for office with a full understanding what they were getting into. And it's more than a little troubling that many of the same names that were floating around the groundbreaking of the Lafayette Street Corridor project were floating around during that fabulous Studio Centre proposal.

Montgomery County does some things very well: Parkhouse is a five-star facility that serves the County's most vulnerable aging adult population. Since 1993, Montgomery County has preserved acres and acres of open space and farmland.

The County should not trade funds earmarked for things they do well to pay for things they do very poorly.