Cleveland/Cuyahoga County Port Authority: The Power of Development Financing
Karen Schaefer: Traditionally, port authorities oversee maritime operations, where products and raw materials enter or leave a city by water. Sometimes port authorities are created at other points of entry, such as airports. But in 1993, The Cleveland-Cuyahoga County Port Authority began a new venture to create more revenue while helping to improve the region's economy. Port Director Gary Failor says the Port's new development financing is a natural outgrowth of port authorities' ability to raise money for developing their own resources.
Gary Failor:We used to say that port authorities are economic development engines with water. And now I think most of the port authorities in the state have realized they're also economic development engines in terms of financing.
KS: Over the last eight years, Failor says the Port Authority has helped finance more than $600 million worth of new investments for companies wanting to expand operations or build new facilities. The Port's first project was the Rock and Roll Hall of Fame. Since then, the Port has had a hand in financing the Brown's Stadium, Mid-Town Corridor projects, and the Applied Industrial Technology headquarters at E. 36th and Euclid. The Port has also helped to raise money for smaller projects like the conversion of the former Collingwood Yards on the Shoreway for the new Jergens Manufacturing complex. Failor says Port Authority funding offers a real advantage to companies who want to keep their debt in line.
GF: And that's basically a fixed-rate mortgage payment. Most businesses have to go to an adjustable rate nowadays, which goes up and down like crazy. But particularly for small, family-owned businesses, fixed-rate is so important. And the ports in the state can actually provide that to them at the company's risk. And they see a great advantage to that.
KS: The funding works like this. Companies estimate the cost of a project, then show how they'll be able to pay back the debt. By borrowing through the Port Authority - which has an unlimited debt ceiling - companies can avoid raising their own debt rating. In turn, the Port Authority can offer much lower, fixed-rate interest than most banks. The loan is then financed through the sale of bonds. Failor says that as long as businesses can demonstrate a solid repayment plan, the Port assumes little or no risk, even for multi-million dollar investments. But this development financing isn't limited to the city or even the county. Ken Fisher is the law director in University Heights.
Ken Fisher: The project is 615,000-square-feet of new retail on twelve-and-a-half acres, with a five-level, 2,100 car decked garage. Besides Kaufman's, Best Buy, Target, Tops supermarket, Old Navy and others. And again, you have to see it, because we've seen renderings, we've seen models, and it's really phenomenal. I mean, people will drive by it and say, that's beautiful.
KS: Fisher says his small community is delighted to be able to take advantage of $40 million worth of Port Authority bond financing on the $125 million project. He says it should bring a big return to local residents.
KF: As part of the arrangement with the Cleveland Heights-University Heights school district, the payroll tax benefits, which we project somewhere around $400,000-per-annum goes to the city. The city district, of course, received a large sum at the closing of the bond on December 28. And the school district also receives the incremental increase in the real estate tax dollars that theoretically would go to the city.
KS: But financing retail development - especially in a recession - can be a risky proposition, as the Port of St. Paul, Minnesota learned the hard way. St. Paul was the Midwest's first port authority to try its hand at development financing. But it got into trouble when businesses like hotels and restaurants failed to thrive. For that reason alone, some civic leaders like Genevieve Ray of the Cleveland Waterfront Coalition think the public should know more about how the Port Authority's public dollars are spent.
Genevieve Ray: I would think the county or the city would want to know what has been the success rate, how many of the businesses are still in operation, how many jobs have been brought into the county, new jobs, how many jobs saved. It would just be a responsible thing to do to look at how it has succeeded.
KS: Nonetheless, Ray is not alone in believing that this method of financing new development shows real promise for creating a competitive economic advantage for the region. Cuyahoga County Commissioner Jimmy Dimora wants the county to have more say in Port Authority funding. Unlike the airport authority, which is under sole city control, the Cleveland-Cuyahoga County Port Authority is a shared responsibility. Currently the county appoints just three members to the Port's 9-member board. The city of Cleveland names the other six. He's asking the Cleveland city council to consider a proposal to split the appointments equally between city and county, with the board choosing their own 9th member.
Jimmy Dimora: The Port Authority can be a tremendous asset, because it makes the project more feasible of coming to fruition and more feasible that they can financially make the project work. And it's continuing to be looked to more and more for financing of major capital projects. Bio-tech, for example.
KS: Another investment Dimora would like to see the Port Authority make is the financing of a new downtown convention center, a move many city planners agree could help bring more dollars to the region. While a convention center was a priority under the White administration, new Mayor Jane Campbell hasn't yet set a timetable for the project. Commissioner Dimora agrees with civic leaders clamoring for more public input on choosing a site for the center. But he says he still expects the project to move forward quickly, probably within the next few months. In Cleveland, Karen Schaefer, 90.3 WCPN News.