Monday, May 29, 2017
TKC MUST READ!!! KICK-ASS TIPSTER CALCULATES SKETCHY KANSAS CITY NEW AIRPORT BURNS & MAC NO-BID PRICE TAG!!!
Important info sent our way is greatly appreciated and doesn't need our preamble. Instead, take a look at the smartest denizens of our blog community doing the math on the biggest, baddest deal in Kansas City history.
JAMES, SCHULTE, AND BURNS AND MCDONNELL ARE HOPING KCMO COUNCIL FAILED MATH 101
FIRST AND FOREMOST, the KCMO Council should immediately cease deliberations on the unsolicited no-bid secretly negotiated airport terminal proposal publicly announced on May 12, 2017 by Mayor James and Burns and McDonnell CEO Raymond Kowalik.
The extremely rushed process, currently underway, targeting a June 15 Council vote to approve the MOU has been designed to serve as the initiation domino which will set into motion a chain reaction, from which there will be no escape clause. The Council is not being provided all pertinent information from the City Manager's office, Burns and McDonnell, or the mysterious Terminal Developer LLC. They don't even understand that the Developer proposing this billion-dollar project, never existed prior to April 27, 2017. The Council is being tag-teamed from all sides in the hope that they will feel overwhelmed and cave in to the pressure. If they were to approve the initial MOU, they will be abdicating their responsibility to KCMO residents, and City Manager Schulte will become the city's sole designee for future approvals, etc.
The KCMO Council is the governing body for the city of Kansas City Missouri. They have not solicited public bids for a single terminal airport construction project. The citizens of Kansas City Missouri have not approved the demolition of existing terminal structures, nor the construction of a new terminal structure.
If an unknown legal entity came forth with an unsolicited bid for the exclusive right to build a bubble over downtown KCMO, for an unspecified budget, would the Council seriously entertain the idea?
Prior to the public announcement, the KCMO Council had purposely been excluded from the secret negotiations while Burns and McDonnell, Mayor James, and City Manager Schulte colluded, once again, to craft a memorandum of understanding (MOU) for another sweetheart deal to be served up on a silver platter for Burns and McDonnell. Please recall that KCMO financed the recent Burns and McDonnell headquarters expansion, in addition to granting millions in tax breaks/incentives. It begs the question, "How can Burns and McDonnell privately finance a billion-dollar terminal project, when they were incapable of financing their very own headquarters expansion?"
We have serious concerns that the KCMO Code of Ethics for officials/employees has been violated in this process. At the May 12 public announcement for this proposal at KCI, we noted the prominent presence of Councilmembers Justus, Wagner, and Fowler, who stood immediately behind Mayor James while he enthusiastically endorsed the plan. In fact, Jolie Justus spoke following the Mayor, and stood lockstep by his side, stopping just short of high-fiving each other. We wonder how a Councilmember can support a billion-dollar no-bid contract before they know the details, and before the Council has met in session to deliberate the proposal. See KCMO Charter, Code of Ethics:
"The purpose of this code of ethics is to establish minimum ethical standards of conduct for all officials and employees by setting forth those acts or actions that are incompatible with the best interests of the city and by directing disclosure by such officials and employees of private financial or other interests in matters affecting the city. This code of ethics is designed to prevent unethical behavior, to avoid even the appearance of impropriety, to provide meaningful redress, and to encourage transparency in government. "
According to the Terminal Modernization Project Memorandum of Understanding, currently under consideration by the KCMO Council, the total project cost is unspecified.
In (Article IV, 4.1., a., i.), it states that "the budget estimate developed in connection with the negotiations on the prior MOU totaled $964,000,000.00 (in 2015 dollars)." This is merely stating a historical record from a failed prior negotiation. No one is committing, in writing, to a fixed project cost.
Because so little detail has been disclosed, let's try to do some reverse engineering in regards to the estimated cost for the terminal project. Although Burns and McDonnell hasn't publicly provided a project budget, they've suggested a desire to match the equivalent of $964 million (in 2015 dollars). Let's be generous and base our estimates on this $964 million figure.
The MOU is for an unspecified 30-35 year or longer term. Since they specifically chose 30-35 years, we're assuming their intention is to go for the longer period, as that is to their advantage. We'll use 35 years for our model.
The MOU requires a minimum annual payment to Developer of $85.2 million, based upon an agreement between KCMO, the airlines, and Developer.
Now the math: ($85.2 million/year) X (35 year term) = $2.982 billion total payments to Developer
Now, let's use an amortization calculator and pretend we're borrowing $964 million dollars, over a 35-year loan term, with total payments being just shy of $3 billion dollars.
What would be the approximate interest rate charged on our loan? Answer = 8.36 percent (APR)
So, under this proposed MOU, as long as Terminal Developer LLC can secure project financing for less than 8.36 percent, they stand to turn a profit on this contract. And potentially, the windfall could be enormous if they lock-in financing for substantially less than 8.36 percent.
Hypothetically, if Terminal Developer LLC borrows $964 million for a 35-year term at a fixed 5-percent APR for their construction project, then to pay off their loan, they would make total payments during the life of the loan of $2,043,379,455.57
And if Terminal Developer LLC is guaranteed to receive $2.982 billion over the 35 year term of the agreement with the city and airlines, after paying off their loan, they would be left with $938,620,544……..that's just shy of 939 million dollars.
To give you an idea of where some long-term interest rate benchmarks currently hover, as of the market close on Friday May 26, 2017, the yield on the 30-year U.S. Treasury stood at 2.92 percent, and KCMO residents were looking at 30-year fixed rate mortgages of 3.81 percent.
You decide . . .