March 15, 2016
The Hidden Cost of Health Education and Housing Board Bonds
The Commercial Appeal recently published a story about a downgrade of a local bond issue as follows. “On Feb. 12, the Bank of New York Mellon Trust Company, which oversees the$11.8 million bond, sent a notice of default to bondholders notifying them the U.S. Department of Housing and Urban Development had ended its contract with the borrower, Global Ministries Foundation.”
I have been researching the whole issue of City and County boards and commissions and particularly the Memphis Health Education and Housing Facility Board. I asked that board for a list of bonds issued by the Board for the last five years with cost data and information of the parties receiving payment upon the issuance of the bonds. The board has failed to respond to that request for open records. Therefore I went to the State of Tennessee and received five reports on local bond issues from Steve Osborne, Senior Analyst, Comptroller of the Treasury, State and Local Finance. Here are the five issues I received.
The five reports are very revealing but first I have to tell you about my request to the Shelby County Health, Education and Housing Facility Board (same name as the similar City HEHFB) but a completely different board. I asked for their documents on ethics and conflict of interest policy and I received it as shown. I particularly call your interest to page 6 wherein is shown a maximum fee calculation for the legal fee of Bond Counsel.
I have shown below the fee paid to the bond counsel of the Memphis HEHFB board on the five recent bond issues versus what would be the fee from the Shelby County Board HEHFB.
|Name of Project||Bond Amount||Actual Bond Counsel Fee City of Memphis HEHFB||Maximum Bond Counsel Fee of County HEHFB|
|Arbors of Hickory Ridge Project||$11,450.000||$26,000||$21,450|
|Housing and Social Services||$4,061,000||$25,255.08||$11,122|
|John Madison Exum Towers and Apartment I and II||$19,000.000||$85,000||$29,000|
|Uptown Housing Senior Project 2006||$4,000,000||$40,000||$11,000|
|Uptown Manor Senior Project||$2,825,000||$21,000||$13,062.50|
|Total Bond Counsel Fee||$197,255.08||$85,634.50|
On these five bond issues, this is $111,621 more than the County maximum amount in their ordinance. But this is just the beginning of the cost of the bond issuance. The total for these five bond issues just for the Memphis HEHFB is $967,304.03.
Then there is the question of a possible conflict of interest although apparently there is no provision that I have been able to obtain concerning a City of Memphis conflict of interest policy although I have been told that the Strickland Administration is working on such a policy.
I think that it is high time that we get a discussion going on this high cost of bond issuance and is this approach to adequate housing for low income citizens the best and most efficient method. Also there needs to be a clear and open policy on bond issuance fees, conflict of interest and ethics.