"You follow me, kid?" An old friend of mine, educated at Hotchkiss and Haverford, used to ask that all the time, sometimes after every two sentences, like when he showed me how to make a martini or how to work the clutch in a '74 Fiat or when he tried to explain what arbitrage was. He had a head for cocktails, cars and finance, and he talked real fast, with a cigarette on his lip. He'd start explaining something complex, like bond trading, and stop and ask, "You follow me, kid?"
And I would say, "Keep going," as if I understood.
I thought of my old friend Friday morning when The Sun landed on my desk with a front-page picture of Michael Beatty and his thinning Gordon Gecko hairstyle, above the headline: "Beatty to buy TIF bonds."
See if you can follow me.
Beatty is the wealthy guy who wants to develop an old chromium plant site in the Baltimore Harbor into a fabulous office-hotel complex with public spaces so we can all go down there on New Year's Eve and watch the fireworks.
Despite what I just said about chromium, these 28 acres, called Harbor Point, are supposedly some of the most valuable acres in the United States, prime for development.
Beatty claims that his development will create thousands upon thousands of new jobs and eventually millions and millions in property taxes for our endlessly cash-starved city.
I mean, it's like he's going to build a city-within-a-city next to the city-within-a-city he already built: Harbor East.
Beatty is willing to invest some of his money and other people's money in this project. But, of course, he stuck his hand out and asked City Hall to sell more than $100 million in municipal bonds to raise money for things like sidewalks and streets and the parks for the fireworks viewings.
You follow me so far?
If I'm going too fast, let me know.
We're giving money to millionaires again, but not in the usual way. That's where the TIF comes in. That stands for tax increment financing, which basically means the city takes out a loan (through bonds) to pay for stuff, and the property taxes the project generates pay back the bonds over time. Beatty asked for a certain amount of TIF to help him and his backers get a 14 percent return on their investment.
You like that?
That's the way the world works, and you cannot have thinning Gordon Gecko hair on the front page of the newspaper unless you understand that. Guys with big money get to insist on this kind of return. And when politicians are involved, it's generally an easy deal.
That's what happened in the mid-1990s when John Paterakis, the wealthy and politically influential bread baker, got millions in tax breaks to construct a hotel at Harbor East, a mile from where, at the time, the city needed a convention center hotel. That was all politics and entitlement at work.
That's why people get antsy about these high-profile financial deals: City Hall. It's hard to imagine that our elected leaders even comprehend what's going on. Maybe they have staff that can match wits with Beatty and his financial strategists, but when it comes to City Council, we don't have a lot of confidence.
Plus, they're a bunch of pushovers. Guys with French cuffs treat a council member to dinner at McCormick & Schmick's, and the French cuffs pretty much get what they want.
So Beatty will get what he wants — the TIF, plus a bunch of tax breaks that could total something like $400 million over the next couple of decades.
You follow me?
Now here's the latest: Beatty is going to put up $35 million for some of the bonds he talked the City Council into authorizing for his project.
Put another way, the developer who is benefiting from the sale of the bonds is going to buy some of the bonds.
We are told that this maneuver saves the city money — about $6.5 million that otherwise would go to a lot of guys in suits who do these bond deals.
It seems odd, but someone has to buy the bonds, right? So why not the developer? Beatty has as much right as anyone else to enter that market.
Still, I know what you're thinking. You're thinking what I was thinking when I was thinking about this Friday morning and I got a wicked headache: If Beatty can get up $35 million to buy bonds, why couldn't he just put $35 million more into the project to begin with? That would buy a lot of public space for fireworks watching.
I think I got this, or at least a good guess: Investing in the bonds that are backed by tax revenues from Harbor Point and pay a steady 6.5 percent is much less risky than putting up your own money.
Plus, Beatty getting into the bond sale is a public relations thing. It helps the city a bit; it makes the Harbor Point deal seem slightly more palatable.
But I think I'll stop here.
I think I might have lost some of you at "palatable."