Here are some highlights from the CATS audit. Overall, it's a 40-page chronicle of the hubris of Mayor Johnson and his staff, and the chicanery of a couple of investors who rooked him. It should be required reading for every supporter of government/private "partnerships".
Don't click the following link on a full stomach:
The CATS founders provided only a fraction of the equity they promised. They used a number of schemes to delay payment until the last minute or later. The net result is that only a fraction of the cash they promised to provide was accessible by CATS when the ferry started operations.
The CATS accounting and budgeting was a joke. They were $2.8 million over budget at launch:
- Travel and Entertainment was $200K over budget.
- Political lobbying and campaign contributions of $230K wasn't even in the budget. I wonder where that money went?
The city's "oversight" was nonexistent.
- When RGRTA pulled out of the project in 2002, instead of investigating the reasons RGRTA pulled out, the city found another city-controlled entity (RURA) to provide financing. "Had the city reviewed CATS' claimed investment in 2002 when requested by RGRTA, the city would have undoubtedly seen red flags..." Ya think?
- Even though it was a requirement of loan agreements, CATS refused to hire outside counsel to review material supporting the loans. The city refused to make CATS hire the counsel, and they refused to hire counsel themselves to do the review. My take: they just didn't want to know.
The city accepted third- and fourth-party liens on loans without collateral and without due diligence. Perhaps that explains why the lenders didn't exercise much oversight - they knew that the city was on the hook all along.
The city made a number of unauthorized expenditures and tried to hide them:
- $975K of city money earmarked for general port expenditures was instead spent on things like furniture for CATS offices and ovens for the ferry.
- Mayor Johnson took CATS off the hook for half of the cost of the fuel system ($210K) without council approval (or, apparently, knowledge).
The city granted a 40 year $1/year lease on the port to a CATS affiliate based on verbal claims made by CATS that were never investigated.
Comments (3)
I personally don't view this as an indictment of private-public enterprises in general. I think private public projects can work but they have to, you know, actually DO WORK, not just skip on things like, oh, research, and reading the dammed paperwork.
The Book 'Naked Economics' make a great argument that Americas best assets for business are
1) A well regulated market, and a gross audit system on that market.
2) Well regulated government (relatively, compared to much of the world) and the gross audit system provided by voting.
I wonder if there is a way to bring suite against the city or against the investors and consultants that did skipped out on the due diligence needed. I also wonder if City Council will have the guts to call for a general review of projects, or put out a statement condemming the people that didn't do their expected work (and, you know, buried costs, ignored sections of the contract, did things without proper council apporval).
Posted by FarMcKon | July 28, 2006 12:47 PM
Posted on July 28, 2006 12:47
And (off topic) I HATE that I can't edit comments once they are submitted.
Posted by FarMcKon | July 28, 2006 1:11 PM
Posted on July 28, 2006 13:11
I agree that public/private partnerships can work, in theory.
But the recklessness exhibited by the city, over and over, and the ease with which the CATS partners were able to pull the wool over the city's eyes, make me wonder if Rochester can pull off a successful public/private partnership, in practice. The city was able to waste $20 million in a couple of years on a project that should have been raising red flags before the first penny was spent.
Posted by Rottenchester | July 28, 2006 2:30 PM
Posted on July 28, 2006 14:30