CTDC: AN OPEN LETTER REGARDING THE REQUEST FOR PROPOSALS FOR FACILITIES MANAGEMENT

[Patricia M. McBride]

This is a letter sent to our elected city representatives from the Concerned Taxpayers of Duval County, and shared with me by a member of the Arlington Group who is members of both CTDC and FCTP. This is unreal as most everything to do with our city is these days, and coupled with the article in the Times Union this morning indicates action should be taken to either support this letter or write one of your own to mirror this letter. Our city is in a mess, and bills are passed and legislation written that seem not for one minute to consider the ramifications of not covering all bases to PROTECT the taxpayers who pay the bills for this group of people.  For myself, I do not like that the general council says our representatives can't do anything about it now that they have transferred authority to the mayor.  Now we understand why the mayor wants to control everything, don't we?

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This is the letter approved by the Board on the 19th and sent to the administration and city council. I have received only one request for any additional information from a city council person and no response whatsoever from the administration.

Subsequently the General Counsel has opined that the City Council, having given the authority to the Mayor to choose (subject to agreements with the Jaguars as noted in the letter), has no power to rescind in whole or in part that delegated power. Apparently only the administration can reboot the RFP process (but note other General Counsel opinions are being ignored despite the provision in the Charter giving those opinions the force of law). Since oral presentations are scheduled for this week it appears the current process will continue without consideration of the possibility of breaking up the management contract or the other suggestions below.

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AN OPEN LETTER REGARDING THE REQUEST FOR PROPOSALS FOR FACILITIES MANAGEMENT
To the Mayor, General Counsel, City Council and all other authorities and officers of the City of Jacksonville with the power to recommend or decide on the relative merits of the two proposals from SMG and Global Spectrum to operate the public entertainment facilities of our City for the next five to ten years:
It has come to the attention of the Board of Directors of the Concerned Taxpayers of Duval County, Inc. that the two alternative proposals of SMG for Facility Management Services do not comply with Internal Revenue Service Rev. Proc. 97-13 (notwithstanding a statement to the contrary in the SMG rate and fee quotation). Simply put, acceptance of the SMG proposal would endanger the federal income tax exemption for the interest income received by our bondholders for the entire multi-billion dollar Better Jacksonville Plan bond issue, undoubtedly resulting in substantial litigation expenses to the City’s taxpayers and potentially as much as $274 million in additional taxes to cover the costs of indemnifying the bondholders for the taxes they will owe if the exemption is revoked. A computation is attached. The resulting downgrading of our bond rating status would present unknown additional costs of issuing future bonds. One alternative, which does not prevent IRS from attacking the bonds used to build the football stadium, Arena, baseball grounds and equestrian center, incidentally stripping tax free status from the costs of paying for other capital improvements under the Better Jacksonville Plan, including the Courthouse and Library, would be to immediately renegotiate SMG’s compensation to comply with the IRS rules after the fact. It is unacceptable to agree to a proposal when its ultimate and true costs to the taxpayer are not and cannot be known.
The president of the Concerned Taxpayers, an attorney with a master of laws degree in taxation, is well aware of and has advised the rest of the Board of the possibility of making any agreement with SMG contingent upon the receipt of a favorable Private Letter Ruling from IRS on the proposed transaction. While this is ordinarily a lengthy process, the current contract with SMG does not expire until March 2013 and without it the failure of SMG to fit within the “safe harbor” provisions of Rev. Proc. 97-13 creates absurd fiscal risks for the City and its taxpaying citizens, who already face a $60 million budget hole for next year and mounting operations and pension costs with a declining property tax base. With a multitude of existential threats already unavoidably upon the City, why should we chance a humiliating confrontation with IRS over whether our out-sourced facilities managers are skirting the limits of putting our taxpayer owned and funded venues to private business use?
We also question the fact that SMG now offers to perform essentially the same services in the future that it has in the past for only 12.5%, one-eighth, of the price per year that it has been collecting. It appears that for at least the last fifteen years, when the contract was renewed without bids for five year extensions, the taxpayers have been grossly overpaying for SMG’s management services. If not, there are other features of the SMG proposals which must create an equal or greater opportunity for profit by SMG. One which stands out is the provision of food services as part of the SMG quotations, which was not requested by the RFP and which makes the SMG proposals non-responsive to the City’s request. The successful management bidder should not be allowed to subcontract with its subsidiaries and related parties for concessions in order to conceal the true cost of its bid from the taxpayers.
As matters stand, only the Global Spectrum bid can even be analyzed to determine its actual cost to the public. That fact alone also makes the SMG proposal “unresponsive” as a bid on the RFP. We are aware that requirements for bidding on provision of “services” are much more lax, and therefore subject to procedural abuse, than those for the construction of buildings. This laxity seldom works to the taxpayers’ advantage, however. We therefore urge all public parties involved to either reject the SMG proposals outright or, if otherwise inclined to accept the SMG bid, to delay the ultimate determination until and unless a favorable income tax determination on the SMG quotation is received from the IRS. The taxpayers cannot afford the alternative.
As noted, time exists for the City to pursue other possible solutions to facilities management. Even if the City has analytically considered and rejected the idea of direct public management, there is no compelling reason why there should not be a new RFP, or set of RFPs, asking for bids on each separate facility or group of related facilities. There is little in common either in function or geographically between the Ritz Theater, the stadium, and the equestrian center, for example. The baseball grounds and the convention center serve completely different purposes and populations. Indeed, the 1993 agreement between the City and the Jaguars that gives the team rights in choosing the management of the stadium should not determine in any way who manages the Times-Union Center or every other facility in the county, yet it does so when all facilities are lumped into a single RFP.
A renewed RFP would also increase the possibility of attracting a third bidder, particularly if stadium management is bifurcated from the remaining facilities. An additional qualified prospective bidder exists with considerable acumen in obtaining appearances by popular performers which, although it declined to bid on a contract that included stadium management, may well be interested in operating the balance of our facilities.
Therefore be it resolved that the Board of Directors of the Concerned Taxpayers of Duval County supports an open and fair bidding process with responsive proposals from qualified bidders, but suggests the present SMG proposals are not responsive to the RFP and that the City should consider, in view of the nine months remaining in the existing contract, every alternative including the rejection of both current bids and requesting new proposals from all qualified parties to manage separate facilities as well as considering proposals to manage all.
Adopted by consensus June 19, 2012
JOHN S. WINKLER, as President and for the Board of the
Concerned Taxpayers of Duval County