Top 10 Reasons to Vote Against the

Kraner Land Deal

(Nos. 11 through 20, available upon request)

 

1. The property is grossly overpriced at $21,277 per acre for 579 acres.

     The township’s preliminary appraisal estimated the land’s value between $10,584 and $15,146 per acre. Mr. Kraner had the land appraised at $10 million -- or $17,284 per acre. The township promised to order a full, independent appraisal but never did -- a serious lack of professionalism in a $12.3 million real estate deal.

   What is the land really worth? You be the judge. The Licking County Auditor reports these sales involving the property or nearby land, all in the Granville school district:

      Land prices per acre normally go down, not up, when a large amount is purchased. 


2. The financing includes $2.3 million in tax-free bonus payments to Mr. Kraner -- money that is above and beyond the official $10 million purchase price.

    Mr. Kraner will receive $10 million cash -- his full appraisal price -- plus $2.3 million in tax-free payments over five years. Public officials promoting the deal claim the purchase price is $10 million. The contract reveals that Mr. Kraner will receive an additional $825,000 in 2008, $495,000 in 2009, $495,000 in 2010 and $495,000 in 2011. 

    The bonus payments are tucked into the financing, so they are not transparent to taxpayers who don’t read the 21-page purchase agreement. It’s worth your time to understand the details. Here’s how it’s done.

    When a well-run government borrows, it hires an investment banker to issue bonds (debt) that are competitively bid to get the lowest interest rate. Not here.

    Instead, the township will award $10 million in specially designed debt to Mr. Kraner without competitive bidding. In other words, Mr. Kraner will lend us the money to buy his land. It’s here that taxpayers get a second fleecing.

   The township will issue 15-year bonds to Mr. Kraner at 4.25%, roughly the market rate for tax-exempt municipal debt of that length. The twist is that we can’t start repaying these bonds until 2012.

    In the meantime, the township must make five years of principal-free interest payments at a 5% interest rate to Mr. Kraner. The market rate for short-term debt such as this is about 3.8%. The five-year note bans principal repayment. This unusual feature requires taxpayers to pay $2.3 million to Mr. Kraner before we can start making payments on a more traditional 15-year bond. This five-year waiting period has no economic value to Granville taxpayers. Five years later, we’re $2.3 million poorer, Mr. Kraner is $2.3 million richer, and we’re still $10 million in debt.

    It is illegal in Ohio to issue regular bonds with terms so unfavorable to taxpayers. To get around the prohibition, the township will structure the $2.3 million bonus as a “Bond Anticipation Note.” BANs, as they are called, are supposed to serve as short-term financing -- like a home construction loan that is replaced by a mortgage. Here, of course, the permanent loan is already in place. The “bridge” loan is a legal device that serves no economic purpose other than to add $2.3 million to the cost of the property. 

     This $2.3 million is especially valuable to Mr. Kraner because it is exempt from federal and state income taxes. Its after-tax value to him is about $3.8 million.

    It’s fine to maximize tax benefits. Shifting costs to the financing can save Granville and Mr. Kraner money (at the expense of state and federal taxpayers). But the cash price should be reduced by a comparable amount -- say, from $10 million to $8 million.

    Here’s the bottom line, what the deal really costs, depending on how you measure it.

 Cost basis

Total cost

Per acre

Bottom line

Purchase price only

10,000,000

17,284

Publicly disclosed price

Purchase price + financing bonus

12,310,000

21,277

Cost to Granville taxpayers

 

Purchase price + bonus + tax benefit

13,800,000

23,852

Value to Mr. Kraner

 

        

3. The deal consumes most of Granville’s borrowing capacity, strangling efforts to preserve greenspace elsewhere, especially near fast-growing commuter routes.  

    Granville township has a debt limit of $14.6 million under Ohio law. This is our primary weapon for preserving Granville. We should not squander $10 million of our borrowing capacity on a single, overpriced property in Newark. The $2.3 million bonus payment to Mr. Kraner is especially damaging because it prohibits us from reducing our debt for five years and deploying the money elsewhere.

    Our school district has vast swaths of open land in Granville and Union Township near the fast-growing commuter routes of S.R.161 and Interstate 70. Drive down James or Deeds or Thornwood or Loudon or Welsh Hills roads. Drive down S.R.37/Lancaster Road and imagine it with four lanes, fast-food restaurants and strip shopping centers. The Ohio Department of Transportation already owns the right-of-way.

    The Kraner deal has both actual costs ($12.3 million) and opportunity costs (land we can’t buy because we tied up our borrowing and taxing capacity).  We can preserve Granville’s way of life. But not if we spend our finite resources so imprudently. 

         Granville has spent $5 million (in inflation-adjusted 2006 dollars) on greenspace since 1991. The question on the Kraner property is not just “Is this property worth acquiring?” Yes, it is. But is it worth $12.3 million and forgoing the purchase of more than 1,000 acres elsewhere? Every deal has a walk-away price.

    Finally, consider the ripple effect of paying $21,277 an acre for raw land located off og the main commuter route to Columbus. By paying too much, Granville voters make every other tract of land worth more. We put severe estate-tax pressure on farmers and other longtime land owners. Paying too much encourages heirs to sell. It’s hard enough to resist selling land at $10,000 an acre. At $20,000 an acre, how many can afford to say no?

     If we approve this, every piece of open space becomes harder and more expensive to buy. We’ve thrown ourselves a $12.3 million boomerang.

  

4. The deal will raise taxes, not lower them, as the school board claims. 

    The break-even price for taxpayers is about $3 million. That is, if we bought the land for $3 million -- or bought it for $10 million and sold it for $7 million with deed restrictions -- the deal would break even for taxpayers.

     The Granville school board claims taxpayers will pay an additional 12 mills in property taxes if voters don’t approve this 2.8 mill tax levy. Not so.

   The school board creates the 12 mill number using four variables: three exaggerated assumptions and one incorrect fact. They are:

     New homes in Park Trails sell for an average of $277,200. The Sentinel reported last week that Mr. Kraner plans to sell homes in the $250,000 to $1 million range. The 12 mill claim deflates like a punctured balloon when you substitute a reasonable number -- say $300,000 per home, generating $4,000 in school taxes -- for the $100,000 absurdity, which would generate only $1,200 in annual taxes.

 

So what’s the real bottom line?  I ran the numbers. The Kraner property could add an average of 0.2 mills to 1.0 mills to property taxes over the next 20 years, if developed, depending on the value of homes and the density.  By contrast, the Kraner deal will cost 1.9 mills annually. (The ballot says 2.8 mills, which is true for the first year but overstates the long-term cost for technical reasons.)

    Here’s the financial tradeoff between educating students and buying the land:

 

 Education costs in mills 

 

 Homes built

Home Value

Kraner deal

 $ 300,000

 $ 350,000

 $ 400,000

       195

             0.4

             0.3

             0.2

              1.9

       400

             0.8

             0.6

             0.3

              1.9

       502

             1.0

             0.8

             0.4

              1.9

 

   This doesn’t mean the deal isn’t worth doing. We should spend money to preserve the intimacy of our community and schools. It does mean the Kraner deal will raise taxes, not lower them. Spending $12.3 million isn’t the most efficient way to cut taxes.

 

5. The land we’re getting hasn’t been properly identified. We don’t even know for sure that it’s all in the Granville school district.

   As crazy as it sounds, we don’t know what we’re getting for $12.3 million. Have you wondered why there’s no map of the property in the purchase agreement, the appraisal or any information released by the township? The township posted the land survey on its Web site, then removed it because it was inaccurate. 

     The purchase agreement, the survey, Mr. Kraner’s appraisal and the township’s valuation all cover different sets of property. The survey doesn’t include one of the best parcels, an eight-acre lot in Granville Township. The appraisal includes an 18.4-acre property that Mr. Kraner doesn’t own and that isn’t in the final deal. A 14.7-acre parcel is in the deal but not the appraisal. When you’re paying $21,277 an acre, these details can make an enormous financial difference and should be known before they’re presented to voters.

    Most damaging, the deal calls for buying 114 acres that may not even be in the Granville school district. This 114-acre block is in Newark Township and is entirely surrounded by the Newark school district. The Newark Advocate reports that state law requires that school districts consist of contiguous property.

    Common sense requires that Granville township trustees confirm that this property is in our school district before we pay $2.4 million for it. 

      The source that puts these 114 acres in the Granville school district is the Licking County Auditor’s computer system. But the auditor’s records are full of errors. The auditor’s map shows a neighboring Kraner-owned 98-acre parcel in the Granville school district, but the underlying record puts the land in the Newark school district. The auditor places Mr. Kraner’s $1 million home in the 114-acre Granville school parcel. It’s not. The home is on the 98-acre parcel listed in the Newark school district. (Mr. Kraner has been paying taxes to the Granville school system for his home, even though it appears to be in the Newark school district.) Or perhaps the 98-acre parcel is really in the Granville school district -- and Mr. Kraner isn’t selling it to us.

    In other words, the records are a mess. Due diligence requires that this question be answered before voters are asked to buy it. A title company needs to certify the school district of this 114-acre island and provide the original documentation that created this oddity. A regurgitation of what’s in the auditor’s computer system means nothing.

   These 114 acres are especially important because Mr. Kraner has the right to reclaim the property in an exchange explained next.

 

6. Mr. Kraner has the right, after the sale, to exchange unappraised property, mostly in the city of Newark, for 114 acres that includes his equestrian farm. 

    The equestrian farm has beautiful landscaping, nice outbuildings and plentiful road frontage.  The purchase agreement gives Mr. Kraner the option to get this land back in exchange for three parcels in the Newark school district and another parcel not yet specified. (Mr. Kraner would then flip the 114 acres into the Newark school district.)

   None of the land in the post-sale exchange is to be appraised. The 114 acres cost us $2.4 million to buy, if valued at $21,277 per acre.

   What we get in exchange:

    Is Granville so wealthy that it can afford to spend more than $1 million just to own a park in the city of Newark?

 

7. Granville trustee James Havens, who negotiated the deal for the township, is a lawyer who represents Mr. Kraner. Mr. Havens was hired by Mr. Kraner during the time the two were discussing the land sale and continues to work for him today. The legal work includes annexing property in the deal into the city of Newark. 

    The timeline of Mr. Havens’ dual roles is as follows:

·        In early 2005, Mr. Havens began negotiating with Mr. Kraner.

·        In early 2005, Mr. Havens or Granville Township hired Mr. Havens’ business partner, Samuel Koon, to appraise the Kraner property. The property inspection was done May 3, 2005. The appraisal was sent to Mr. Havens’ Columbus law office on September 26, 2005.

·        In October 2005, Mr. Kraner hired Mr. Havens to represent him in a zoning matter in Baltimore, Ohio, according to an e-mail to me from Mr. Havens. The legal work continued through March 2006. (Baltimore village zoning administrator Marsha Hall said Mr. Kraner was interested in buying 70 acres and having it rezoned as residential but did not acquire the land.)

·        On October 12, 2005, Mr. Havens and Mr. Kraner spoke at a trustee meeting about how they were discussing the township’s possible purchase of the land. “Trustee Havens thanked Mr. Kraner for working with the Trustees,” reported the meeting minutes. Mr. Kraner said, “He likes the approach being taken by Jim Havens and other Granville Township Trustees.”

·         At a November 23, 2005, trustee meeting, Mr. Havens disclosed the conflict with Mr. Koon. Mr. Havens said he had recommended that the trustees hire his business partner, Mr. Koon, to appraise Mr. Kraner’s land.  Mr. Havens said he had made the recommendation in a closed session and had disclosed the conflict to other trustees. Meeting minutes do not record any disclosure that Mr. Havens was working for Mr. Kraner at this time. 

·        Also at the November 23, 2005 meeting,  Mr. Havens said that if the Kraner transaction should move forward, trustees would obtain “a formal appraisal from an outside appraiser with whom Mr. Havens had no business relationship and on whose work the Trustees would base a recommendation for a levy which would be voted upon by the community.” No such appraisal was obtained.

·        On May 24, 2006, the Trustees discussed borrowing money to pay for the Kraner property. “Trustee Havens indicated that he has had periodic discussions with Mr. Kraner over the past 12 months. Mr. Kraner remains very cooperative and gracious,” the meeting minutes reported.

·        At a September 27, 2006, meeting, “Trustee Havens indicated that the Trustees had reached an agreement with Bill Kraner.” He later stated, “Trustee Havens indicated he would be abstaining from the vote on this matter. During the process of negotiating with Mr. Kraner he made several disclosures to other Trustees as well as the Open Space Committee members regarding the possible conflict of interest due to professional relationships with both Mr. Kraner and one of the appraisers, Samuel Koon.” (The Open Space Committee includes Paul Treece, Granville school board member Ron Sheldon, Granville Mayor Melissa Hartfield, Granville Council member Constance Barsky, Candi Moore, Keith Myers and Doug Wagner.)

·        At the Sept. 27, 2006, meeting, Mr. Havens made the following public disclosure, which, according to meeting minutes, had previously been made in written form to the Trustees and Open Space Committee:

                 “In an abundance of caution, I wanted you to know that I have made several disclosures of potential conflicts of interest to the trustees in accordance with our conflict of interest policy. In each instance, the trustees have authorized me to continue negotiating the Kraner transaction. So you are aware and would feel free to ask any questions, I have disclosed that Sam Koon is my real estate partner. He prepared the preliminary appraisal. A few months ago, Kraner retained my firm to represent him on tow rezoning matters. Neither of those matters is related to this transaction. Kraner has not been promised anything of value nor has he promised me anything of value, and both he and the trustees are completely free to reject or accept the future negotiations. Although I have no direct or indirect financial interest, I will refrain from voting on the final Kraner decision. Although the Trustees have given me permission to continue representing the township in negotiations, I will refrain from voting on the final decision. I want you to feel comfortable asked me any questions. Given the past political climate of our community, I want you to have any information you deem relevant to help consider the options before you.” (All spelling and language from original meeting minutes available at http://www.granvilletownship.org/GENERAL/M09-27-06.pdf.)   

 

     This annexed parcel is part of the Kraner land deal.

    Mr. Havens submitted a plan to the county showing that 94 condos will be built on the 15-acre flat portion of the land, which has a pond and road frontage.

   The remaining 29 acres, steep with no road frontage, would be transferred to Granville if Mr. Kraner exercises his option to get his equestrian farm back in exchange for land outside the Granville school district, according to the purchase agreement.

    In his e-mail to me, Mr. Havens said another lawyer negotiated this part of the deal. “I was not involved in the describing the parcels or preparing the contract exhibits. This rezoning will probably increase the value of the entire Rauch property because of its higher zoning and availability to utilities to roughly $50k per acre. If Kraner includes it in the swap it would be a windfall to the Granville Community,” he wrote.

    The purchase agreement requires that all land acquired by Granville be preserved as a park, nature preserve or open space, so it’s unclear how Granville may accrue a financial benefit from dense zoning and utilities in the city of Newark. 

      Voters will have to decide for themselves whether Mr. Havens’ disclosure -- that his law firm was representing Mr. Kraner in two zoning matters unrelated to the Granville land deal -- was sufficient, accurate and timely. Mr. Havens told me in his e-mail that attorney-client privilege prevents him from providing the value or other details of his work for Mr. Kraner.

     My view: It shows exceedingly poor judgment for Mr. Havens to accept work from Mr. Kraner while negotiating a large land purchase for taxpayers. It shows equally poor judgment on the part of Trustees Wes Sargent and Lyle King and Open Space Committee members, if they were properly informed, to permit this conflict to continue.

      Granville trustees should immediately seek an advisory opinion from the Ohio Ethics Commission on whether Mr. Havens’ dual role of working for Mr. Kraner while negotiating for the township created a prohibited conflict of interest. The trustees should assert a right to void the deal if it turns out that it did.

        Mr. Havens sees no need for an advisory opinion.  “Since I recused myself from voting I did not see any need to seek an opinion,” he wrote in his e-mail.

            The Ohio Ethics Law (Revised Code Chapter 102.03), states, in part:

“No present or former public official or employee shall, during public employment or service or for twelve months thereafter, represent a client or act in a representative capacity for any person or any matter in which the public official or employee personally participated as a public official or employee through decision, approval, disapproval, recommendation, the rendering of advice, investigation, or other substantial exercise of administrative discretion.”

      (Full text available at http://www.ethics.ohio.gov/)

       An Ohio Ethics Commission opinion is needed before this deal is completed.

 

8.  Restrictions diminish the value of the land. Granville may not sell any land, including useless green space in the city of Newark, to recoup its costs. 

    Granville should have full control over the land it buys. Instead, the purchase agreement requires that the land be “dedicated as a public park, nature preserve or open space.” This restriction does not belong in a purchase agreement. Only 99 acres of what we get is in Granville. About 80 acres will be in the city of Newark. The township should have the power to retain, say, 200 acres as Granville’s largest park and sell the rest with restrictions. Then we could reinvest the money to purchase greenspace elsewhere. (We cannot pay down the debt because the financing agreement with Mr. Kraner forbids us from reducing our debt to him -- an unusual and costly provision. We cannot even refinance if interest rates decline.)

   Much of this property has little greenspace value. Did you wonder why the public was never given a chance to see the property?       

   Mr. Kraner negotiated a good deal. He gets paid for his land, yet, in many ways, everyday life on his estate is not significantly changed. The township must keep the land undeveloped.  Mr. Kraner can get his equestrian farm back in the exchange. He keeps exclusive hunting rights for 20 years on the 480 acres in Newark. (As hunters know, these rights are valuable.) Mr. Kraner will even “mow and maintain the Hunting Area in substantially the same manor” [sic] as before he sold it. The township can make changes “only to the extent such improvements will not unreasonably interfere” with Mr. Kraner’s use of the hunting area.

   Whose land is this, anyway?  The township has made no provisions for trails, parking or any other way for residents to use the property (or, presumably, leave it when Mr. Kraner and his friends are hunting).  In many ways, the deal more closely resembles a conservation easement, which should cost far less, than a fee simple transfer of land.   

 

9. The deal lacks the basic professionalism expected in an affluent, educated community.

    In addition to the reasons articulated above, the township failed to complete its due diligence work -- surveys, soil reports, independent appraisal, etc. -- in the 75-day investigation period specified in the contract. The deadline was Dec. 13. Reports completed after the deadline cannot be used to amend or void the contract.  (Levy promoter Ron Sheldon says an extension was negotiated with the township. Township Fiscal Officer Norm Kennedy says he knows of no extension.)

 

10. Mr. Kraner will pay for the election, if the deal is approved.

    This isn’t a lottery. Elections shouldn’t be treated as closing costs. Granville should pay the $5,600 cost of the election itself, win or lose. It’s a matter of principle.