rich take from poor as u.s. subsidy law funds luxury hotels, david dietz, feb 7, 2011, bloomberg...

8/7/2019 RICH TAKE FROM POOR AS U.S. SUBSIDY LAW FUNDS LUXURY HOTELS, David Dietz, Feb 7, 2011, Bloomberg Mark

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ROBERTA KELLYRE: Rich Take From Poor as U.S. Subsidy Law Funds Luxury HotelsFebruary 10,2011SPENDTwG CLAUSE, ie eg THE PATRIOT ACT, etceteraATTENTION: ALL 112TH CONGRESS, ET ALSENATORS vr,a faxes Bernie Sanders 12021228.0776 Patrick J. Leahy 12021224.3479UNITED STATES SENATE COMMITTEE ON THE JUDICIARYDavid_Carle media contact, Senator Leahy

viafaxl202l225.7682 Lamar Smith, Chair; John Gonyers, Jr., Ranking MemberCOMMITTEE ON THE JUDICIARYvia faxes 12021225.8628; 12021225.3393 COMMITTEE ON THE BUDGETJohn M. Spratt, Jr., Chair; Paul Ryan, Ranking Member

HARVARD BUSINESS SCHOOI- Dr. Michael l. Norton; and DUKE UNIVERSITY, Dan ArielySenator Patrick J. Leahy, Chairman, Democrat-Vermont. Democratic Members; HerbKohl, Wisconsin; Dianne Feinstein, California; Ghuck Schumer, New York; Dick Durbin,lllinois; Sheldon Whitehouse, Rhode lsland; Amy Klobuchar, Minnesota; Al Franken,Minnesota; Christopher A. Coons, Delaware; Richard Blumenthal, Connecticut; and,Repgblican Members; Ranking Member Chuck Grassley, lowa; Orrin Hatch, Utah; Jon Kyl,Arizona; Jeff Sessions, Alabama; Lindsey Graham, South Carolina; John Cornyn, Texas;Mike Lee, Utah; Tom Coburn, Oklahoma.To Whom lt Concerns:Please find the enclosed information by David Dietz, dated February 7, 2011, BloombergMarkets Magazine: Rich Take From Poor as U.S. Subsidy Law Funds Luxury Hotels. [9 Pp].As you all know, l, Roberta Kelly, have been made a pauper by and through the United StatesDistrict Court in the District of Oregon, Division of Portland and the U.S. Congresses.ln 2003, as a fiduciary and preferred mortgage broker for U.S. Bancorp lie eg U.S. Bankl, efa/., l, Roberta Kelly, was intentionally defrauded. The purpose during the past decade plus,has been viewed by the Department of the Treasury, et al. as an intentional agenda:

Clinton regarded New Markefs as a way to spur development and create jobs incommunities held back by high unemployment and lagging busrness growth. He touted theprogram on a six-state tour in 1999: Ihis is a good business opportunity here, he said at acabinet factory in Clarksdale, a Mississrpp i Delta town with a per capita income of $12,61 1 . lfwe can't fully develop the Delta now, with the strongest economy, when will we get around toit? Clarksdale has received no benefit from the tax credit program, TreasuryDepartment records show.P-1 - rnOU: Roberta Kelly, dated February 10,2011 llTO: COMMITTEE ON THE BUDGET, John M. Spratt,Jr. and Paul Ryan; COMMITTEE ON THE JUDICIARY, Lamar Smith and John Conyers, Jr.; SENATORS, BernieSanders and Patrick J. Leahy; HARVARD BUSINESS SCHOOL, Dr. Michael L Norton; DUKE UNIVERSITY,Chairman Patrick Bayer, Professor Dan Ariely; BROOKINGS INSTITUTION, Strobe Talbott, President, ET AL


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ln my understanding as a non-licensed lawyer, a non-practicing attorney at law -a conflict ofinterest defined: reliance upon money, $billions, employed government in strategic placedpositions of power, specifically protecting federal funds and abandoning the rule of law . . .Since 2003, some of the world's biggest financial companies, including GoldmanSachs Group lnc., U.S. Bancorp, JPMorgan Chase and Prudential, have taken advantage ofa federal subsidy that will cost taxpayers $10.1 billion - and most of the public hasnever heard of it.

What's surprising isn't the opulent makeover: lt's how the project was financed. Thework was subsidized by a federal development program intended to help poor communities.Money spent on high-end development could have been used to build more than 1,000job-training centers, medical clinics and schools. The program, endorsed by RepublicanSenator Rick Santorum and House Speaker Dennis Hastert and adopted by Congress, wassigned into law by President Bill Clinton in 2000.

ln 2003,1, Roberta Kelly, trusted and relied upon the promise of U,S. Bancorp, et al., for theunderwriting of real property loans. The 3151 Building, was renovated in real labormoney, no less than $200,000.00.lnvestors have used the program, called new Markets Tax Credits, to help buildmore than 300 upscale projects, including hotels, condominiums, office buildings anda car muserlm, on sfreefs far from poverty, according to Treasury Department recordsreleased through a federal Freedom of lnformation Act request.Building high-end commercial projects goes against the intent of the New Marketsprogram, says Cliff Kellogg, a former senior policy adviser at the Treasury Department whohelped design New Markets.Things like luxury hotels are entirely contrary to what we set out to do, says Kellogg,who's now a bank consultanf. Some hotels may createiobs and spur other nearbyinvestrnent, but you have to ask if these projects prevent worthwhile ones from getting done.Goldman targeted tracts on the upswing in Pittsburgh and Portland, Oregon, when

the firm got its first New Markets investment authorizations in 2002. ln Pittsburgh, $30.5million of a $75 million Goldman investment authorization went to a shopping center in theEa st Li be rly n e ig h bo rh ood.

Yes I'm angry, says Larry Dowling, pastor af Sf. Agatha, a Roman Catholic parish inthe neighborhood. lt was very disturbing to hear that the Blackstone was benefitting from thisprogram. There's a great need in this community for economic development and jobs.Around the Rules: ln Tacoma, Washington, investors found a way to get New Markets

P-2 - rnOnn: Roberta Kelly, dated February 10,2011 ll TO: COMMITTEE ON THE BUDGET, John M. Spratt,Jr. and Paul Ryan; COMMITTEE ON THE JUDICIARY, Lamar Smith and John Conyers, Jr.; SENATORS, BernieSanders and Patrick J. Leahy; HARVARD BUSINESS SCHOOL, Dr. Michael l. Norton; DUKE UNIVERSITY,Chairman Patrrck Bayer, Professor Dan Ariely; BROOKINGS INSTITUTION, Strobe Talbott, President, ET AL


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handouts in an area with just a 1 percent family poverly rate. U.S. Bancorp and two otherinvestors used a $34 million Treasury authorization in 2010 to finance construction of anantique car museum.Historic Armory: ln Portland, Oregon, Goldman and U.S. Bancorp partnered withcity government on another cultural development helped by New Markets. In 2004, thePortland Development Cornmission was advocating conversion of a historic armoryinto a nonprofit theater, and the project caught Goldman's eye, according to cityrecords.The armory, which housed horses and cannons in the 19rH century, sat in the city'sPearl District, a former industrial area enjoying a resurgence with upscale sfores and housing.The tract qualified with a 41 percent individual poverty rate because it included one poorneighborhood on its fringe. The family poveriy rate was 11 percent.Goldman arranged $28 million in New Markets financing for the theater. U.S. Bancorpput $8.4 million into construction and loaned an additional $11 million. That allowed it to win$10.9 million in tax credits, city records show.Goldman will collect a fee of $1.4 million for tracking finances for the government,according fo spokesman Cohen.It's Ludicrous': says Shelley Lorenzen, a former League of Women Voters boardmember who has studied Portland urban renewal. The area has become kind of the hottestreal-estate market in town, with the besf resfa urants, aft galleries and very high-end condos.Kellogg, the former Treasury official who helped structure the subsidy plan, says NewMarkets needs changes. lt should diverl maney away from projecfs such as high-end hotelsand exhibit halls, he says. New Markets should target small-busrness development in regionsthat truly need a lift, Kellogg says. After all, he says, that was the point from the start.United States Senate Committee on the Judiciary, the courts are under your jurisdictionand therefore, lherebyonce again requestan intervention intothe cases: Civ. Nos.0B-1421-AC, and 09-1125-Kl.

It should not be possible that the Judges in the U.S.D.C., [federal building business operationfor the coutls, dedicated to William Jefferson Clinton, in 19971, cannot be well informed toprotect the public: the agenda with the City of Portland and the Portland DevelopmentCommission.l

[The spouse of PDC Commissioner, telephone receptionist for an office where l, Roberta Kelly,was VP [Mortgage One] and Branch Manager, 1990s1. A Freedom of lnformation Act requestand depositions, post haste.P-3 - fnOU: Roberta Kelly, dated February 10,2011 llTO: COMMITTEE ON THE BUDGET, John M. Spratt,Jr. and Paul Ryan; COMMITTEE ON THE JUDICIARY, Lamar Smith and John Conyers, Jr.; SENATORS, BernieSanders and Patrick J. Leahy; HARVARD BUSINESS SCHOOL, Dr. Michael l. Norton; DUKE UNIVERSITY,Chairman Patrick Bayer, Professor Dan Ariely; BROOKINGS INSTITUTION, Strobe Talbott, President, ET AL


4/13

THIS lS AN EMERGENCY! The water was intentionally shut-off at 5109 N.E. AinsworthStreet, Portland, Oregonl The attacks to kill my family and me, can no longer be tolerated. Iam noticing Patrick Leahy, Bernie Sanders, et al., that the City of Portland, State of Oregon,has been noticed repeatedly and must be waiting for the top level of government to intervene.lmmediate attention, post haste!Respectfully submitted this 1OrH day of February,2011.

Roberta Kellyc: IFaxes] Herb Kohl,202-224-9787;Jeff Sessions,202-224-3149;Dianne Feinstein,202-228-3954;OrrinG. Hatch,202-224-6331;Chuck Grassley,202-224-6020;[Faxes USDC] 503.326.8289;503.326 .8239;541.431.4149;503.326.8339; [Faxes city] 503.s92.Asr1; 503.823.4019;[oRGov]

P-4 - fnOu: Roberta Kelly, dated February 10,2011 llTO: COMMTTTEE ON THE BUDGET, John M. Spratt,Jr. and Paul Ryan; COMMITTEE ON THE JUDICIARY, Lamar Smith and John Conyers, Jr.; SENATORS, BernieSanders and Pairick J. Leahy; HARVARD BUSINESS SCHOOL, Dr. Michael l. Norton; DUKE UNtVERStTy,Chairman Patrick Bayer, Professor Dan Ariely; BROCKINGS INSTITUTION, Strobe Tatbott, president, ET AL


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at the Blackstone Hotel in Chicagofor a federal subsidy due to the

percent poverty rate.L.

berg Markets

The landmark Blackstone Hotel in downtown Chicago, whichhas hosted 12 U.S. presidents, opened in zoo8 after atwo-year, $116 million renovation. Inside the Beaux Artsstructure, built in tpro, buffed marble staircases greet guestsspending up to $6gg a night for rooms with views of LakeMichigan.What's surprising isn't the opulent makeover: It's how theproject was financed. The work was subsidized by a federaldevelopment program intended to help poor communities.The biggest beneficiary of taxpayer help for the Blackstonerevamp was Prudential Financial Inc., the second-largest U.S.life insurer. The company got $15.6 million in tax credits from

U.S. Department of the Treasury for heiping to fund the project, according to Chicago cityBloomberg Markets magazine reports in its March issue.

Chase & Co., the second-largest U.S. bank by assets, also took in money by servinglender and the monitor of Blackstone construction financing, city records show.

2oo3, some of the world's biggest financial companies, including Goldman Sachs GroupU.S. Bancorp, JPMorgan Chase and Prudential, have taken advantage of a federalthat will cost taxpayers $ro.r billion -- and most of the public has never heard of it.

have used the program, called New Markets Tax Credits, to help build more thanupscale projects, including hotels, condominiums, office buildings and a car museum, on

far from poverty, according to Treasury Department records released through a federalof Information Act request.

Intent21912011 6:40


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spent on high-end development could have been used to build more than 1,ooocenters, medical clinics and schools. The program, endorsed by Republican

Rick Santorum and House Speaker Dennis Hastert and adopted by Congress, wasinto law by President Bill Clinton in zooo.high-end commercial projects goes against the intent of the New Markets program,Cliff Kellogg, a former senior policy adviser at the Treasury Department who helpedNew Markets.

like luxury hotels are entirely contrary to what we set out to do," says Kellogg, who'sa bank consultant. "Some hotels may create jobs and spur other nearby investment, buthave to ask if these projects prevent worthwhile ones from getting done."

of the subsidized luxury projects may not have required federal aid at all, theAccountability Office found in a zoto study.Pressure'

underscores the need to ensure the program is operating as efficiently as possible at athe government is under severe pressure to address the growing federal budgetsays Michaei Brostek, GAO's tax issues director.

Blackstone adjoins Chicago's cultural hub, one of the most vibrant in the nation, and isfrom the city's neediest neighborhoods. Prudential invested g9.3 million and mademillion in loans, according to Chicago records.Nelt'Markets rules, firms get a credit of 39 cents on the d,ollar, paid over seven years,cash or loans they put in. For its contribution, Prudential collected $rS.6 million in credits,to a July 2oo8 JPMorgan project oversight report filed with Chicago.

spokesman Simon Locke declines to answer specific questions about the

the Community'do not comment on individual transactions or discuss our clients," Locke says.

spokesman Tom Kelly also declines to discuss specifics.think these projects help the community," Kelly says. The Blackstone says it hired morezoo workers when it opened in zoo8.

regarded New Markets as a way to spur development and create jobs in communitiesback by high unemployment and lagging business growth. He touted the program on astate tour in rygg.21912011 6:,10


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is a good business opportunity here," he said at a cabinet factory in Clarksdale, aDelta tor,rm with a per capita income of $rz,6u. "If we can't fully develop the Delta

r.r'ith the strongest economy, when will we get around to it?"has received no benefit from the tax credit program, Treasury Department records

Barack Obama has endorsed New Markets to help ease the effects of the longestthe Great Depression and proposes increasing the tax credits. In December,extended the program for two more years.

It WorksTreasury controls r.r4ro gets tax credits money and how the subsidies can be used.agency bases decisions on census tracts, which are supposed to have common economic

Only tracts r.r'ith at least a 20 percent poverty rate or with a population earning zoless than the median family income of the surrounding metropolitan area qualifr for

projects.numbers are from the 2ooo census. The zoro count hasn't yet been used.r5-block tract that's home to the renovated Blackstone -- census No. 3zo6 -- qualifiesit had an indir,'idual poverty rate of z6 percent in zooo. A closer look at the

tells a different story and shows how investors can game the system, says Janetwho lives in the Blackstone tract and teaches urban planning at the University ofat Chicago.Population

tract's New Markets poverty quaiifications don't reflect gentrification that has been goingin the neighborhood and the broader South Loop region since the r98os, Smith says.

poverty profile reflects the large number of students who attend two schools -- ColurnbiaChicago and Rooseveit University -- in the area, she says. Among families, the poverty

is just 3.9 percent, according to the census.tract already had a major hotel -- the Hilton Chicago across the street -- before the

reopened. It also had a high-rise condominium, with units selling this year for upgt.3 million. And it includes a chunk of Grant Park -- designed by celebrated urban

Daniel Burnham -- r.t'here Obama celebrated his zoo8 election victory.lvouldn't say this is a needy tract by any means," Smith says. 'You have to make a

between family- level poverty and individual-level poverty. The problem with aprogram like this is that we give away money where we don't really need to and

of 9 21912011 6:40


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in markets where development is already there.,'Picture

common for a tract to have diverging poverby rates for individuals and families, SmithAccounting for both measurements yields a truer picture of whether a tract needs Newhelp, she says.program's standards open up some of the nation's wealthiest areas to development,to Treasury records. Taxpayers have subsidized projects in tracts with medianincomes as high as $zoo,ooo, records show.

total of $7.4 billion of the $16 billion already spent under New Markets, or 46 percent, hasto tracts with family poverty levels ranging from zero to r9 percent, Treasury and censusshow. Those communities include areas of California's technology-rich Silicon Valley.program's definition of poverty tracts --which include just individual rates -- show thatbillion, or 23 percent, went to areas with less than a zo percent rate. Those tracts qualifyother eligibility criteria, primarily low median family incomes, says New MarketsWilliam Luecht.

way the rules are written, it's allowing a kind of cherry-picking by financial institutionsfind favorable census tracts," says Virginia Parks, a social services professor at theof Chicago. "It's so easy to qualif,z that all you need to do is hire a goodIt's not rocket science."of New Markets projects have benefited poor communities. The program has helpedjob-training centers, charter schools and housing in severely impoverished locationsfrom the Watts section of Los Angeles to Appalachia in Kentucl,.y and other states.

2oo3 to zoo8, z5 percent of project investments, or $3.9 biilion, went to tracts withpoverty rates above 3o percent, according to Treasury and census records. Usingrates alone, Treasury calculates that figure as 49 percent, Luecht says.Good'

desperately needy communities for the first time have gotten access to capital andadvice," says University of Michigan law professor Michael Barr, a former assistantsecretary who was the program's chief developer. "We feel good about that.,,has used New Markets to build an affordable-housing project with shops and acenter in what had been Brooklyn's run-down Bedford-Stuyvesant neighborhood.

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Bancorp helped create 1,3oo jobs in financially distressed Dubuque, Iowa, by convertingformer department store into a seruice center for International Business Machines Corp.

tracts on the upswing in Pittsburgh and Portland, Oregon, when the firmits first New Markets investment authorizations in 2oo2.In Pittsburgh, $3o.5 million of arnillion Goldman investment authorization went to a shopping center in the East Liberty

rrall's tract r,r'as in the midst of recovery with city renewal efiorts that had already helpeda Whole Foods Marl


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first invested in the r7-story Blackstone in zoo5. The building sits on SouthAvenue, four blocks from the Art Institute of Chicago, which is the largest fine artafter Nelv York's Metropolitan Museum of Art, and Syrnphony Center, home toChicago Symphony Orchestra.

To Say'Art Institute, located just outside Blackstone's census tract, draws nearly z million

a year.be hard to say that a luxury hotel in downtown Chicago is in an impoverished

says U.S. Representative Jan Schakowsl..lt, an Illinois Democrat. "Lots and lots ofdollars have gone into a project that I'm assuming can make companies a lot of

collected the Blackstone tax credits through a deal with hotel d.eveloper SageResources Co. of Denver. Sage, which had partnered with prudential in the Nines

bought the Blackstone, which had been vacant, in zoo5.put a $42 million New Markets award. toward reopening the landmark. Sage,JPMorgan and the city of Chicago provided $rg+.S million for the purchase and

Oversightlent the hotel $26.r million, according to city records. The firm also oversaw

finances and shared in $S million in fees paid from project funds, records show.senior vice President Kenneth Geist declined to comment.miles (5 kilometers) west of the Blackstone, there are no hotels, banks or supermarkets

a census tract in the Kendrie Avenue neighborhood on Chicago's West Side. Areathere was 35 percent in zooo. The neighborhood", dotted with abandonedand trash-strer,r,n lots, languishes without money from New Markets.

I'm angry," says Larry Dowling, pastor at St. Agatha, a Roman Catholic parish in the"It was very disturbing to hear that the Blackstone was benefiting from thisThere's a great need in this community for economic development and jobs."

Tacoma, Washington, investors found a way to get New Markets handouts in an area witha t percent family poverty rate. U.S. Bancorp and two other investors used a $34 millionauthorization in 2o1o to finance construction of an antique car museum.the Rules

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museum, which will house the private collection of Harold E. LeMay, a deceased trash-tycoon, needed creative financing to fit New Markets rules.

that operate mostly by exhibiting art or other items don't qualifr for New Markets.the car museum, which was backed by the city of Tacoma and the LeMay family, wouldn't

allowed.get around the restriction, Minneapolis-based U.S. Bancorp and its partners set up a

in zoro to acquire the assets from the museum and then lease back theThe new company, America's Car Museum, qualified because a loophole in the rulesgalleries to get New Markets money by using affiliated corporations.

maneuver allowed U.S. Bancorp, which invested a total of $g4 million in cash or loansdevelopment partners, to win $rg.g miilion in tax credits.

of Garbage'a result of the deal, federal taxpayers will pickup 39 percent of the cost of erecting a $34shrine housing 5oo of LeMay's cars in a mostly commercial tract with a 24 percent

poverty rate.Engel, who manages a Veterans of Foreign Wars hall six blocks from the proposedsays the federal subsidy is a wasteful public gift to a wealthy family that can afford

finance most of the development.a bunch of garbage," he says. "I don't think it's right."

nonprofit National Development Council; Trammel Crow Co., a subsidiary ofRichard Ellis Group Inc. of Los Angeles, the world's biggest real-estate-services firm; andBancorp put the deal together, project records show.

investors collected a total of $r.5 million in fees from the project, according to theIn addition, Trammel Crow and the council are scheduled to get $665,4oo in futurefor monitoring finances.

Offthe Top'Karl Anderson, chairman of Concrete Technology Corp. of Tacoma, says the

rvhen it opens later in 2otl, will aid the city's economy by creating 90 permanent jobsdrarving 45o,ooo visitors a year. Still, he says, he beiieves the project got shortchanged

investors such as Trammel Crow charged too much.been upset about the skimming offthe top," he says. "The investors have been able to

these big fees."

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contact the editor responsible for this story:ner-rma n n z @bl oomberg. net

Jonathan Neumann at

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Bancorp spokeswoman Lisa Clark says the museum will bring $g+ million in spending toTrammel Crow spokeswoman Cynthia Langhorst declines to comment. John Finke,

region director for the National Development Council, says Tacoma needs thefor the tax rer.enue.

someone who has spent 30 years working in Tacoma, I can tell you that the city hasto attract and retain businesses," he says.

Portland, Oregon, Goldman and U.S. Bancorp partnered with city government on anotherdevelopment helped by New Markets. In zoo4, the Portland Development

\^/as advocating conversion of a historic armory into a nonprofit theater, and thecaught Goldman's eye, according to city records.

which housed horses and cannons in the rgth century, sat in the city's Pearla former industrial area enjoying a resurgence with upscale stores and housing. The

qualified r,r,ith a 41 percent individual poverty rate because it included one pooron its fringe. The family poverty rate was 11 percent.arranged $28 million in New Markets financing for the theater. U.S. Bancorp putmillion into construction and loaned an additional $rr million. That allowed it to win

million in tax credits, city records show.n'ill collect a fee of $r.4 million for tracking finances for the government, according

Goldrnan spokesman Cohen.Ludicrous'599-seat Gerding'I'heater opened in zoo6. The League of Women Voters in Portland

the use offederal tax subsidies.ludicrous," says Shelley Lorenzen, a former League of Women Voters board member who

Portland urban renewal. "The area has become kind of the hottest real-estatein town, with the best restaurants, art galleries and very high-end condos."the former Treasury official who helped structure the subsidy plan, says New MarketsIt should divert money away from projects such as high-end hotels and

halls, he says. New Markets should target small-business development in regions thatneed a lift, Kellogg says. After all, he says, that was the point from the start.

Jonathan Neumann, Gail Rochethe reporter on this story: David Dietz in San Francisco at [email protected].

rich take from poor as u.s. subsidy law funds luxury hotels, david dietz, feb 7, 2011, bloomberg...

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