Sales tax vote measures risk tolerance

By Patrick DePalma

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I am in favor of protecting both sides of the river. However, I believe we should do that in a way that minimizes the risk and cost to our residents, and I don't believe the City Council's plan meets that standard. The referendum May 3 is a vote on gambling. It has nothing to do with casinos, but it is all about gambling and how much risk you are willing to take.

The council's plan is described as a three-legged stool with funding from federal, state and local sources. The first risk is whether we will get the additional funding. Right now, it looks like the state will step up, but it hasn't committed yet. The feds can't fund the west side as the Army Corps rejected that option. So at best, it is a two-and-a-half-legged stool with the local leg likely to be the longest and largest.

So what happens if we don't get the outside funding? The council wants us to believe that the tax can be repealed but clearly that is not realistic. The tax will not take effect until

July 1, 2014. It needs to be in place for one year before it can be repealed and it cannot be repealed if there are outstanding obligations that rely on the tax.

Since council members have stated that they will start bonding as soon as the tax is approved, by the time it takes effect,

we will no longer have the option to repeal it. Rest assured that if the “yes” vote prevails on May 3, we will have LOST in place for another 23 years.

The risk we take if we don't get outside funding (or sufficient outside funding) is that the council will come back to us and ask us to allocate more of the sales tax toward flood protection. At present, the council's plan estimates the total cost at $375 million. That figure is guaranteed to go up over the next three to five years. As such, the entire $400 million of sales tax over the 20-year period may be needed for flood protection. Are you willing to take that risk?

Here's another area you should be concerned about. The council has likened this sales tax to a mortgage. We will bond for the funds needed and then pay the bonds back with the tax that is generated over 20 years. What no one is addressing is the cost of bonding. Like a mortgage, bonds carry an interest rate. If only half of the sales tax (approximately $200 million) is bonded, the city will incur between $120 million and $150 million of interest over the 20-year term. Where do you think that money is coming from? No one on the council has addressed this publicly.

Also, don't confuse “street improvements” with repair and maintenance of existing streets. The council was careful with its wording, and repairs will not be funded from sales tax.

Of course, we don't know who will be serving on our council in 20 years and whether they will have the same vision as the current council.

There are other options. We can pursue private development like Peoria, Ill., did. Rather than a flood wall, flood-proof housing, retail and commercial space can be built without investment from the public.

This administration has criticized the last for moving too slowly. It appears that the current administration is determined to juggernaut ahead with a plan even if it isn't the best plan. Are you willing to take the risks that are inherent with such fast-paced decisions?

Patrick DePalma of Cedar Rapids is a longtime employee of an international financial services company and is active on several local community boards and commissions. Comments: pdepalma@aegonusa.com