No Village Debt for the SCC

To Scarsdale10583: These are comments I made at the December 14 Board of Trustees meeting based on a more detailed letter I had previously sent the Clerk and Mayor for the public record.

There is a saying on Wall Street that when things are priced for perfection that the situation is ripe for financial catastrophe. In January of 2000 tech stocks were priced for perfection, in the first quarter of 2008 credit was priced for perfection. As soon as something started to go wrong in both these cases financial decimation occurred. These are just two recent examples of this principle, the consequences of the latter we will continue to live with for many years.

It is time we all started looking at the SCC’s financial plan critically and objectively. Importantly, each of you as individuals needs to conduct this work. Not spend taxpayer money to outsource it to a consultant who can be blamed down the road when something goes wrong.

I have started that review process myself and here are just a few of my early observations:

Forecast SCC revenues do not resemble the start up curve for any business I have seen in my over 25 years as a business and Wall Street professional. No business goes to 100% revenue on day one. If the SCC misses their revenue projections they cannot cover their costs or service the debt.

In my opinion they make the bold assumption that charter members will rewrite a contract and voluntarily raise the fee they pay in years 1 – 3 by 70%. If this circa $500,000 per year in revenue doesn’t materialize the SCC will lose money and not be able to service the debt.

A full 41% of forecast revenues go to debt service. Let me repeat that. 41% of revenues go to pay the debt service. This is really the only number you need to know. The debt service coverage ratio is 1.2 times. No private business could borrow at this leverage level. They require the Village debt guarantee as lenders have learned, many times quite painfully, that this is too much debt. If our society learned any lesson in the last three painful years it is that financial leverage kills. This is extreme financial leverage.

If nothing else I said puts the financial risk that would be imposed on the taxpayers into stark contract the comparison of the SCC to the Greenwich Y will. It is a similarly affluent community, though over three times the size of Scarsdale. In 2009 they launched a $25 million above ground pool project very similar in scope and dollar magnitude to the SCC. Except they already had in place $3.24 million a year in like-kind revenues and an established donor base for contributions. It didn’t turn out too well. They ran out of money and had to halt construction. They are saddled with $17 million in debt that they are working with their lenders to restructure. In a GO bond there is no restructuring. The taxpayers pay.

To summarize: Y and SCC are both $25 Mn projects. Debt level is $17 mn for the Y and $16 mn proposed for the SCC. Revenues for the Y on an apples to apples basis are 25% higher for the Y than the SCC. The Y failed on their debt. How can the SCC expect to service the same level of debt with 25% less revenue without recourse to the taxpayers?

The reality is that the SCC’s financial plan is “priced for perfection” as currently presented. It will go wrong. There is no cushion or protection for taxpayers and we will end up paying for it.

Other financial professionals in our community are also writing letters regarding the financial risks posed to the Village’s borrowing costs, AAA rating, tax base, etc. These letters speak for themselves and only add to the case I am presenting here tonight. I urge you to read them thoughtfully.

It is pretty simple, actions speak louder than words. If this really is self financially supported why do they need the Village’s balance sheet. The answer is obvious. In reality it isn’t self-supporting. They need the Village to pay in order to build it.

Now more than ever is not the time for a leap of financial faith that benefits a minority in the community but is underwritten and paid for by all taxpayers.

Once again, I call on the Trustees to conclusively and irrevocably fulfill your fiduciary responsibility to the community’s taxpayers and enact a resolution that if ever built the SCC must be 100% self financed with exactly zero debt support from the taxpayers. This is long overdue.

Truly yours,
Michael Weinstein
Butler Road