Public Records Show Feeble O’Leary Led City Council Paid CCF Twice for Wind Down Costs That Did Not Exist

[Brian Essi]

Below is a somewhat complicated email exchange that proves:

1. A Mr. O'Leary Led City Council Paid CCF Twice for Wind Down Costs That Did Not Exist.
2. These admissions by Summers were never part of the public debate, and it exposes the mayor and city council for privately deliberating this compensation to the Clinic. These deliberations contradict Mr. O’Leary’s sworn testimony on December 21, 2015
3. Mr. O'Leary did not want records relating to the invented wind down costs to become public--I never received a response to my email of March 3. 2017 from him or anyone at his Council.

Adding to evidence of fraud, please recall that Mr. Butler (with Mr. O'Leary on the email chain) once claimed in response to public records requests that "much information was exchanged" about wind down costs during the parties' "negotiations" but that no records of those costs exist. Mr. Butler (with Mr. O'Leary on the email chain) has denied the existence of public records several time and has now admitted (under the pressure of court orders) that hundreds of thousands of records in fact exist. Mr. O'Leary, as Council President is complicit.

If there were no wind down cost, why did President O'Leary give CCF our $50M+ stock portfolio, bed licenses and expensive medical equipment away-- All For Free?

See the Public Record below of Summers and O'Leary and Council behind the scenes.

From: Brian Essi <bjessi@sbcglobal.net>
To: "Summers, Mike" <Mike.Summers@lakewoodoh.net>
Cc: Tom Bullock <Tom.Bullock@lakewoodoh.net>; Cindy Marx <cindy.marx@lakewoodoh.net>; "O'Malley, Daniel" <Daniel.OMalley@lakewoodoh.net>; David Anderson <David.Anderson@lakewoodoh.net>; Mary Hagan <Mary.Hagan@lakewoodoh.net>; John Litten <John.Litten@lakewoodoh.net>; "Bach, Maureen" <maureen.bach@lakewoodoh.net>; Ryan Nowlin <Ryan.Nowlin@lakewoodoh.net>; Sam O'Leary <Sam.OLeary@lakewoodoh.net>; Kevin Butler <Kevin.Butler@lakewoodoh.net>
Sent: Friday, March 3, 2017 3:26 PM
Subject: Public Records Shows City Hall Paid Clinic Twice for Wind Down Costs That Did Not Exist

Dear Council Members and Mayor Summers
I received the email below from Law Director Butler on February 10, 2017 in response to a public records request and the attached draft Master Agreement dated March 10, 2015 (and March 10, 2014) was just sent to me on February 28, 2017 as a public record. The email, authored by Mayor Summers, appears to be a response to my Lakewood Observer article of December 20, 2016 “New Foundation is Objectively Worse in Every Measurable Way.” http://www.lakewoodobserver.com/read/20 ... e-in-every. That article documents, among other things, that Mr. O’Leary was wrong on his “objectively better” claim as relates to the foundation funding.

Here is my response to the points in Summers’ email to Council:
A. Fraud and “Double Indemnity” are exposed by Summers’ email.
B. Hospital wind-down costs continue to be misrepresented by City Hall.
C. Mayor Summers’ analysis is flawed and misleading.
D. Buyers typically bear the costs of winding down businesses they “buy.”
E. The Final Master Agreement is objectively worse than the First Draft Master Agreement

The “sale” of Lakewood Hospital, memorialized in the Master Agreement, represents a huge giveaway of public assets. Reprehensively, Mayor Summers and City Hall continue to actively misrepresent the terms of the Master Agreement and conceal the specious “wind-down” costs, and refuse to make public details of this highly unusual public transaction.

A. Fraud and “Double Indemnity” Exposed by Summers’ Email.
Mayor Summers email includes the following statements to City Council: "You might remember that our negotiations clicked when we traded off CCF’s assumption of a minimum of $10 million of wind down costs in return for the time value of money. The city’s ROI for its investments is about 1% at best. Holding money for us is far less valuable than CCF. It was a good and fair move by all.”

Mayor Summers’s analysis and written statements in the email point to the following:
1. The Master Agreement was “objectively worse” than the LOI because the mayor and city council made a conscious decision in the negotiations to give the Clinic the use of Lakewood money – to the benefit of the Clinic, not Lakewood. All behind closed doors until Mayor Summers’ email surfaced.

2. Mayor Summers’ stated in the Plain Dealer on December 13, 2015 that "$12 million of the hospital's $78 million in wind-down costs would be borne by the Clinic." However, it has been established (even by Messrs. Anderson and Bullock) that there was never expected to be anything close to $78M in wind-down costs and the Clinic had no exposure to pay any wind down costs. Instead, Mayor Summers has now admitted that the City gave the Clinic enough money to invest so that the Clinic would make even more money--Indeed, Summers has estimated a $12.7M benefit to the Clinic to pay wind-down costs, even though Lakewood/LHA money is being used, not Clinic money. That’s a pure handout!

3. The terms of the Master Agreement awarded the Clinic a substantial “dissolution distribution” that includes hospital bed licenses, patient lists, all equipment, all cash, all investment portfolios, all accounts receivable, and all property of any kind or description, etc. This “dissolution distribution” is in exchange for the perceived “risk” that the Clinic might have to pay some unspecified wind-down costs. Summers has now admitted that the City specifically compensated the Clinic, allowing the Clinic to “hold money” and invest it for the Clinic’s benefit.

4. These admissions by Summers were never part of the public debate, and it exposes the mayor and city council for privately deliberating this compensation to the Clinic. These deliberations contradict Mr. O’Leary’s sworn testimony on December 21, 2015. Without any substantiation of any wind-down costs, the Clinic never had any financial exposure to pay.

5. The Clinic is not “holding money for us” as Summers’ email claims. Rather, the Clinic is withholding money from the citizens of Lakewood. The Clinic is not paying the new foundation the estimated $12.7M that Summers estimates the Clinic will earn on our money.

6. Moreover, there was no need to “park” Lakewood’s money with Clinic money managers for 10 years. The new foundation could have been funded with our money on Day 1 and an appropriate money manager hired. The Clinic is no better at choosing a money manager than any other sophisticated investor.
Summers’ email exposes a fraud contained in the Master Agreement. Namely, the Clinic paid nothing for the "dissolution distribution" that was premised upon a non-existent risk. One might say that the Clinic was given “double indemnity” by City Hall.

B. Hospital Wind-Down Costs Continue to Be Misrepresented by City Hall.
Mayor Summers continues to misrepresent the "wind-down" costs while simultaneously withholding information from the public. For example, Mayor Summers’ analysis assumes a figure of only $24.2M of principal, not the $50M in liquid assets given to the Clinic at that time. Somehow Summers ignores the other $26 million paid on December 21, 2015. Where did $26 million go?

C. Mayor Summers’ Analysis Is Flawed and Misleading.
Mayor Summers claims that I assumed a 20% return, when in fact my article assumes a flat 10% investment return without compounding of earnings (making the assumed rate of return lower than 10%). In other words, I assumed the Clinic would earn $5 million per year on the $50M+ liquid investment portfolio – money that Summers and the 2015 City Council gifted to the Clinic. The $50 million figure is conservatively low and was arrived at by using the 9/30/15 LHA balance sheet investment figures, not counting LHF funds, and adding current assets less liabilities. So, the amount surrendered to the Clinic was closer to $54M and rounded down to $50M. My analysis clearly shows that the Clinic would not have to dip into principal of the $50M to fund the new foundation.
Mayor Summers’ analysis also does not compound earnings—for example, the mayor projected a total $4.8 of earnings in the first two years, but then he deducts $7.6M for demolition not from the now-grown $29M principal, but from the initial $24.2M principal.

D. Buyers Typically Bear the Costs of Winding Down Businesses They “Buy”.
Per the 2015 Lakewood CAFR, the city-owned Lakewood Hospital business was sold to the Clinic. The Clinic received virtually every tangible and intangible asset, as well a non-compete for the gutted building and property and it was given the $50 million portfolio to boot. In 30 years of handling business transactions and sales, I have never seen a transaction where the buyer paid nothing to “buy” a business, and the seller, our city, received so little.
Mayor Summers’ email discussing how City Hall “negotiated” to ensure the Clinic as a buyer be compensated is an inane discussion that would never take place in the private sector in any arms-length transaction. To-date, the only tangible "wind down" costs that have ever been made public are (1) $2.5M to the Clinic to build the Clinic’s garage, (2) $2.5M for an insurance policy to protect the Clinic and captive LHA board members, (3) an estimated $3.1M for demolition of the buildings on the west side of Belle on Clinic-owned land, and (4) $7M to be paid to the City (due in 2018) for demolition on the east side of Belle. The first $8.1M in this list of “wind down” costs directly benefit the Clinic.
Likewise, I could have deducted the $7M demolition from the estimated $80.6M benefit to the Clinic once the new foundation is fully funded. So, the benefit to the Clinic is estimated to be $73.6 million before counting (1) the hospital equipment given away for free (estimated as high as $30M), (2) the discounted sale of Lakewood and Westlake real estate to the Clinic (estimated as another $6M benefit to the Clinic), and (3) the release of the Clinic liability estimated by the Clinic at $278M. Counting these results in a benefit to the Clinic of over $370 million by the time the “New Foundation” is fully funded.

E. Summers and Council “Negotiated” Backwards-- Final Master Agreement is objectively worse than the First Draft Master Agreement
On February 28, 2017, Director Butler produced the attached draft of the Master Agreement dated March 10, 2015 (and curiously also includes the date March 10, 2014) showing that what I wrote in the 12/20/16 Lakewood Observer article is true (note especially Section 6.2 of the draft). The final Master Agreement is objectively worse, and Summers’ email proves the point.

Conclusion:

The “sale” of Lakewood Hospital, memorialized in the Master Agreement, represents a huge giveaway of public assets. Reprehensively, Mayor Summers and City Hall continue to actively misrepresent the terms of the Master Agreement and its specious “wind-down” costs, and refuse to make public the details of this highly unusual public transaction. Most of the wind-down costs, if any, would have been paid by now, yet Kevin Butler, Mayor Summers, and City Hall refuse to disclose the facts.

Will any of you join me in a call for transparency and a full disclosure of the facts concerning the Master Agreement and wind down costs?

Sincerely,

Brian Essi
Lakewood Resident

On Dec 21, 2016, at 5:03 PM, Summers, Mike <Mike.Summers@lakewoodoh.net> wrote:

Dear members of city Council,

I noted with interest Brian Essi’s remarkably erroneous analysis of the Clinic’s return on investing the LHA money. He remarkably assumes a 20% return- which virtually no one earns year over year, and he assumes the same 24.2 million principle avail all years, despite paying portions out over the next 10 years.


The attached shows at best a 12.7 million benefit to CCF at 10% return, and a more likely 7% return of 8.9 million.

You might remember that our negotiations clicked when we traded off CCF’s assumption of a minimum of $10 million of wind down costs in return for the time value of money.

The city’s ROI for its investments is about 1% at best. Holding money for us is far less valuable than CCF. It was a good and fair move by all.



Cleve Clinic investment return model- community foundation model
payout schedule
remaining balance
roi=10%
roi=7%
roi=5%
2016
$ -
$ 24.2
$ 2.4
$ 1.7
$ 1.2
2017
$ -
$ 24.2
$ 2.4
$ 1.7
$ 1.2
2018
$ 7.6
$ 16.6
$ 1.7
$ 1.2
$ 0.8
2019
$ 4.3
$ 12.3
$ 1.2
$ 0.9
$ 0.6
2020
$ -
$ 12.3
$ 1.2
$ 0.9
$ 0.6
2021
$ -
$ 12.3
$ 1.2
$ 0.9
$ 0.6
2022
$ 4.1
$ 8.2
$ 0.8
$ 0.6
$ 0.4
2023
$ -
$ 8.2
$ 0.8
$ 0.6
$ 0.4
2024
$ 4.1
$ 4.1
$ 0.4
$ 0.3
$ 0.2
2025
$ -
$ 4.1
$ 0.4
$ 0.3
$ 0.2
2026
$ 4.1
$ -
$ -
$ -
$ -
2027
total
$ 12.7
$ 8.9
$ 6.3





Michael P Summers
Mayor, City of Lakewood, Ohio
216-529-6600
Mike.summers@lakewoodoh.net

[Bill Call]

The Master Agreement stated that "ALL assets" will be transferred to the Cleveland Clinic except funds in the Foundation and a short list of photos and mementos.

O'Leary and company try to make it overly complicated. The fact is that in 2014 the Hospital had $136 million in net assets and now it doesn't. Where did the assets go? Checks were written, money was transferred, assets moved to Clinic facilities and slush funds created. There is a paper trail that still kept secret.

[Brian Essi]

The Master Agreement stated that "ALL assets" will be transferred to the Cleveland Clinic except funds in the Foundation and a short list of photos and mementos.

O'Leary and company try to make it overly complicated. The fact is that in 2014 the Hospital had $136 million in net assets and now it doesn't. Where did the assets go? Checks were written, money was transferred, assets moved to Clinic facilities and slush funds created. There is a paper trail that still kept secret.

...and Mr. O'Leary is a high ranking public official with many dark secrets.