Pae Opines on "Zero" Economic Impact on NorthEast Ohio But Couldn't Understand $144M Loss Impact to Lakewood
Posted: Tue Sep 06, 2016 7:33 am
So Jenn Pae has recently given her opinion about there being "Zero" economic impact to the NorthEast Ohio as a result of the gradual trend to outpatient healthcare.
However, in the email exchange below from August, 2015, Pae claimed she did not understand the estimated $144M loss economic impact of the LOI on Lakewood because she did not fully understand the Lease required $5M in annual capital improvements and she could not opine on the Definitive Agreement because the city was not a party to it. Huh?
Pae and City Hall refused an offer to have a groups of experts to do a side by side the economic analysis of the LOI with the Lease and Definitive Agreement--at no cost to the city. Huh?
Note: Pae responded to my email by interjecting the Thompson Hine lawyers in the chain and misrepresented the role of Thompson Hine and Huron Consulting claiming they were City Council's advisers. It is clear, however, from public records that Thompson Hine represented "My Minds Made Up" Summers and the City Administration and not City Council ---- no conflict of interest was disclosed. Huh?
So we now know that Thompson Hine was hired to simply "paper" the rigged deal--The Master Agreement was in draft before Thompson Hine was hired and remarkably the terms of the final Master Agreement were at least $20M worse than the LOI (which was an estimated $144M bust for the city).
That outcome points to backroom payoffs.
So Pae is back on the campaign trail on the taxpayer's dime.
From: Brian Essi
Sent: Tuesday, August 04, 2015 11:05 PM
To: Finance
Cc: Summers, Mike; Anderson, David; Marx, Cynthia; O'Leary, Sam; Nowlin, Ryan; Madigan, Mary; Bullock, Tom; Juris, Shawn; Butler, Kevin; Hagan, Mary
Subject: Side by Side Comparsion of LOI & Current Lease
Dear Ms. Pae,
I have two difficult, but important questions that I think you may be uniquely qualified to help answer for the public:
In terms of City Finances and City assets, how does a side by side comparison of the LOI stack up with staying the course with the LHA/Clinic Lease/DA through 2026 and exploring other alternative buyers & partners along the way?
Are you willing to work with me and a small group of financial experts (free of charge to the City) to create an accurate side by side comparison for our
City leaders and Lakewoodites to make an informed decision?
I trust that we are in agreement, that a complete and accurate financial comparison would be helpful and necessary. Mayor Summers and I discussed the need for a side by side comparison—we were supposed to meet with Ken Haber. So may I suggest that Ken Haber might be one person to work with a group of experts (assuming he is willing).
Below and attached are a preliminary analysis that I present in what I hope is the beginning of a serious discussion to help the City in deciding a way forward. As you can see below, by my rough analysis, the City could be as high as$204 million better off in terms of assets and $11 million better off in terms of income if we stay the course with the current Lease and Definitive Agreement through 2026. I invite criticism of the analysis below in an effort to come to numbers that might be reasonably agreed upon by reasonable experts.
I have attached an Excel Spreadsheet of a “preliminary” analysis of the LOI prepared by a friend that is several months old. The Spreadsheet has several tabs. Note that the tab marked "Summary Chart" shows losses to the City/LHA/LHF totaling $217 million and a pick up by the new entity of $73 million. Note also that my friend relied on many of your numbers too and numbers that may have changed since January. By that analysis, there would be a $144 million loss to our community by signing the LOI. Of course, we would need to deduct i.e. add back whatever Mayor Summers and Dru Siley may be working on with developers that would be paid to the City for the land. Again, my friend and I invite a critique of this analysis--you may use or modify the spreadsheet as you wish.
I have stated some facts and assumptions that you are free to challenge in working toward and answer to my first question:
Contractual Provisions. Section 2.1.1 of the Definitive Agreement (DA) provides in part, “CCF shall assure that Lakewood shall have a cash to debt ratio of 1:1 on a fiscal year basis…if it is determined that [LHA] does not meet such ratio, CCF shall advance sufficient funds to Lakewood to meet such ratio…any advances not repaid to CCF at such time as the [Lease] terminates shall be forgiven by CCF” In Section 1.8.1 of the DA, CCF agreed “Notwithstanding any provisions in this Agreement to the contrary, CCF acknowledges and agrees that no provisions in this Agreement will cause [LHA] to take action or omit to take any action that could cause [LHA] to fail to perform or observe, or otherwise be in default of, any of its obligations under the Lease...” These provisions taken together mean that CCF must provide cash to Lakewood Hospital to match all debt including trade debt, and when they leave in 2026, we have a debt free facility (or at least enough cash to pay all debt). If there is a contrary legal/accounting opinion as to how these provision operate, I would appreciate an explanation.
Keep The Hospital Open. If we keep the hospital open for another 11 years, let’s assume for my question that the City will receive approximately $2 million in income taxes and rent (or $22million) and capital improvements of $5 million per year called for in the Lease ($55 million). Note you can verify with Mr. Haber that these capital improvements are currently paid through hospital cash flow. Let’s ignore the fact that the hospital has given on average $7 million in charity to the underserved for the past 18 years—let’s count that as zero going forward and of no benefit to the City.
The LTIP IS Completely Lost. Let’s assume that we lose the entire $50 million LTIP before CCF has to make any cash advances under the DA. Note: this stacks my question in favor of the LOI, but I’ll concede this money is a total loss for purposes of my question. (Note: Mr. Devito and his clients would disagree with this concession)
Real Estate & Equipment Stay The Same. Let’s assume that the real estate and equipment does not appreciate between now and 2026, but also since there will be $5 million in annual improvements let’s also assume that it does not depreciate in value either. So let’s just use Subsidium’s valuation for the hospital assets of $70 million. Fair? Note: even if we can only sell the real estate and equipment for $35 million in 2026, it seems we are still far better off.
We Sell the Land for $10 million Let’s say Dru and the Mayor get $10 million for the land—that may be high, but you can go higher if you wish.
For purposes of analysis of City Assets and Income, let's completely ignore LHF on the stay with the current deal option, but let's keep in mind and assume that along the way and in 2026 LHF will still have about $30 million of assets (assuming no market appreciation) to help our community.
So just from the standpoint of City finances and assets, what numbers can we agree on for the side by side comparison?
On the asset side of the comparison, I show a $144 loss from the LOI but we need to add back the $10 million for the land sale—so it’s a net loss of $134 million. If we stay the course with CCF, we still have $70 million in assets in 2026. (Remember LHF does not count as an asset if the stay the course option, but it is included in the LOI option). So based upon my numbers, we are $204 million better off as a City if we stay with the current CCF agreements.
One the income side we get $22million in rent and income taxes (you can adjust this downward if you think payroll at the hospital will be less than the current $65 million due to scaled down operations) What payroll/income tax estimates do you have for the 150 employees at CCF’s FHC, the hotel, rec center/wellness center or other potential employers that the Mayor and Dru are working with? Given the rent, I think you will agree that it will be hard to match the $22 million unless we have a lot of high income employees at the hotel and rec center or other employers. So let's just say we will be $11 million better off (the rent) in the current Lease/DA.
I think that I have skewed the numbers in favor of the LOI and I can't make it look good as compared to the current arrangement, but I look forward to you letting me know what I may be missing in this rough analysis.
I am available by phone or in person at your preference.
Sincerely,
Brian J. Essi
From: "Pae, Jennifer" <Jennifer.Pae@lakewoodoh.net>
Date: August 7, 2015 at 10:08:49 AM EDT
To: Brian Essi
Cc: "Summers, Mike" <Mike.Summers@lakewoodoh.net>, "Anderson, David" <David.Anderson@lakewoodoh.net>, "Marx, Cynthia" <cindy.marx@lakewoodoh.net>, "O'Leary, Sam" <Sam.OLeary@lakewoodoh.net>, "Nowlin, Ryan" <Ryan.Nowlin@lakewoodoh.net>, "Madigan, Mary" <Mary.Madigan@lakewoodoh.net>, "Bullock, Tom" <Tom.Bullock@lakewoodoh.net>, "Juris, Shawn" <Shawn.Juris@lakewoodoh.net>, "Butler, Kevin" <Kevin.Butler@lakewoodoh.net>, "Hagan, Mary" <Mary.Hagan@lakewoodoh.net>, Ken Haber <ken.haber@sbcglobal.net>, "Smyers, Robyn Minter (Robyn.Smyers@thompsonhine.com) (Robyn.Smyers@thompsonhine.com)" <Robyn.Smyers@thompsonhine.com>, "Siley, Dru" <Dru.Siley@lakewoodoh.net>, "Strachan, Shannon" <Shannon.Strachan@lakewoodoh.net>
Subject: RE: Side by Side Comparsion of LOI & Current Lease
Dear Mr. Essi,
Thank you for your email. I appreciate your reaching out. I’ve attached the financial presentation that I gave to City Council on April 20, 2015. As the Finance Director of the City of Lakewood, I prefer to comment on the City’s finances, and provide my opinion / analysis of potential impacts of opportunities and threats to the City’s finances as a stand-alone government entity as requested by the Administration and Council.
Therefore, it is not appropriate for me to comment / perform financial analyses on the terms of the Definitive Agreement in which the City of Lakewood is not a party.
I would like to point out that never in my April 20th analysis did I project out the additional payments per the lease document (the 3 payments a year paid by LHA – Section 3.2) or the impact on income tax withholding revenues over a ten year period as indicated in the spreadsheet you provided with your Aug. 4th email.
I also combed through the Lease Document between LHA and the City, and cannot for the life of me find where it says there has to be $5 million a year in capital improvements. Please someone correct me if this is not accurate.
Furthermore, a great deal of the Lease Document between LHA and the City deals with the outstanding tax exempt debt (Series 2003) and making sure the bond holders are paid. The last of the outstanding debt was fully paid with the defeasance occurring on Feb. 15, 2015, and in Section 14.14 Trustees, it says: “When all Bonds are no longer outstanding under the Indentures, all references to Senior Trustee, Subordinated Trustee and Trustees shall be deemed eliminated from this Lease and any approval herein required of the Senior Trustee, the Subordinated Trustee or the Trustee shall be eliminated from this Lease.” That is a lot of the Lease sections and language that should be eliminated.
It is my preference to allow City Council to continue their due diligence of assessing the expired LOI and what lead to the creation that proposal with their outside Council and their financial/health care consultant Huron Consulting, and I will assist Council with any additional requests they may have regarding City finances.
Sincerely,
~ Jenn
Jennifer Pae
Director of Finance
City of Lakewood
(216) 529-6092
http://www.onelakewood.com
However, in the email exchange below from August, 2015, Pae claimed she did not understand the estimated $144M loss economic impact of the LOI on Lakewood because she did not fully understand the Lease required $5M in annual capital improvements and she could not opine on the Definitive Agreement because the city was not a party to it. Huh?
Pae and City Hall refused an offer to have a groups of experts to do a side by side the economic analysis of the LOI with the Lease and Definitive Agreement--at no cost to the city. Huh?
Note: Pae responded to my email by interjecting the Thompson Hine lawyers in the chain and misrepresented the role of Thompson Hine and Huron Consulting claiming they were City Council's advisers. It is clear, however, from public records that Thompson Hine represented "My Minds Made Up" Summers and the City Administration and not City Council ---- no conflict of interest was disclosed. Huh?
So we now know that Thompson Hine was hired to simply "paper" the rigged deal--The Master Agreement was in draft before Thompson Hine was hired and remarkably the terms of the final Master Agreement were at least $20M worse than the LOI (which was an estimated $144M bust for the city).
That outcome points to backroom payoffs.
So Pae is back on the campaign trail on the taxpayer's dime.
From: Brian Essi
Sent: Tuesday, August 04, 2015 11:05 PM
To: Finance
Cc: Summers, Mike; Anderson, David; Marx, Cynthia; O'Leary, Sam; Nowlin, Ryan; Madigan, Mary; Bullock, Tom; Juris, Shawn; Butler, Kevin; Hagan, Mary
Subject: Side by Side Comparsion of LOI & Current Lease
Dear Ms. Pae,
I have two difficult, but important questions that I think you may be uniquely qualified to help answer for the public:
In terms of City Finances and City assets, how does a side by side comparison of the LOI stack up with staying the course with the LHA/Clinic Lease/DA through 2026 and exploring other alternative buyers & partners along the way?
Are you willing to work with me and a small group of financial experts (free of charge to the City) to create an accurate side by side comparison for our
City leaders and Lakewoodites to make an informed decision?
I trust that we are in agreement, that a complete and accurate financial comparison would be helpful and necessary. Mayor Summers and I discussed the need for a side by side comparison—we were supposed to meet with Ken Haber. So may I suggest that Ken Haber might be one person to work with a group of experts (assuming he is willing).
Below and attached are a preliminary analysis that I present in what I hope is the beginning of a serious discussion to help the City in deciding a way forward. As you can see below, by my rough analysis, the City could be as high as$204 million better off in terms of assets and $11 million better off in terms of income if we stay the course with the current Lease and Definitive Agreement through 2026. I invite criticism of the analysis below in an effort to come to numbers that might be reasonably agreed upon by reasonable experts.
I have attached an Excel Spreadsheet of a “preliminary” analysis of the LOI prepared by a friend that is several months old. The Spreadsheet has several tabs. Note that the tab marked "Summary Chart" shows losses to the City/LHA/LHF totaling $217 million and a pick up by the new entity of $73 million. Note also that my friend relied on many of your numbers too and numbers that may have changed since January. By that analysis, there would be a $144 million loss to our community by signing the LOI. Of course, we would need to deduct i.e. add back whatever Mayor Summers and Dru Siley may be working on with developers that would be paid to the City for the land. Again, my friend and I invite a critique of this analysis--you may use or modify the spreadsheet as you wish.
I have stated some facts and assumptions that you are free to challenge in working toward and answer to my first question:
Contractual Provisions. Section 2.1.1 of the Definitive Agreement (DA) provides in part, “CCF shall assure that Lakewood shall have a cash to debt ratio of 1:1 on a fiscal year basis…if it is determined that [LHA] does not meet such ratio, CCF shall advance sufficient funds to Lakewood to meet such ratio…any advances not repaid to CCF at such time as the [Lease] terminates shall be forgiven by CCF” In Section 1.8.1 of the DA, CCF agreed “Notwithstanding any provisions in this Agreement to the contrary, CCF acknowledges and agrees that no provisions in this Agreement will cause [LHA] to take action or omit to take any action that could cause [LHA] to fail to perform or observe, or otherwise be in default of, any of its obligations under the Lease...” These provisions taken together mean that CCF must provide cash to Lakewood Hospital to match all debt including trade debt, and when they leave in 2026, we have a debt free facility (or at least enough cash to pay all debt). If there is a contrary legal/accounting opinion as to how these provision operate, I would appreciate an explanation.
Keep The Hospital Open. If we keep the hospital open for another 11 years, let’s assume for my question that the City will receive approximately $2 million in income taxes and rent (or $22million) and capital improvements of $5 million per year called for in the Lease ($55 million). Note you can verify with Mr. Haber that these capital improvements are currently paid through hospital cash flow. Let’s ignore the fact that the hospital has given on average $7 million in charity to the underserved for the past 18 years—let’s count that as zero going forward and of no benefit to the City.
The LTIP IS Completely Lost. Let’s assume that we lose the entire $50 million LTIP before CCF has to make any cash advances under the DA. Note: this stacks my question in favor of the LOI, but I’ll concede this money is a total loss for purposes of my question. (Note: Mr. Devito and his clients would disagree with this concession)
Real Estate & Equipment Stay The Same. Let’s assume that the real estate and equipment does not appreciate between now and 2026, but also since there will be $5 million in annual improvements let’s also assume that it does not depreciate in value either. So let’s just use Subsidium’s valuation for the hospital assets of $70 million. Fair? Note: even if we can only sell the real estate and equipment for $35 million in 2026, it seems we are still far better off.
We Sell the Land for $10 million Let’s say Dru and the Mayor get $10 million for the land—that may be high, but you can go higher if you wish.
For purposes of analysis of City Assets and Income, let's completely ignore LHF on the stay with the current deal option, but let's keep in mind and assume that along the way and in 2026 LHF will still have about $30 million of assets (assuming no market appreciation) to help our community.
So just from the standpoint of City finances and assets, what numbers can we agree on for the side by side comparison?
On the asset side of the comparison, I show a $144 loss from the LOI but we need to add back the $10 million for the land sale—so it’s a net loss of $134 million. If we stay the course with CCF, we still have $70 million in assets in 2026. (Remember LHF does not count as an asset if the stay the course option, but it is included in the LOI option). So based upon my numbers, we are $204 million better off as a City if we stay with the current CCF agreements.
One the income side we get $22million in rent and income taxes (you can adjust this downward if you think payroll at the hospital will be less than the current $65 million due to scaled down operations) What payroll/income tax estimates do you have for the 150 employees at CCF’s FHC, the hotel, rec center/wellness center or other potential employers that the Mayor and Dru are working with? Given the rent, I think you will agree that it will be hard to match the $22 million unless we have a lot of high income employees at the hotel and rec center or other employers. So let's just say we will be $11 million better off (the rent) in the current Lease/DA.
I think that I have skewed the numbers in favor of the LOI and I can't make it look good as compared to the current arrangement, but I look forward to you letting me know what I may be missing in this rough analysis.
I am available by phone or in person at your preference.
Sincerely,
Brian J. Essi
From: "Pae, Jennifer" <Jennifer.Pae@lakewoodoh.net>
Date: August 7, 2015 at 10:08:49 AM EDT
To: Brian Essi
Cc: "Summers, Mike" <Mike.Summers@lakewoodoh.net>, "Anderson, David" <David.Anderson@lakewoodoh.net>, "Marx, Cynthia" <cindy.marx@lakewoodoh.net>, "O'Leary, Sam" <Sam.OLeary@lakewoodoh.net>, "Nowlin, Ryan" <Ryan.Nowlin@lakewoodoh.net>, "Madigan, Mary" <Mary.Madigan@lakewoodoh.net>, "Bullock, Tom" <Tom.Bullock@lakewoodoh.net>, "Juris, Shawn" <Shawn.Juris@lakewoodoh.net>, "Butler, Kevin" <Kevin.Butler@lakewoodoh.net>, "Hagan, Mary" <Mary.Hagan@lakewoodoh.net>, Ken Haber <ken.haber@sbcglobal.net>, "Smyers, Robyn Minter (Robyn.Smyers@thompsonhine.com) (Robyn.Smyers@thompsonhine.com)" <Robyn.Smyers@thompsonhine.com>, "Siley, Dru" <Dru.Siley@lakewoodoh.net>, "Strachan, Shannon" <Shannon.Strachan@lakewoodoh.net>
Subject: RE: Side by Side Comparsion of LOI & Current Lease
Dear Mr. Essi,
Thank you for your email. I appreciate your reaching out. I’ve attached the financial presentation that I gave to City Council on April 20, 2015. As the Finance Director of the City of Lakewood, I prefer to comment on the City’s finances, and provide my opinion / analysis of potential impacts of opportunities and threats to the City’s finances as a stand-alone government entity as requested by the Administration and Council.
Therefore, it is not appropriate for me to comment / perform financial analyses on the terms of the Definitive Agreement in which the City of Lakewood is not a party.
I would like to point out that never in my April 20th analysis did I project out the additional payments per the lease document (the 3 payments a year paid by LHA – Section 3.2) or the impact on income tax withholding revenues over a ten year period as indicated in the spreadsheet you provided with your Aug. 4th email.
I also combed through the Lease Document between LHA and the City, and cannot for the life of me find where it says there has to be $5 million a year in capital improvements. Please someone correct me if this is not accurate.
Furthermore, a great deal of the Lease Document between LHA and the City deals with the outstanding tax exempt debt (Series 2003) and making sure the bond holders are paid. The last of the outstanding debt was fully paid with the defeasance occurring on Feb. 15, 2015, and in Section 14.14 Trustees, it says: “When all Bonds are no longer outstanding under the Indentures, all references to Senior Trustee, Subordinated Trustee and Trustees shall be deemed eliminated from this Lease and any approval herein required of the Senior Trustee, the Subordinated Trustee or the Trustee shall be eliminated from this Lease.” That is a lot of the Lease sections and language that should be eliminated.
It is my preference to allow City Council to continue their due diligence of assessing the expired LOI and what lead to the creation that proposal with their outside Council and their financial/health care consultant Huron Consulting, and I will assist Council with any additional requests they may have regarding City finances.
Sincerely,
~ Jenn
Jennifer Pae
Director of Finance
City of Lakewood
(216) 529-6092
http://www.onelakewood.com
