Putting the Fees in Feasible

The shaky foundation supporting the swindlers’ agenda is a feasibility study that an insider commissioned. Or maybe it was a group of insiders. “It’s absolutely not anyone’s business!” according to Charlatan-in-Chief Joe Gavalis. Regardless, it’s a fine study as far as it goes. It just doesn’t go very far, or very deep for that matter.

But before we get to the details (where the Devil resides, it is said) let’s take a look at who paid for it. Wait, I don’t see anyone! Do you? The reason is that they don’t want you to know. Don’t take my word for it. Instead, here’s what lead Huckster Gavalis said, as reported by the East Cobb News:

On the East Cobb Cityhood website, he said that besides commercial real estate business owner G. Owen Brown, other donors who paid for the feasibility study “for now, wish to be unidentified due to possible personal harassment or media attacks/smears from opponents.”

So much for having the courage of your convictions. Or as my mother-in-law would say, if you don’t stand for something you’ll fall for anything. I guess they expect us to take it lying down.

But I digress. The reality is that the $35,000 they paid doesn’t buy you much of a feasibility study these days. What you get are some bare bones statistical comparisons and projections based on rose-colored assumptions. To their credit, though, the authors emphasize this quite clearly: “The analysis provides the best estimate given available data and information from Committee for Cityhood in East Cobb, Inc. and Cobb County regarding the proposed city’s expenditures and assumes no “shocks,” such as unanticipated capital expenses or a major economic downturn.”

So the report is based in substantial measure on data provided by the promoters. Talk about having your thumb on the scale! But putting that aside for the moment, the authors of the study speak directly to its deficiencies when they write it “assumes no shocks, such as unanticipated capital expenses or a major economic downturn.” In other words, it’s all blue sky and roses.

What would a more robust and comprehensive report look like? Well, one would hope it would cover a range of contingencies and outcomes, not just the best case. But then the promoters wouldn’t have a leg to stand on, as if they do now.

Even using their best case scenario, there’s not a lot of margin for error. For example, the first year’s anticipated surplus is only $2.8 million – not even one month’s expenses. The recommended rainy day fund for households is six months cash reserve. But cities can cut it much closer, because in an emergency they can just raise your taxes.

The overwhelming share of the proposed city’s expenses is funding public safety, administration, and a court system. Hmm, don’t we already have those? But what’s the point of funding existing services when we can start from scratch? Especially when the fraudsters’ collective experience in these areas is zero?

The authors neatly wash their hands of any adverse outcomes. But we’ve already seen the first warning signs of recession, including the dreaded inversion of the bond yield curve. This is when short-term bond yields are higher than long-term. Lower long-term bond yields mean that professional investors see a declining economy in the future compared to today. Well, where is consideration for that in the report? Good luck finding it, because it’s not there.

A recession, defined as two consecutive quarters of “negative growth” or contraction in the economy, means higher unemployment that feeds a downward spiral in every sector of the economy. So, as we’ll see, the feasibility study is dead on arrival, because it doesn’t address this increasingly likely outcome.

All else aside, the promoters assume $8 million in start-up costs. That’s $8 million to reinvent what we’ve already got. So where’s the $8 million going to come from? Why, from bonds, silly. Or more accurately, Tax Anticipation Notes (TANs.) This is how governments borrow against future revenue. Well, in a contracting economy, what investors are going to lend money to a municipal start-up with no track record?

As it turns out, plenty. Provided, that is, the interest is sufficient to offset the risk. The report blithely glosses over this reality, asserting along the way that the hustlers will be able to sell $8 million of TANs at a bargain basement yield of 2.1 percent. Here, the authors make a crucial mistake, basing their yield projection on a misquoting of the LIBOR, the London InterBank Overnight Rate. As of right now, the LIBOR is 2.72 percent, or fully one-third higher than the report’s stated rate. This means the proposed city’s cost of borrowing will be one-third higher than claimed, and best case at that.

So without getting lost in the weeds, the best case under the worst case is that the promoters would have to offer an extremely high yield on their TANs to attract institutional investors. This means that the cost of debt service would be much higher, cutting into the already thin $2.8 million projected reserves. The feasibility study doesn’t begin to address this. And good luck getting the promoters to acknowledge this likely outcome.

Also, how likely is it that a fledgling government is going to do anything on deadline and under budget? Even established governments rarely do. Once you’ve been saddled with an untested, underfunded government the only way to keep it going is through higher taxes and fees. The City of East Cobb – Putting the Fees in Feasible!