Friday, February 28, 2003

End of the Line

How Shelby County came to have a slow-growth policy.

Posted By on Fri, Feb 28, 2003 at 4:00 AM

This is what a no-growth policy looks like.

The mayor of Memphis, the mayor of Shelby County, the mayors of six municipalities, 13 Memphis City Council members, 13 Shelby County Commission members, two school superintendents, nine Memphis Board of Education members, and seven Shelby County Board of Education members can't agree on how to pay for a proposed new high school in Arlington, so nothing happens.

And, for a while at least, suburban sprawl along Interstate 40 in northeastern Shelby County is slowed if not stopped.

That's it. No seminars, no proclamations, no conferences, no consultants. Just good old politics and inaction.

Contrary to a recent Commercial Appeal editorial, no action is always an option, maybe not the best option but not necessarily a bad one either.

One of the stranger notions of our time is the alleged "crisis" that is forcing Shelby County to build a new high school in Arlington, which the great majority of Shelby County residents could not find without a map. Arlington has become the focal point of the whole debate about how to fund public education and the cost of new schools in Memphis and Shelby County.

The Arlington Express looked like it was running out of steam this week. Mayor Willie Herenton showed no signs of budging from his insistence that the only real solution is to combine the two school systems, but no other mayor or elected body has seconded the motion. County mayor A C Wharton's counterproposal has been embraced mainly by the 30 percent of Shelby County residents who live outside the city of Memphis and are represented by an all-white school board.

Other alternatives to the current policy in which new school construction in the county triggers new school construction in the city also lack key support. This week the Shelby County Commission postponed a vote on the use of rural school bonds as a white Republican, Joyce Avery, joined a black Democrat, Julian Bolton, in voicing concern about that idea and the assumption that Arlington is more needy than, say, Millington.

"I really think we're at the end of the line," said commission chairman Walter Bailey, who doubts that rural school bonds have enough votes to pass.

As long as there are two systems, Bailey favors the current funding formula because he thinks it is fair to the city of Memphis. He worries that Herenton's challenge to the county to pay for its own schools without taxing Memphians could come back to haunt Memphis when its own schools need repairs.

"That's letting the camel get his nose inside the tent," he said.

Avery and Bolton's sudden alarm about Millington High School, which is part of the county system, is bad news for Arlington. As Bolton noted, Millington residents have been paying municipal and county property taxes for years and their old high school needs work.

Millington is the designated Needy Old School of the day, but a better choice would be Central High School, which has seen five generations of Memphians walk through its nearly 100-year-old halls with that unmistakable smell of Old Building. If more than 1,000 students can go to the same school that Machine Gun Kelly attended and perform capably, even exceptionally, then what's the rush in Arlington?

Here are three things that haven't been done yet in Arlington:

· Tax the neighbors. Homeowners in nearby Lakeland pay zero property taxes. That's right, zero. Lakeland, with several new subdivisions, is the only municipality in Shelby County without a property tax.

· Tax the residents. Arlington has a property tax rate of $1, which is lower than Millington ($1.23), Germantown ($1.30), Collierville ($1.45), or Memphis ($3.23).

· Tax homebuilders. Every time somebody suggests an impact fee of $1,000 or $2,000 a lot, the homebuilders and their agents shoot it down as an intolerable hardship that would cause home construction in Shelby County to dry up.

The plain evidence suggests this is nonsense. Developers and builders say people are taking money out of the stock market and putting it in their homes instead.

"The question people ask is how much house can I afford," says suburban developer Jackie Welch.

The spread of new subdivisions in Shelby County shows strong demand, and rock-bottom mortgage loan interest rates of 6 percent offset the added cost of impact fees that would be passed on to buyers and rolled into the loan. Home loan demand is so strong that Wall Street Journal ran a story this week about truck drivers who are getting rich in their new careers as home mortgage brokers.

The bottom line is that new schools are magnets for growth or flight, whichever you want to call it. The crowded county school system is the product of an ad hoc "growth policy" that's let developers choose and sell sites to the school board in close proximity to their subdivisions and shopping centers for the last 15 years.

There has been no formal discussion of changing to a policy of "slow growth" or "no growth." It has just happened by gridlock and inaction. Underlying that inaction is the revolutionary notion that if the Shelby County Board of Education wants a new high school in the boondocks, then maybe it should A) look more like the rest of Shelby County and B) ask the direct beneficiaries to help pay for it.

Thursday, February 20, 2003

Fallen Angel

Management shake-up at Concord EFS as stock slides.

Posted By on Thu, Feb 20, 2003 at 4:00 AM

In good and bad times over the past 10 years, Concord EFS was the brightest Memphis star in the stock market, making a lot of money for investors and fortunes for its top executives.

In the past year, however, Concord EFS has fallen hard. The stock price is down 70 percent, from $35 to $9.60 before bouncing back to $11. The company said this week it expects its earnings to flatten out for at least a year. And last week it announced management changes involving the two founders and the largest shareholder that could signal more turmoil.

Falling stocks are nothing unusual these days, but in the case of Concord EFS, investors can't say they weren't warned. They could have avoided the pain by simply doing what top management did last year: sell everything when the price was still around $30.

Concord EFS processes credit-card payments for retailers and banks. It keeps a low profile -- no flashy commercials, no catchy slogans, no sponsorships of arenas or sporting events. No problem. In flush times, stockbrokers and friendly analysts and reporters did the talking. Before the fall from $35, the stock was up 800 percent over a 10-year period.

Then, corporate insiders apparently decided the run was about to end. As the Flyer reported last August, Concord EFS executives and board members were big sellers of the stock last year just months before they touted a corporate buyback of 250 million shares in an attempt to prop up the stock price and bolster public confidence. Several shareholder lawsuits were filed after the stock price collapsed last summer.

The management changes announced last week appear aimed at separating corporate governance from corporate management, as is the fashion in the wake of Enron and WorldCom. In the reorganization, Richard Kiphart, a Concord director and major stockholder since 1997, was named chairman. Dan Palmer, co-founder of the company and former chairman, will serve as director and co-chief executive officer. Bond Isaacson, who joined the company in 2002, was named director and co-chief executive officer.

The part that had analysts and Internet message boards buzzing, however, concerned co-founder Edward Labry III. The company had previously announced that he would become CEO in May. As the late White House press secretary Ron Ziegler said, that statement is inoperative. Labry will instead serve as director and president.

"The management changes, in our view, signal greater internal turmoil than expected," said Goldman Sachs analyst Gregory Gould last week.

Kiphart, Palmer, and Labry sold most of their stock in 2001 and 2002 at $27 to $31 a share. They each netted approximately $41-$42 million on stock acquired via options for $1.14 to $1.98 a share, according to corporate financial disclosures.

Other executives, including the chief financial officer at the time, also sold big blocks of stock months ahead of the buyback announcement, by which time the share price had fallen more than 50 percent. Insider selling, which is publicly disclosed, is not always an indication of hard times ahead. Executives have bills and outside investments just like everyone else. But in this case, the signal was loud and clear. From 2001 to mid-2002, Concord EFS insiders sold 28 times, exercising 4,285,142 options and dumping 6,077,722 shares. During the same time frame, there was no insider buying whatsoever.

Since the buyback was announced, there has been some modest buying by top management. Labry, for example, bought 22,652 shares last September and November, according to public filings. But the buying has not been on the scale of the selling that went on a year ago.

The Mace David Howell investment scandal, which the local business press has finally decided is newsworthy, has topped $80 million, according to the unofficial tally by the Pulaski County Probate Court Clerk's Office.

Arkansas securities commissioner Michael Johnson told the Flyer this week his office has "an active investigation" even though Howell committed suicide last October as his investment scheme was collapsing.

"The cease-and-desist order we issued last October is all we can do against Howell and his estate," said Johnson. "But there may be other things that take place. Everybody that was in any way involved is potentially involved in the investigation."

Several Memphians were among the early leaders in the clubhouse in Probate Court filings, but their claims have since been topped by bigger claims by Dallas Cowboys owner Jerry Jones for $16 million and Robert Vogel of Little Rock for $11.7 million.

Memphis-based Regions/Morgan Keegan Trust is administrator of the estate.

Some people in Dyersburg won't be surprised if Mike Tyson flakes on his scheduled heavyweight fight at The Pyramid this week.

"I sort of predicted that," said attorney Robert Millar, who represents a group of Dyersburg investors who helped finance Tyson's bout with Lennox Lewis in Memphis last summer. "I don't think he ever had any intention of fighting again."

The Dyersburg investors are still scrapping over the spoils of the first fight. A lawsuit has been pending in Chancery Court in Dyer County for several months, but Millar said no trial has been scheduled and the discovery process continues.

Saturday, February 15, 2003

Investment Update

Dallas Cowboys owner files $16 million claim in Howell case.

Posted By on Sat, Feb 15, 2003 at 4:00 AM

For Jerry Jones, owner of the Dallas Cowboys, what could be worse than the team's 5-11 record in 2002? How about his own investment record?

Jones filed $16 million in claims last week against the estate of M. David Howell Jr., the Arkansas banker and investor who committed suicide last October as the scheme was unraveling. Attorneys for Jones, who is a graduate of the University of Arkansas, filed the claims in Pulaski County Probate Court.

They are the biggest to date in the case, in which investors in Memphis, Arkansas, and Texas lost some $70 million and counting in unregistered promissory notes with "returns" as high as 40 percent.

Until last week, the largest claims against Howell's estate had been filed by Memphians Frank G. Barton Jr. ($5 million) and Logan Young ($4.5 million). At least 15 Memphis-area residents have sued Howell's estate and brokerage firms Refco, Goldman Sachs, and Merrill Lynch in Crittenden County Circuit Court. Howell allegedly told them he had devised a system for investing in commodities and securities that was earning returns of up to 90 percent at a time when the stock market bubble was bursting. In fact, the lawsuit says, most of the "returns" came from other investors' money.

As the Flyer has previously reported, Howell committed suicide in October in a hotel room in Beverly Hills, California. A few days earlier, the Arkansas Securities Department ordered him to stop selling the unregistered promissory notes and Bank of America sued him over $1.9 million in bad checks written in September and October.

Jones made two investments with Howell last year -- one for $5 million in April and another for $11 million in August. His claim includes a photocopy of a check for $6.125 million signed by Howell and dated January 15th, 2003. Howell apparently post-dated checks for investments plus interest and gave them to investors as a form of security.

Another claim was filed last week by Hot Springs banker Richard T. Smith for $7.5 million. Smith, expected to be a key figure in future litigation, co-signed some of the promissory notes with Howell and helped bring in new investors. In Memphis, investors say the sales network included friends of Young, who is from Osceola, Arkansas, and members of Chickasaw Country Club.

Several smaller claims were also filed last week in Pulaski County Probate Court. The deadline for filing claims is February 14th. A source familiar with the case said there will probably be an attempt by Howell's side to move everything to Little Rock, which the Memphis group is expected to oppose.

Disposable City

You know a piece of property is doomed when people start talking about turning it into a prison. That's one of developer Jackie Welch's ideas for the Mall of Memphis.

Welch has no financial interest in the property, and his suggestion came in the midst of some wide-ranging musings about the general state of Memphis and Shelby County. But the owner of Welch Realty does know a little about real estate and Memphis demographics, having sold businesses and building sites along Highway 51 in Whitehaven, Winchester in Hickory Hill, and Germantown Road in Cordova as the fortunes of those areas rose and/or fell.

The sprawling Mall of Memphis on the south leg of Interstate 240 has lost its anchors and scores of other tenants as retailers and customers moved east, first to Hickory Ridge Mall and then to Wolfchase Galleria. The Raleigh Springs Mall appears headed for a similar fate. Last week, Dillard's announced that it will join Goldsmith's and J C Penney in leaving the 32-year-old mall.

Customers and retailers have moved south and east to DeSoto County and the Wolfchase Galleria. Attempting to recapture some of that via annexation, Memphis has stretched its boundaries out Highway 64 nearly to Fayette County. Our disposable city encompasses more than 300 square miles.

For now, the most seriously sick patient is the Mall of Memphis, whose vast empty parking lots along Nonconnah Creek are in plain view of thousands of motorists passing through Memphis every day.

"They ought to turn those old department stores into schools and save some money," Welch said, noting the general sense of alarm about county debt tied to new school construction. "Or they could put in a minimum-security prison."

No cracks, please, about them being one and the same.

These suggestions are likely to get about as far as Welch's earlier proposal to sell off a strip of Shelby Farms along Germantown Road or former Shelby County mayor Jim Rout's joking observation that Midtown's old Sears Building would make a swell prison. But the two malls on life support may well join the Sears Building on the perennially vacant list if somebody doesn't come up with a better idea than the Community Redevelopment Act subsidies that were proposed and then aborted by the city a few years ago.

Welch, who sold nine school sites serving his subdivisions to the county board of education, said he's out of the school business and focusing on a new bank he has started called First Souce which will open in April in Germantown.

"We're not going to be the leaders in the residential market for the next few years like we were for the last 10 years," he said.

Friday, February 7, 2003

Shaping the News

One man's take on the growing influence of local PR firms, President Bush's highway cuts, the real cost of light-rail, the CA, and school board

Posted By on Fri, Feb 7, 2003 at 4:00 AM

Item: Public-relations firms have always been something of a hidden hand behind the news, but I detect an increase in their influence -- or at least their attempted influence -- in the public sector. Probably it's the scent of big money and the consultant craze.

The latest example was the West/Rogers poll that City Council chairman Brent Taylor commissioned as part of the council's retreat last week. Some of the poll questions were silly, such as the one where respondents ranked Memphis as a "great" city ahead of New York, Atlanta, and Chicago. When the poll ventured into substantive matters, such as a unified school system, the questions were so leading and skewed that the council, properly, gave them short shrift. Nevertheless, two West/Rogers employees got to sit at the table with council members, which was a symbolic victory of sorts.

Other PR firms shaping the news are the Ingram Group, which represents the New Memphis Arena Public Building Authority and Chairman Arnold Perl; Thompson & Baker, working on MATA's proposed $400 million light-rail line and the chamber of commerce's push for more business tax incentives; and McNeely Pigott and Fox, represented locally by former Commercial Appeal business editor Bob Hetherington. There are no doubt others of which I am not as aware.

Common sense, candor, and openness -- which don't cost anything -- will usually serve public officials and agencies as well as or better than consultants' advice.

Item: The Washington Post reports that the Republican governor of Maryland, Robert Ehrlich Jr., has introduced a bill that would permit 10,500 slot machines across the state at four Maryland racetracks and direct as much as $800 million a year to public schools. I don't care how many times state legislators or preachers say there won't be, shouldn't be, or can't be slot machines in Tennessee, even though both a lottery and pari-mutuel betting are now legal or, in the case of the lottery, about to be made legal. I say there will be legal slots in Tennessee by 2010. And when it happens it will have more to do with economics than morality.

Item: President Bush is signaling he wants to cut highway money to the states by as much as $6 billion next year as priorities shift to war and fighting terrorism. In a related story, the Associated Press says Gov. Phil Bredesen might cut highway funds to close a projected $500 million deficit in the state budget.

Now ask yourself: If Washington and Nashville are cutting highway money, do you think there is a chance in hell of Memphis getting $200 million in federal and state funds for a $400 million light-rail line from downtown to the airport, which FedEx says isn't even on their radar screen?

Normally, I don't correct other people's mistakes, but I'll make an exception. The Commercial Appeal has reported at least twice that the federal share of this proposed project is either 75 or 80 percent. I have twice heard Tom Fox, director of planning and capital projects for MATA, state otherwise. But to make sure, I asked him to clarify the federal share once more in an e-mail.

"Statutorially, the federal share on transit capital projects can be up to 80 percent," Fox wrote. "Practically speaking, in order to compete for discretionary funds (which are largely earmarked by Congress) the federal share requested by local project sponsors is typically in the range of 50 percent. In our presentations, we describe the proposed funding scenario for the Downtown-Airport Corridor as 50 percent federal, 25 percent state, and 25 percent local."

The trolley has gotten this far thanks to Interstate Substitution Funds Memphis received for not building Interstate 40 through Overton Park. That money is gone.

Expensive public projects take on a life of their own when the media, oversight boards, and elected officials don't scrutinize them. This is how the Memphis City Schools building program got out of control. Ignoring a story is one thing. Repeatedly understating the local cost of a project by $100 million is worse.

Item: The Shelby County school board approved Mayor A C Wharton's suburban school building plan last week.

This board is a sleeping giant. It gets a fraction of the publicity of its city counterpart, which meets next door and is more prone to bickering with the superintendent and shooting itself in the foot. It is all-white and dominated by old hands intimately familiar with county school politics. And at the moment, its decisions have more impact on more public dollars than any board in the city or county.

In its own way, it is as efficient as the city school board is clumsy. Under Carl Johnson's chairmanship, tedious city board meetings like last week's six-hour session will be the norm. Under David Pickler's leadership, the county board dispatched with a significantly revamped school calendar and the antiquated "Fair Day" (no longer a holiday for county students) in about six minutes.

Dissenters are dealt with politely but briskly. A black minister, the Rev. LaSimba Gray, wondered why black students are going to be bused past Germantown High School to Houston High School even though Germantown High has more black students and is closer to their neighborhood. Pickler told him the item will be taken up later.

I collared Gray as he left the building. "An all-white board in 2003," he muttered. "That's racism."

A storm is brewing.

A Separate Peace

Memphis and the case for war in Iraq.

Posted By on Fri, Feb 7, 2003 at 4:00 AM

Two heavyweights came to Memphis to talk about war with Iraq last week, and the reception they got says something about the task facing President George W. Bush as he tries to lead the country into war.

On Sunday, William Sloane Coffin, a liberal anti-war voice in the 1960s, spoke at a "service for peace" at Idlewild Presbyterian Church. Idlewild senior pastor Stephen Montgomery, part of an ecumenical group of organizers that also included Kenneth Corr of First Baptist Church, Frank Thomas of Mississippi Boulevard Christian Church, CB Baker of St. Mary's Cathedral, and Scott Morris of the Church Health Center, had optimistically predicted a crowd of 300 or maybe 500. Instead, 1,100 people packed the sanctuary.

What was as notable as the size of the crowd was its constituency. This was a slice of the Memphis establishment, and its average age seemed to be well over 50. The service began with such anthems of the Sixties as "Where Have All the Flowers Gone?," "Blowin' in the Wind," and "If I Had a Hammer," but that was about where the similarities to the anti-war movement in the Vietnam era ended. There was a lot more tweed than denim, far more neckties than T-shirts.

Whatever the political leanings of those who attended -- and it's a safe guess there were as many Republicans as Democrats -- they stood and applauded vigorously after Coffin made his staunchly anti-war remarks. At 78, the former Yale chaplain and CIA operative's voice is still strong, although he seemed to struggle a little at the end of his speech. The loudest ovations of the evening, however, went to the Spirit of Soulsville Singers from the new Stax Music Academy and the LeMoyne-Owen College Choir and soloist Tanisha Mack. Music, now as then, is the thing that bonds a movement and gives it its character.

Three nights earlier, journalist and author Robin Wright talked about Saddam Hussein and Osama bin Laden to about 300 people at Rhodes college. It was a lecture, not a rally, and Wright was careful to say she was nonpartisan. But Wright, who covers the Middle East and Colin Powell for the Los Angeles Times, left no doubt she thinks the country is headed for war, probably within seven weeks. She stuck to her promise of neutrality, but her catalog of the atrocities of Saddam and the political and cultural conditions in Iraq and Iran suggested she thinks Bush and Powell are on the proper course.

Again, I was struck by the composition of the crowd -- mostly middle-aged, as many or more faculty and friends as students. As Wright noted, this is not the way it was when the country was agonizing over Vietnam.

She is a 1971 graduate of the University of Michigan, as I am. She wrote a feminist vanguard sports column called "Broadside" for the campus paper. The war dominated campus politics, dominated everything, for that matter. We went to freshman orientation in the summer of 1967 as the riots raged and the fires burned in nearby Detroit. We got our dorm assignments, meal plans, football tickets ($14 for the season), and a you-guys-don't-know-squat welcoming speech from a member of Students for Democratic Society (SDS), the radical anti-war group founded a few years earlier by Michigan student Tom Hayden.

By 1970, when universities all across America were shut down by student strikes, you could go to an anti-war rally every month or even every week if you were so inclined. On a national level, Coffin was one of the organizers. But at Ann Arbor, I don't remember many older people, other than professors, being involved in them. I think it had a lot to do with the draft.

It's different this time. There's no draft. We slid gradually into Vietnam. We're leaping, or not leaping possibly, into Iraq. But where are the Tom Haydens and William Sloane Coffins of today?

And if you can get 1,100 people to come on fairly short notice to a service at one of the most establishment churches in Memphis and stand to applaud William Sloane Coffin, can President Bush and his advisers not be having some very serious doubts about the willingness of the United States to go to war in Iraq at this time?

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