Durham deal proceeds
Author: Michael Biesecker; Staff Writer, News & Observer, The (Raleigh, NC), June 6, 2006
DURHAM -- In a 5-2 vote Monday, the Durham City Council awarded a no-bid contract to restructure $107 million in municipal debt with a New York financial firm mired in a California lawsuit over bribes paid to public officials.
Rice Financial Products Co. estimates the transaction, which "swaps" the interest rates paid by the city with those paid by private borrowers, could save Durham taxpayers up to $4 million in payments over the next 15 years. The transaction would also award **about $700,000 in fees to Rice, as well as another $100,000 to a city consultant and $40,000 in attorneys' fees.**
However, the transaction comes with risk. Kenneth Pennoyer, the city finance director, said that if there was a "worst case scenario" where if interest rates go too high or too low and federal tax laws change, Durham could incur "negative savings," or losses, of up to $14 million. Pennoyer classified the odds of that scenario as "remote."
In a final plea for their colleagues to change their minds, holdout council members Eugene Brown and Diane Catotti said the potential savings are not worth the risk -- especially considering the unresolved suit against Rice filed by a Los Angeles-area utility over a pair of similar rate swaps enacted in 2001 and 2003.
The West Basin Municipal Water District filed a lawsuit against Rice, Chief Executive Officer Don Rice and others involved in the deals after two commissioners on the public utility's board pleaded guilty in federal criminal court to accepting bribes to vote in Rice's favor, after an FBI investigation. The water district is seeking release from its transactions with Rice, which total $231 million, as well as millions in damages.
Rice is a small company with fewer than 30 employees, and some worry a big judgment could bankrupt it -- leaving the city to collect its money from The Bank of New York, which is insuring the transaction. The case goes to trial in October.
"In my judgement, this city needs to have some standards," Brown said. "This is not our finest hour."
In its legal filings, Rice has said it had no knowledge of the bribes paid by a political consultant working on the company's behalf. No Rice employee has been charged with a crime.
Council member Thomas Stith, who voted to support Rice, accused Brown of overstating the risk to taxpayers.
"I'm hearing a little bit of fact and a whole lot of alarmism," Stith said. "Let's look at all our vendors and see who has been sued. I think we will be surprised."
Stith pointed to the $868,818 savings reaped by Durham County, which enacted a $126 million rate swap in 2004. Brown countered that Rice had originally estimated that the county's swap would yield $1.2 million a year. So far, in more than two years, the county has earned $868,818 -- less than half of Rice's projections.
"On this issue, and with this firm, I am very proud to be an alarmist," Brown said.
** Damn good business to be in.
Norris banned from lobbying for 2 years
By Dan Kane, Staff Writer, Published: Aug 11, 2006 01:40 PM
House Speaker Jim Black's former unpaid political director, Meredith Norris, pleaded no contest in a Wake County courtroom today to a misdemeanor charge that she violated the state's lobbying law by failing to disclose her work for a major lottery vendor.
A no contest plea means Norris has not admitted guilt but will not fight the charge against her and will accept the court's punishment.
Norris was sentenced to one year of probation, a $500 fine and 75 hours community service. She was also banned from lobbying for two years.
Norris, 32, of Raleigh, became a lobbyist nearly four years ago after leaving Black's legislative office, where she had worked as a top aide. But she continued to assist Black's campaign by raising money, coordinating events and publishing a newsletter of his endeavors.
Last year, lottery company Scientific Games hired Norris shortly before lawmakers took up legislation to create a state lottery. Her work for Scientific Games was not disclosed until after the lottery had become law.
In September, Norris and a company vice president, Alan Middleton, told The News & Observer that Norris had been hired only to monitor legislation and not try to influence lawmakers. But correspondence released by Black's office in October showed that she had set up a dinner between Middleton and Black and had sought to invite lawmakers to a yacht cruise with Middleton in Seattle, where a legislative conference was being held.
That prompted a state investigation that forced the company to reveal that it had reimbursed Norris roughly $3,800 for wining and dining lawmakers. The company also disclosed that one of Black's nominees to the new state lottery commission, public relations executive Kevin Geddings, had also been working for Scientific Games to help get the lottery passed.
Geddings also faces a misdemeanor lobbying charge. Middleton, who no longer works for Scientific Games, is charged with misdemeanor lobbying violations for failing to register at the time he began lobbying lawmakers, and for failing to register Norris as a lobbyist.
Federal authorities have charged Geddings with mail and wire fraud for failing to disclose his work for Scientific Games before joining the lottery commission. Both have said they are innocent of the charges against them.
** All roads lead to Rome **
Race clouds Durham debt deal
BY BOB BURTMAN
Leave it to Durham to let racial politics cloud what would ordinarily be a wonkish debate on municipal finance. After eight months of study, the City Council voted Monday to proceed with a proposal by the New York-based firm Rice Financial Products to swap $106 million in municipal debt, a deal that will potentially yield about $8 million in savings over 15 years but could cost millions if market conditions change adversely.
The meeting proved anticlimactic, as the council had already approved the swap in December by a 4-3 margin that broke along racial lines, with the four black council members favoring the deal.
[snip]
Supporters of the deal charged that Brown and Catotti were motivated by racial bias in opposing the swap (Rice Financial founder and CEO Donald Rice is black), and supporters in turn claimed that support had more to do with awarding a fat contract to a minority firm than good financial management practices. The fundamental policy questions were all but lost in the shuffle.
Accusations came to a head in a March 24 council work session when a citizen called Catotti a racist, prompting her to walk out of the room. Catotti believes that Rice has appealed to black community leaders as a way to obfuscate the financial issues and twist the debate. "The fact that they would come to Durham from New York and play racial politics is really offensive to me," Catotti says.
Catotti also says she was approached at a funeral by Lavonia Allison, chairwoman of the influential Durham Committee for the Affairs of Black People, who suggested that her opposition to the swap was prompted by her resistance to minority enterprises who want access to city contracts.
Rice Financial spokeswoman Cristal Baron acknowledges that Donald Rice and local deal proponents may have had informal discussions with black community leaders, but she denies that the intent was anything other than to explain the proposal to interested citizens. "The notion was that we had gone to the Durham Committee and the NAACP to make this a racial issue, and that was certainly not the case," Baron says.
That may not have been the intent, but after Rice attended an NAACP meeting and answered questions about the swap, supporters launched a campaign to pressure a yes vote that alternately argued for the deal on its merits and questioned the integrity of its detractors.
In a widely distributed e-mail, Southern Anti-Racism Network director Theresa El-Amin wrote that she wasn't buying Catotti's claims of fiscal responsibility. "I see her as putting some strange microscope on the Rice proposal that the city seldom uses for many of its other projects that actually generate a whole lot of red ink," El-Amin wrote. "Diane says it's not about race. I said to Diane, it is about fairness and equity. And often fairness and equity is about racial justice and economic opportunities."
But in a city whose sensitivities to race have a hair trigger, any perceived deviation from a norm is likely to raise suspicions of intent.
[snip]