Letters to the Editor

Rec Ponzi scheme?

June 19, 2012


To the editor:

Is the rec complex and the development it will foster financially prudent?

Dolph Simons makes excellent points in his June 16 column.

One of the first questions that must be answered before we approve this project is, “What long-term financial obligations would this development impose on the residents of Lawrence and will the tax revenues from the development cover those costs?”

The financial analysis must include the long-term financial obligations for the roads and other infrastructure needed to support the recreation complex and for the adjacent commercial developments it will generate. 

Consider what the Strong Towns organization (http://www.strongtowns.org) has shown: 

“What we have found is that the underlying financing mechanisms of the suburban era — our post-World War II pattern of development — operates like a classic Ponzi scheme, with ever-increasing rates of growth necessary to sustain long-term liabilities...

“In each of these mechanisms, the local unit of government benefits from the enhanced revenues associated with new growth. But it also typically assumes the long-term liability for maintaining the new infrastructure. This exchange — a near-term cash advantage for a long-term financial obligation — is one element of a Ponzi scheme.

“The other is the realization that the revenue collected does not come near to covering the costs of maintaining the infrastructure. In America, we have a ticking time bomb of unfunded liability for infrastructure maintenance. The American Society of Civil Engineers (ASCE) estimates the cost at $5 trillion — but that’s just for major infrastructure, not the minor streets, curbs, walks, and pipes that serve our homes.”


Ron Holzwarth 5 years, 5 months ago

Claiming that the proposed recreational center appears to be a Ponzi scheme makes it rather clear that the writer does not really understand what a Ponzi scheme actually is. Many people don't clearly understand what that is, that's why there are so many of them. And, there are a very large number of people that cannot distinguish or describe the difference between a Ponzi scheme and a pyramid scheme. They are quite different, but the net result is the same: You put your money in, and you lose it.

If the recreation center really is a Ponzi scheme, who exactly is going to receive the payout checks?

Where is the pool of money going to be held?

A Ponzi scheme almost always has a promised rate of return that is measured in dollars, and is not a realistic rate of return at all. What percent of their investment are the investors promised for an annual rate of return?

A Ponzi scheme almost always finds new "investors" by word of mouth, and operates quietly in the sidelines. They are certainly not discussed in newspapers, because someone is going to notice something is wrong.

A Ponzi scheme requires an ever increasing number of investors buying into the scheme.

The early investors in a Ponzi scheme get a check mailed to them periodically, or they have the choice of rolling over their investment back into the fund. At no point was there any promise made that the people who invest money in the recreational center will receive a return in cash.

For an exacting definition of a Ponzi scheme from the 'Securities and Exchange Commission' (SEC), an agency of the United States government: http://www.sec.gov/answers/ponzi.htm

For a description of my interactions with someone who threw away his inheritance into a Ponzi scheme despite my best efforts to talk him out of it, read the first comment after this article: http://www2.ljworld.com/news/2011/nov...

Of course, none of that is making any statement about whether the proposed recreational center is going to be a good investment for the community.

But, if it really is a Ponzi scheme: Someone is going to go to prison for it.

just_another_bozo_on_this_bus 5 years, 5 months ago

Wow, that was a very long-winded way of saying that the point he was making went way over your head.

Kookamooka 5 years, 5 months ago

I think most citizens of Lawrence would agree that footing the ginormous bill for roads and utilities is going to hurt us individually at a time when we just can't take the pocketbook pain anymore. The developers don't understand because they are still raking it in. I understand the jobs will be created but not the high paying ones that support families. Most of the jobs, like the ones at the Oread Hotel, will go to pretty young college students who only stick around in Lawrence long enough to find a mate and move on. (male and female-they both have this M.O.)

So...sell us on the rec center. It doesn't sound like a good deal to me right now.

JackMcKee 5 years, 5 months ago

Two LTE opposing the rec center. This may be the first tax increase that ever fails to pass in Lawrence. They should have proposed to build it next to downtown.

Getaroom 5 years, 5 months ago

What a fabulous lecture on Ponzi schemes. Do you think the letter writer was concerned about looking up a definition? The scale of this project is clearly not going to payout for the city for a long time and by the time it does the maintenance on the facilities is going to be a burden on resources, not to mention the monthly ongoing costs. Funding this project should not come out of taxes. Bill Self's offer of a million dollars is a catalyst and drop in the bucket - not a game changer. It's a nice drop mind you, just not enough of a commitment based on the overall scope. The 1% love to talk about the Free Market and Privatizing everything, maybe this should be one of those projects they ought to experiment with and not tax payers money.

Windemere 5 years, 5 months ago

If the city were more removed from the process, it would be interesting to see what would happen. Maybe the developers would build it, get no incentives or freebies on roads, etc, and then charge the city for its use. The developers would get a pretty fat check every month from the city (several sports would use the gyms regularly). They can get a nice check from KU for use of the center, too. They can solicit tournaments to use the space, build a hotel and build retail space to house stores nearby where people can spend their dollars. Highly unlikely to ever fly because the "public good" isn't guiding most of the decisions. A handful of Lawrencians who don't want to join a gym may not have a cheap exercise class offered at the new rec center. That would not be tolerated! The watchdogs have already made clear that the city MUST decide how the facility is used/scheduled. More gym space is sorely needed. If the city can get a private entity to build it and then lease space to the city, isn't that worth considering? Developer may never go for it; if that's the case, should either 1) scrap the whole idea or 2) the city should explore building gyms ONLY (e.g. building housing 8 or so gyms). Put plans for more ambitious facilities on the back burner where they belong. Expand later if money & interest are there.

Richard Heckler 5 years, 5 months ago

Stop the neglect of taxpayer owned assets across the board!

Increased water,sewer,trash,swimming pool etc etc etc etc are tax increases. The word tax has negative overtones so the words fee,admission,rate or whatever are used in place of the word tax aka smoke and mirrors.

Government mismanagement is a monster disease.

Richard Heckler 5 years, 5 months ago

The country and state is in an economic disaster created by the GOP and Lawrence is blowing money like there is no tomorrow.

Lawrence,Kansas... home to a never ending tax dollar money hole and stinky water. The more Lawrence expands the larger the tax dollar money hole. Why?

The community has never stopped expanding long enough to catch up with the ever expanding cost of paying for the helter skelter growth decisions. In other words Lawrence has never been in a position where new growth is paying for itself.

Unfriendly to business and homeowners. All we hear is increasing taxes more and more and more to pay for mismanagement.

Stop expanding! Take care of taxpayer owned assets! Assets going into demolition by neglect is reckless management!

There are plenty of taxpayer assets such as streets,sidewalks,water lines,sewer lines that need rehab which could create plenty of employment for two years at least. New infrastructure only adds miles and miles and miles of NEW tax dollar responsibility with no means of paying for it.

Richard Heckler 5 years, 5 months ago

What would a Cost of Community Services Study Indicate?

What do the market impact studies Indicate?

Are tax increases to increase the wealth of local developers considered a benefit .....NO!

Growth over the last 20 years has been promoted based on a "boom town economy" model = unsustainable and high taxes.

Why Do YOU Think Lawrence Economic Growth Is Lagging? http://www2.ljworld.com/polls/2007/sep/why_do_you_think_lawrence_growth_lagging/

It's time to let the voters to decide..... it's our money! Yes taxpayers do own the tax dollars in this community.

The rec centers cost factors should should have been known before annexation took place. Taxpayers do not need to own this land yet. Taxpayers own land near Free State High School. This site makes dollars and sense for taxpayers which is the bottom line.

My vote is still no. There is no way to guarantee pay back.

Richard Heckler 5 years, 4 months ago

"Boom Town Economics" died when the Bush/Cheney fraudulent home real estate scheme got caught red handed making home loans to buyers who could not afford the loans.

Now local residential developers are dreaming up most anything for taxpayer bailouts of real estate property investments that may never happen. That's what the monster rec center project is all about. Lawrence residents better grab your tax dollars and your wallets.

Then came time to bail out the PLAY project that was proposed during boom town economics:

  1. USD 497 BOE passed a $20 plus million $$$ athletic project that is still eating USD 497 tax dollars.

  2. The school district bailed out Phillip Glass by paying about $23,000 per acre for 75 acres of unimproved land that was likely scheduled for new homes at super inflated prices. USD 497 paid $1.73 million for unimproved land. Suddenly the Chamber wanted to build a wellness center in the area with OUR TAX DOLLARS.

  3. Is the rec complex and the development it will foster financially prudent? Of course not. This is another bail out of the real estate home construction market that has gone sour with no hope in sight. Any success is based on assumptions.

Except there are tons of people in the USA that have never heard of Lawrence,Kansas. And certain powers that be want to inflate the real estate market again..... which is reckless economics.

What happened to the tax dollar stewards who were running on that platform? After 30 years of expanding the tax base why are we still seeing increases in taxes,fees,rates etc etc etc.?

When PLAY was introduced by former mayor Bonnie Lowe they forgot to explain it was going to be a tax dollar money hole. There is obvious doubt this PLAY is going to be a gold mine otherwise our local wealthy developers,bankers and real estate executives would be doing it at a sweet profit.

There are so many tax dollar handout projects on the table such as hotels,downtown apartments,Pohler building and the USD 497 bond issue one must ask where are these tax dollars anyway?

Think the next time politicians say it is only an additional $150 a year from our wallets. Multiply that thought by say 25 times this year only times 20 years. Then multiply that times all of the years we are told such which could represent around 400-500 tax increases.

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