The foundation for a rash of legal actions arising out of a failed green project have been laid.
According to the Syracuse Post-Standard, the Carousel Center shopping mall was supposed to be a showcase of green features. To fund the project, the Carousel Center developers secured:
$228 million in federally authorized, tax-exempt “green bonds” to help finance the first phase of Congel’s expansion of the mall into an entertainment and tourism center to be called Destiny USA.
Unfortunately, six years later, those green features are no where to be found:
There is no 45-megawatt electricity generating plant running on “biofuel” made from soybean oil and recycled cooking grease. If there were, it would be the largest such plant in the nation and consume more than one-third of the total U.S. biodiesel supply.
Nor are there 290,000 square feet of solar panels on the mall’s roofs and other surfaces, enough to blanket six football fields.
The fuel cells that were to make 7 megawatts of electricity, five times more than the nation’s largest existing commercial fuel-cell installation? Nowhere to be seen.
The construction landscape is littered with the bodies of failed projects, grandly envisioned in 2005 and all but abandoned in 2011. The question–What becomes of the tax exempt status of the bonds?
Loss of the tax exemption would require Congel to pay higher interest rates on the bonds to compensate investors, who would suddenly be required to pay income taxes on the interest they earned. The increased cost would depend on the interest rate spread between taxable and tax-exempt bonds at the time of the IRS ruling. In 2005, a Destiny USA executive estimated the tax exemption would save the developer about $120 million over the 30-year term of the bonds.
If the IRS chooses to rescind the tax exempt status of the bonds, there could be a flood of legal fallout. A few possibilities:
- Investors, particularly institutional investors, now forced to pay taxes on their previously exempt bonds could sue Congel.
- Government entities, like the Syracuse Industrial Development Authority, could pursue Congel. Although the SIDA did not put up any money outright, it gave the project a 30 year tax abatement, presumably on the premise that completion of the project would bring economic development. If the project would not have gone forward without the $228 million in green bonds, SIDA might have grounds for seeking its property taxes.
- Citibank and Congel entered into a settlement under which Citibank agreed to disburse the remainder of the $$155 million construction loan on the project. If the project is devalued by the impact of the tax issue, Congel may be in breach of whatever settlement he came to with Citibank.
- According to the Post-Standard, the developer’s attorneys now say the promised conservation and technology goals will not be achieved with the current expansion and may never be achieved, even if future phases of Destiny are built. if the Federal government can prove that Congel fraudulently represented that the project would have the green features, this may be additional grounds for a suit.
However, Congel almost certainly protected himself and his development company behind a single purpose entity to develop the Carousel Center. If, at the end of the day, the only asset the single purpose entity has is the partially completed Carousel/Destiny USA Center, investors, the government and the people of Syracuse may have been taken for a ride.