Detroit DDA members overseeing taxpayer-funded Little Caesars Arena have amassed $500,000 in state and IRS tax debt.
Detroit — The Downtown Development Authority board spending $250 million in tax revenue on Little Caesars Arena is dominated by tax delinquents with financial problems and in some cases criminal records, according to public records.
An analysis of state and federal court records, tax filings and interviews raises questions about the ability of some DDA members to oversee one of the largest publicly subsidized downtown construction projects since Detroit emerged from bankruptcy. The analysis also reveals a shortcoming of Detroit’s appointment process, which did not require DDA members to undergo criminal or financial background checks.
Arena financing was approved three years ago under a deal that has taxes paying off $250 million worth of bonds issued by a branch of state government financed by the Treasury department, which at least seven times has accused DDA members of being tax delinquents.
Seven of the 12 appointed DDA members have a history of financial issues, including more than $500,000 in state and federal tax debt, according to public records. Several blamed the problems on the Great Recession, an ordeal they say made them better public stewards and taught them how to avoid making new financial mistakes.
“Geez, I’d wonder about their economic and financial acumen,” said Dennis Zimmerman, a stadium financing expert and projects director with the American Tax Policy Institute in Washington, D.C. “If this happened where I live, I’d be concerned.”
The financial problems reflect an inherent problem with downtown development authorities, said Michael LaFaive, director of fiscal policy for the Mackinac Center for Public Policy.
“When you have this much money flowing through what can charitably be called economic development institutions, you run the risk of attracting people who sometimes have the best intentions, but not the talent,” LaFaive said.
LaFaive has pushed to have DDA members and others reveal their personal investment portfolios.
“You would find they have no great ability to sort out the winners and losers,” LaFaive said. “If they did, they would be running hedge funds.”
Details about the DDA members’ financial history offers insight into a public authority that often operates in secret.
DDA members are appointed by the mayor, approved by the City Council and work with professional staff from the nonprofit Detroit Economic Growth Corp.
The DDA board does not post agendas, minutes or accurate meeting schedules. Its website is outdated and, until recently, listed several former board officials as current members.
Members are not required to submit to a criminal or financial background check. The job pays nothing.
Until being contacted by The News, Mayor Mike Duggan’s administration did not know about most of the members’ financial problems.
“Really, every single person on the board has served the city of Detroit well,” Duggan’s chief of staff Alexis Wiley said. “They’ve had personal financial challenges, but they have displayed good judgment as board members.”
Under a 2012 deal, the DDA is capturing $261.5 million in taxes that are subsidizing Little Caesars Arena.
“The public funds contributing to the repayment of construction bonds to build the downtown arena come from a dedicated stream of revenue authorized by state law, approved by the DDA board as a whole, ratified by several votes of the full City Council...audited by independent accountants, and safeguarded in the terms of the sale of the bonds to financial institutions,” Malinda Jensen, the Detroit Economic Growth Corp.’s senior vice president of board administration and governmental affairs, said in a statement. “Those funds are very well protected.”
Early next year, the DDA could approve using more tax dollars to subsidize arena upgrades that would facilitate the Detroit Pistons moving into the arena and sharing space with the Red Wings.
The members’ financial problems have had zero impact on the DDA’s ability to safeguard tax dollars, Jensen said.
“No individual on the board has any direct ability to access any public funds, and all decisions of the DDA are by majority votes in a public meeting,” she said.
The DDA has a quarter-century of clean audits by an independent certified public accounting firm, she said. And DDA members are barred from voting on issues in which they have a direct financial interest, Jensen added.
“The actions of the DDA as a whole are completely isolated from the individual financial situations of each board member,” Jensen said.
Councilman Gabe Leland wants to review disclosure requirements for all city boards and commissions in light of The News’ findings.
Leland, who was unaware of the DDA board members’ financial issues, said each member should be evaluated on a “case-by-case” basis.
“We all were impacted in some way through this financial crisis,” Leland said. “I’d be curious about what some of that had to do with some of the reports you are hearing on some of these individuals.”
Council President Pro Tem George Cushingberry Jr. said he doesn’t see the past financial troubles of some board members as an issue.
“It doesn’t mean that they aren’t capable of doing a good job,” said Cushingberry, who filed for bankruptcy in 2011 and lost a home to foreclosure. “In fact, we probably need a few people that have some tax issues so they can anticipate the possibilities.”
PROBLEMS AT THE TOP
Two DDA members with a history of financial problems are also high-ranking members of Duggan’s administration.
Charlie Beckham, 69, runs Detroit’s neighborhoods department, is paid $151,214 a year and has worked for every administration since Mayor Coleman A. Young. He’s also filed for bankruptcy, lost a home to foreclosure and failed to pay $250,691 in state and federal taxes, public records show.
Beckham served two years in federal prison after being found guilty in 1984 of receiving more than $16,000 in illegal payoffs from a sludge-hauling company named Vista. At the time, Beckham was director of the city’s Water and Sewerage Department.
In 1992, he filed for bankruptcy, but his financial problems continued.
Beckham’s home on Detroit’s west side was foreclosed in 1995 and the state and IRS have filed eight tax liens against Beckham, giving the agencies a legal claim to all of his property — including vehicles, homes and income.
Beckham declined comment through a city spokesman.
His colleague in the Duggan administration, Corporation Counsel Melvin “Butch” Hollowell, meanwhile, has been hit with five state and federal tax liens since 2011. In all, Hollowell has been accused of failing to pay $61,788 in taxes.
His financial problems surfaced in 2009 when Hollowell lost his $344,000 home in Palmer Woods to foreclosure.
Two years later, the IRS accused him of owing $38,518 in taxes. In the years since, Hollowell racked up an additional $23,270 in state and federal tax debt.
The most recent tax bill, a $5,227 state tax lien, was filed in September.
Hollowell, 57, whose salary is $151,213, had paid off all of the debt, according to public records.
He also declined comment.
PETTY THEFT AND TAXES
Beckham isn’t the only DDA member with a rap sheet, tax and financial problems.
DDA member and local developer Richard Hosey’s past is filled with bankruptcy, tax issues and criminal convictions.
In 2002, the state of Louisiana filed a $4,263 lien against Hosey for unpaid taxes.
Hosey said the tax debt was inaccurate and the delinquent amount was reduced to $370 in taxes and interest, which he paid “instead of fighting further.”
Three years later, in 2005, Hosey filed bankruptcy in Texas, where he worked as a real-estate development associate, after falling $236,252 in debt.
Before filing bankruptcy, Hosey’s salary was $94,000 a year, but he spent more money than he earned every month.
His largest asset was a $78,000 home on the west side of Detroit — a home that was abandoned during the bankruptcy.
At the time, Hosey owed the Internal Revenue Service three years’ worth of federal income taxes, or $9,000. He also owed $135,000 on nine charge accounts, bankruptcy records show.
The financial problems stemmed from difficulties Hosey said he encountered while rehabilitating rental homes near Dexter and Davison on Detroit’s west side.
Hosey amassed credit card debt while renovating the homes and was unable to pay the bills, he said. Contractors also were unable to prevent scrappers from stripping the homes, preventing Hosey from paying the credit card debt.
“It was a good hard lesson about rehabbing the neighborhoods and how much it takes to get it done,” said Hosey, 45.
He later worked for Bank of America in Maryland and ran into more tax trouble. The state filed a $1,722 tax lien against Hosey in 2008. He paid off the lien the next year.
Four years later, Hosey was living in Detroit and appointed to the DDA by then-Mayor Dave Bing.
The bankruptcy and a 20-year development banking career have helped Hosey be an effective member of the DDA, he said.
“It kind of informs me of the pitfalls that new developers can get into,” Hosey said. “I don’t think the (hockey arena) is going to have some of the same issues like I had on Dexter and Davison, but it’s valuable insight into what can happen and how you can rebound from it.”
Hosey figures he would have been an investment banker instead of a Detroit developer if not for his rap sheet.
Hosey was arrested and convicted of three crimes while studying at Florida A&M University in the early 1990s.
In 1991, Hosey was arrested and charged with soliciting a prostitute.
“After initially rejecting an undercover officer posing as a prostitute at a bus stop while I was at a stop sign, I agreed to pull over so she could continue to attempt to talk me into (a) deal,” Hosey wrote in a letter to the state, which was conducting a background check unrelated to the DDA.
Hosey was sentenced to probation.
Two years later, in 1993, Hosey said he used a fake ID while posing as a fraternity brother and taking a proficiency exam.
He was charged with possessing a fake license and making false statements, entered a pretrial diversion program and was sentenced to probation.
“I was suspended from school and I had my (job) offer from Goldman Sachs withdrawn,” Hosey told The News. “It’s why you’re not talking to an investment banker right now.”
The next year, in 1994, Hosey was arrested at an Albertsons grocery store in Florida and charged with petty theft.
“It was a disposable camera,” Hosey said. “I was going to someone else’s graduation, there was a really long line, I said ‘forget this,’ and walked out. It was a stupid, really bad, stupid shoplifting decision.”
Again, Hosey was sentenced to probation.
Hosey says he has rebounded from the money woes and was part of the team that structured the financing for several Detroit redevelopment projects, including the Broderick Tower and the David Whitney Building.
“It’s so important for people to know what can happen, how these things can be avoided and having a touchstone that says ‘OK, if this guy got blown out, filed bankruptcy, and restarted, maybe it’s not the end of the world.’”
The troubled financial history of DDA members, and powerful role they play overseeing publicly funded sports arenas, illustrates a key point, said George Yin, a University of Virginia School of Law tax expert.
“Given the kind of doubtful or questionable nature of public subsidies for these facilities, you want the people making decisions to be people whose judgment has been proven to be right over and over again,” Yin said.
DEBT AND FORECLOSURES
DDA member Sonya Delley has a checkered financial history filled with tax debt and foreclosures in two counties, public records show.
The career banker, who was appointed to the DDA by then-Mayor Kwame Kilpatrick in 2006, pegs her problems to the Great Recession and the real estate crash.
Her problems were part of “the systematic eradication of the middle class,” Delley said.
Delley, 50, was laid off from Bank of America in August 2010 and lived, for a while, off a retirement fund.
The plan worked until February 2013.
That’s when the state Treasury Department accused her of failing to pay $5,052 in income taxes and slapped a lien on all of her assets.
The same year, Delley said she became “critically” ill, contributing to her financial problems.
“It was tough. The worst year of my life,” Delley said. “Had I been well, I would have handled the situation better.”
Nine months later, Delley lost her home.
Delley lived in a Midtown condominium that she bought in 2003, a purchase that made her an early investor in a now-thriving area. She also worked as the banking professional for a developer who helped jump-start Midtown’s rebirth, she said.
Delley tried unsuccessfully to refinance and sell the condo but lost the Midtown property in November 2013 along with an Oak Park property after the renter stopped paying and rang up a $5,000 water bill.
“I tried to be honorable,” Delley said. “I lived. I did what I had to do and knew my obligations, but life circumstances got in the way.”
In November 2013, the same month Delley lost the Midtown condo, she paid off the state tax bill.
The financial problems made Delley smarter and more sensitive to the needs of post-bankrupt Detroit, she said.
“It only makes me smarter in trying to make good decisions for the city of Detroit and the properties that the city owns,” Delley said. “What I experienced impacted a lot of people so the use of tax dollars has to be used appropriately. It cannot be squandered. We are definitely not a rubber-stamp board.
“The gravity of our decision making is made more poignant because I’m not sitting in a chair above someone else, saying ‘I can’t relate,’ ” Delley continued. “I get it.”
DEALS GONE AWRY
DDA member and developer Marvin Beatty, meanwhile, blames $75,800 worth of delinquent tax bills on a series of business deals and flawed tax advice.
Beatty, 66, was one of Greektown Casino’s original owners and today is an owner of Gateway Marketplace at Eight Mile and Woodward, anchored by the Meijer retail store.
His financial issues started in 2009, the year after the casino filed bankruptcy.
As a Greektown partner, Beatty said the casino paid 39 percent of his potential tax liability but those payments stopped when Greektown filed bankruptcy.
“We had a huge tax liability and no compensation to support it,” said Beatty, who was appointed to the board in 2011 by Bing.
After Greektown filed bankruptcy, the trustee tried to claw back payments the casino made to Beatty in the months before the bankruptcy.
In 2011, he reached a deal to pay more than $132,000. The judgment was satisfied the next year, court records show.
By then, the IRS had accused Beatty of owing $61,744 in income taxes and slapped a lien on his home overlooking the Detroit Golf Club.
The IRS lien was released in May 2014.
The next year, Beatty was hit with a $7,481 tax bill from the state of Michigan. The state filed another $6,577 lien in June for unpaid income taxes.
Beatty said the state liens are tied to his stake in Gateway Marketplace.
“Our taxes on the property are based on unrealized income. The business made a profit, but none of the profit was realized,” Beatty said. “So millions of dollars of revenue that was generated has all gone to debt service.”
Beatty said a new accountant is filing amended returns for several years that will give him a credit. Beatty said both state tax liens have been resolved.
“All of this is not based on an unwillingness to make tax payments,” Beatty said. “It doesn’t say anything about my ability to manage my personal affairs.”
‘AIN’T NO PERFECT PERSON’
DDA member James Jenkins is president of Jenkins Construction Inc., a Detroit-based firm with tax problems spanning three decades and totaling $79,316.
Since 1993, the state and IRS have filed at least four tax liens against the company for a variety of business-related taxes, Wayne County records show.
Tax debts are a normal issue for a long-standing company, Jenkins said.
“There ain’t no perfect person,” Jenkins, 72, said. “I’ve been in business for 26 years and I’m going to stay in business. When things come up, you resolve them.”
The IRS and state of Michigan accused Jenkins Construction of owing more than $30,000 in taxes in the early 1990s. Jenkins says he does not remember the liens, which have been released by the tax agencies.
In 2013, the state filed a $46,700 lien for delinquent business taxes. Jenkins disputed the debt, said it was reduced to approximately $27,000 and paid.
The following year, the state filed a $2,357 lien for delinquent use taxes, which Jenkins said were assessed after the company bought a software program from another state.
“We found out about it and paid it,” Jenkins said.
The tax issues do not reflect on his ability to serve on the DDA, Jenkins said.
“Those who have climbed from the bottom and been through issues in their life, I don’t give a (expletive) who it is, but for them to climb out, we should be giving them an ‘attaboy,’ ” Jenkins said.
BANKRUPTCY AND BACK
DDA member Austin Black, meanwhile, has a history of bankruptcy and tax problems.
His financial problems date to June 2008. That’s when the state accused Black of owing $1,990 in delinquent income taxes and filed a lien against him.
Two months later, Black was bankrupt.
He filed bankruptcy in August 2008, listing $187,201 in assets and $290,800 in liabilities. The debt included $10,800 in state and federal income taxes.
At the time, Black was a Realtor in Birmingham.
The real-estate market collapse devastated Black’s income, he said.
“It was a lack of income and credit card debt,” Black, 36, said. “That’s not to say I was living above my means. It was the fact my income had dropped so significantly that no one could have predicted.”
In 2010, two years after filing bankruptcy, Black was facing deeper tax debt as he struggled to make more money.
That May, the IRS filed a $22,654 lien for unpaid income taxes.
Black paid off the delinquent taxes in 2014.
That year, Duggan appointed Black to the DDA. Black was not required to disclose his financial history, he said.
“All of those issues arose out of a period of time when millions of Americans were going through similar hardships because of the Great Recession,” Black said. “My financial track record since then has been very good.”
Black created the real-estate brokerage firm City Living Detroit in 2010 and says he has recovered from the financial problems.
“It makes me more understanding of certain issues but also it’s my background and experience over the last 11 years, and growth over the last few years, that I think definitely makes me qualified to be on the board,” Black said.
He bought a $365,000 Italian Renaissance-style home in Sherwood Forest last year.
The real estate listing showed a home with a red-tile roof and a flowerbed spelling the word “Trust.”
But on a recent visit, the flowerbed was gone.
So was “Trust.”
Christine Ferretti contributed.