Melissa Gaffney at Sable Minded reports that Middletown Mayor Gerard Scharfenberger took issue with my Monetization in Middletown post at the Township Committee meeting on May 19.
According to Gaffeny, Scharfenberger said my analysis that selling 50% of Middletown's future cell phone tower revenue for a one shot injection of $890,000 to be spent in the upcoming budget is bad fiscal policy and Trenton style gimmickry is off the mark because five years ago several engineers told him that cell phone towers would be obsolete in 10 years.
Put another way, Scharfenberger thinks the investors in cell phone revenue are stupid and he wants to take advantage of them while protecting Middletown taxpayers from losing future revenue if the technology becomes obsolete. Maybe they are stupid. Investors in sub-prime mortgages certainly were.
Obsolescence is a risk I didn't consider when I wrote the post Scharfenberger mentioned. A quick review of cell tower industry web sites reveals that industry consolidation and tower duplication is considered a more significant risk. Either way, Scharfenberger might have a point. Not being familiar with Middletown's current cell tower leases or with the contract for sale of the revenue stream that they are considering, I would not offer an opinion on the advisability of the deal. I know a bit about leases and the value of discounted cash flows. As a Middletown business owner and taxpayer, I would happily volunteer to review the transaction if asked. Not that I think Mr. Scharfenberger needs my help. I don't know.
I have no ax to grind with Mr. Scharfenberger or any member of the Middletown Committee. But I do have a few questions, since he brought it up.
If the sale of the cell revenue is judged to be a good deal for the township, why not sell all of the revenue instead of just the 50% being discussed?
Why use the entire $890,000 in this year's budget, a one shot gimmick, rather than spread it over life of the leases by paying down debt or using it for capital expenditures in lieu of new bonded debt? If the cash flow sale is discounted equitably or in the township's favor, and the proceeds are used to pay or avoid debt, the result of the transaction should be neutral or a long term net positive for the township while eliminating the risk of losing future revenue to obsolescence or consolidation. Using the money in the operating budget this year will leave you with a hole in next year's budget, resulting in a larger tax increase or another gimmick. No?
Of course it is possible, as Scharfenberger said, that these issues are "more than Mr. Gallagher and his blog would know, and is really more than he would be expected to know."
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