Saga of St. Rosalie: The Deal of 4/5 of the Century

It’s a typically sweltering late summer day in south Louisiana, and state officials hold a press conference announcing another economic development win. A new oil export terminal, Plaquemines Liquids Terminal, will provide up to 1250 temporary jobs while being constructed, and 35 permanent full-time jobs when complete. The promised $2.5-billion investment by Kansas-based Tallgrass Energy and hedge funder Drexel Hamilton includes building a 700-mile pipeline to serve it. The project is ballyhooed as a “public-private partnership” between the Plaquemines Port Harbor and Terminal District (PPHTD) and Tallgrass, and will include multiple deepwater docks and tank storage for up to 20-million barrels of crude oil. It is to be located south of Belle Chasse on the Mississippi River, on the former St. Rosalie plantation.

The date is August 29, 2018 – the 13th anniversary of Katrina.

The first prompt toward initiating this deal came in May 2017, when, after several years battling local residents, environmentalists, and the state’s Coastal Protection and Restoration Authority (CPRA), RAM Terminals conceded defeat. With their US Army Corps of Engineers permit expiring in another 6 months, RAM notified Plaquemines Parish officials they were abandoning their plan for a coal terminal on the St. Rosalie plantation tract. In particular, they asked Port officials for assistance in offloading the property.

There’s a gap, then, in the documentation provided subsequent to a public records request – a gap due to “purges and deletions.” But in October 2017, Drexel Hamilton shared a slickly-produced brochure with Plaquemines Port officials, touting the Port’s and Drexel’s “partnership of targeted investments that together are intended to better use existing facilities and develop new facilities to achieve expanded economic activity.”

Brochure provided to port authorities, October 2017.

Drexel Hamilton is self-described as “a service-disabled veteran owned broker dealer,” but is also referred to as an “investment bank” or as “hedge fund management”. With branches in New York City, Philadelphia, Chicago, and Winter Park, Florida, the firm’s apparent eagerness to advise and partner with Plaquemines (with an entire parish population of just over 24,000 souls) was too intoxicating for the locals to resist.

A scattering of “recoverable” emails (deleted prior to records request) indicate that by November 2017 Plaquemines Port director Maynard “Sandy” Sanders was fully engaged with Drexel Hamilton and several other advisers in developing a grandiose scheme to purchase and develop the RAM Terminal site. NDAs (non-disclosure agreements) were passed around and signed, and by the end of December 2017, the Port and Drexel Hamilton had inked a memorandum of understanding., with full approval of the Port’s governing authority.

Nearly every parish and region in Louisiana that has an active port has a separate and discrete governing body for that port – except Plaquemines Parish. The Plaquemines Port Harbor and Terminal District’s (PPHTD’s) sole governing authority is the Plaquemines Parish Council. And as this project plan develops they will vote, nearly always unanimously, to approve every part of the scheme.

The MOU states the Port will acquire the RAM Terminal property to develop a bulk liquids terminal, while Drexel Hamilton will be the developer and exclusive provider of consulting for financing the property purchase, and for arranging the facility’s long-term use. The Port is prohibited from entering into any agreement with any third party for financing or development of the property, without the express written agreement of Drexel Hamilton.

At the start of 2018, Port officials began negotiating with RAM Terminal’s ownership for purchase of the property. By February 7, they had a signed agreement for the Port to buy the land for $30.5-million.

In March, the Port applied to DNR for a Coastal Use Permit, certifying in their application they were “sole owner” of the riverfront property. And in late April, the Port tendered another ten dollars to RAM’s owners, to acquire the previously-issued Corps of Engineers permit.

You see, much of the hush-hush, behind-the-scenes negotiations to this point were predicated on repeated assurances the St. Rosalie tract “is permitted and ready.” Yet the prior project for the site – the RAM coal terminal – had failed to come to fruition in no small part because they ran afoul of the permitting process. DNR sat on the permits because CPRA would not sign off, since the location of the coal terminal was atop the planned Mid-Barataria Sediment Diversion.

Area in red: location of planned Mid-Barataria Sediment Diversion, on former St. Rosalie plantation in Plaquemines Parish. Courtesy: CPRA

The new project for the site may be oil tanks instead of coal piles, but the location remains the same. And in fact, barely a week after the Katrina-versary day economic development announcement regarding the Plaquemines Liquids Terminal, the CPRA announced there was a clear conflict with the $1.4-billion Coastal Master Plan’s sediment diversion project, and therefore all permits for the Port’s project were on indefinite hold.

That was September 6, 2018 – the same day the Port’s governing authority okayed issuance of up to $650-million in bonds to underwrite the new oil terminal company, and construction of the tanks and docking facility.

So at this point, the Port has a contract to buy the land, and is taking out a 20-year, $650-million loan to help pay for creating the company and building the facility. They are saying it’s a “public-private partnership,” after all. But where does the “private” investment come into it, you ask?

You’ve got to combine information from the 72-page cooperative endeavor agreement (CEA), the property lease, press releases from participants, and details from emails among the various parties and their advisors in order to figure it all out.

The “private” of the project is Plaquemines Liquid Terminal, LLC, which we’ll refer to after this as “PLT”. The managing partner of the corporation, created for this project and registered in Delaware, is Tallgrass Terminals, a new sub-entity of Tallgrass Energy Partners. Tallgrass was founded in 2013, is based in Kansas, and is primarily an oil and gas pipeline company. The PLT project will be the terminus – the endpoint – of a new Tallgrass pipeline.

The Seahorse Pipeline will run from Cushing, Oklahoma to the St. James (Louisiana) hub, and then on down to the PLT storage and transfer facility in Plaquemines. It will be “exclusively” carrying crude from Kinder Morgan’s fields in Colorado’s Powder River Basin (which are transported to Cushing, OK, via another Tallgrass pipeline.) Much of that crude is pre-contracted for refining at the Phillips 66 Alliance Refinery – conveniently located next door to the St. Rosalie/Port/PLT site.

(Interestingly – coincidentally? – one of the partners in the former RAM Coal Terminal project previously attempted at this same site was Kinder Morgan, which already has a coal and pertroleum terminal at Myrtle Grove, 4 miles downriver from this very site. The source of the coal that was to be shipped in was…wait for it….Colorado’s Powder River Basin.)

That’s what we know of the players in the “private” part of the scheme, and the business they ultimately intend to conduct. And the Cooperative Endeavor Agreement (CEA) declares unequivocally that the business they’ll be conducting will be good for Plaquemines Parish. “The Project is expected to result in new inventory taxes and sales and use taxes benefitting the taxing authorities of the Parish,” the CEA states. “The Port, through its sole governing authority – the Plaquemines Parish Council – has determined the Project’s presence and operation will create jobs and commerce, and enhance the economic well-being of the Port and Parish, such that what the Port does under this Agreement is justified and necessary to attract the Project.”

Artist’s rendering of planned Plaquemines Liquids Terminal. Credit: LA 23 Development Co.

So here’s the deal of the – not exactly century – but 4/5 of a century (the lease on the property is for 40 years, with an option to renew for another 40 years):

The Port purchases and retains ownership of the property. They do so with $30.5-million cash donated by Plaquemines Liquid Terminals, LLC. (The sale is recorded November 6, 2018.) The Port then leases the property to PLT, for the company’s exclusive possession and use.

PLT can build on the land, drill on the land, sublease all or part of the land, all without prior approval from the Port. Though the Port will own anything that is built on the property, the Port can’t come on the property – even to inspect – without prior written notice at least five days in advance, and then it’s only during business hours.

If PLT goes out of business, or never gets to go into business, the Port can’t sell the property without PLT’s consent. And PLT gets the proceeds of any sale.

If it’s ruled that some of the land must be given up to the CPRA for the Mid-Barataria Sediment Diversion, whatever percentage of the total acreage that takes, the Port must refund to PLT that same percentage of the original $30.5 million cash donation, plus 12-percent interest. (Sounds more like a loan, now, doesn’t it?)

PLT gets to take depreciation on the land and buildings on its tax returns, even though the Port technically owns it all. After 15 years, PLT can purchase any and all things built on the property, for a single dollar. After 40 years, PLT can purchase the entire 630 acres, for the total sum of one other dollar.

Because the Port holds title to the property, it is not subject to parish property (ad valorem) taxes. And instead of paying a set rent amount monthly or annually for use of the property, PLT will annually pay the Port the amount of property taxes that would have been due, if the property were not tax exempt. In addition to the PILOT (payment in lieu of taxes), PLT will pay the Port an administrative fee, of $200,000 per year.

The lease states these moneys “shall be paid directly to the Port, in the same manner as, and in lieu of, ad valorem taxes.”

At this point, the deal has gone beyond seeming “hinky” to being blatantly illegal – unconstitutional – on at least one, and possibly more, of its premises.

Over the past several years, some parish governing bodies had negotiated CEAs with PILOTs for incoming industries; among them was Cameron Parish, which was seeing an influx of liquified natural gas terminal projects toward the end of Bobby Jindal’s terms as governor. At the time, ITEPs (participation in the Industrial Tax Exemption Program) were routinely granted by the state Commerce & Industry Board, and the local governmental bodies – which had to give up the property tax proceeds on these projects for a decade – had no say in the matter.

Cameron LNG Terminal, near Hackberry, in southwest Louisiana.

In order to have funds to build roads and bridges to and from the site for the Cameron LNG Terminal project, Cameron Parish negotiated a PILOT agreement with that company – to pay the property taxes for the first ten years, and then be exempted from paying the taxes during the second decade of operation. Challenged in state district court, PILOT agreements were ruled unconstitutional. Subsequent efforts to pass state legislation legalizing such arrangements have failed to win lawmakers’ approval.

Currently, there is a bill awaiting committee hearing in Louisiana’s House. HB 76 is in the form of a constitutional amendment, and so must get through House committees, win a 2/3 vote of approval from the full House, get through Senate committees and achieve 2/3 of the full Senate’s support before it could go to the voters in the statewide elections this coming October. The measure is authored by Rep. Mark Abraham (R-Lake Charles), rather than by any of the three senators or two House members representing parts of Plaquemines Parish. As of this week, Rep. Abraham still had no idea when or if the bill was coming up for its first discussion in committee. And unless that measure gets over all its hurdles and wins approval from voters statewide, the basis for the rent money the Plaquemines Port expects to collect – PILOT – remains illegal.

Yet with seemingly utter disregard for the hypocrisy of doing a deal based on an illegal type of payments, the CEA states in Section 10.2: “This Agreement is prepared and entered into with the intention that the laws of the State of Louisiana shall govern its construction.”

Part of the reason PILOT agreements have been ruled unconstitutional is that they are an end run around state’s ITEP program. The changes made to that program since Gov. John Bel Edwards’ June 2016 executive order, mandating input and approval by each of the local taxing bodies affected before the tax exemptions are granted, has alleviated some of the perceived unfairness of ITEP. Yet the terms of the lease between PLT and the Port exacerbate the inequities of this deal for the taxing bodies of Plaquemines Parish.

Remember, the lease states, “these moneys shall be paid directly to the Port, in the same manner as, and in lieu of, ad valorem taxes.”

To the Port.

Not to the sheriff, the parish’s official tax collector. Not to the assessor, or the parish as a whole – even though the same people, the Parish Council, govern the entire parish and make up the sole governing body of the Port.

And certainly not to the Plaquemines Parish School Board.

Under the ITEP rules, as they currently stand (and if the PLT deal was being done like a conventional economic development project) the school board would decide whether to forego 80% of its share of the property taxes for up to 8 years. Yet under this CEA/PILOT deal, the school board is giving up 100% of its share of the property taxes, for 40 – and potentially 80 – years. And they have no say, whatsoever, in any of it.

If I were on the school board, I’d say we should sue. If I were a stockholder of PLT’s partners, considering that the Port – and its sole governing body, the Plaquemines Parish Council – engaged in this entire PILOT scheme knowing it to be unconstitutional and illegal, I’d sue.

But then again, as a player in PLT, I’ve got everything my way. I don’t technically own the land, but I have unfettered control over it. I get all the tax benefits of ownership, plus all the profits from running my business. And I get the gratitude of the rubes in the parish, who see me as a golden goose, when they’re the ones I induced to lay me a nestful of eggs.

And if anybody sues, I’ve got some boilerplate language that completely protects me:

“Sec. 10.5 Severability. In the event any provision of this Agreement shall be held invalid or unenforceable by any court of competent jurisdiction, such holding shall not invalidate or render unenforceable any other provision hereof.”

St. Rosalie Interceding for the Plague-Stricken of Palermo, by Anthony Van Dyck, 1624. Courtesy Metropolitan Museum of Art, New York

St. Rosalie, for whom this particular tract of land in Plaquemines Parish was named, is the patron saint of Palermo, Sicily. Though she died around 1160, the discovery of her bones in 1624, along with prayers for her intercession, are credited with halting an outbreak of the plague.

Perhaps there’s a synchronous omen here – that residents of deep southeast Louisiana should look to this discovery of doings at St. Rosalie as a way to halt this latest outbreak of Plaquemines Parish officials’ scheming.