May 14, 2007

Cayuga Press discussion

In my earlier post on the May Town Board meeting, I noted that:

Peter Schug of Cayuga Press and his attorney Jonathan Orkin came in to discuss the HUD loan that is now in question because the company has moved its operations to Cortland, including the piece of equipment the loan was for. I'll cover this in more depth in a separate article.

I also posted a 14.8MB MP3 recording of the conversation. The recording is necessary, I think, to understand the tone of the conversation, but I've also had it transcribed for people who want to glance through it.

I'll save my own opinions of the conversation for the end - I definitely encourage readers to listen to the recording or read the transcript to develop their own conclusions before encountering mine.

(Also, if you find any flaws in the transcript, please let me know. Thanks!)

Steve Trumbull: OK, Peter.

[mumbling in background]

Peter Schug: Good evening. Thanks for allowing me to come and speak. I asked Jon Orkin to join me. I believe everyone on the board when we did this wasn't here. So if there are any questions that I might not be able to answer, he was involved with all the paperwork and the goings on in the process. So I thought it wouldn't be a bad idea to bring him along.

So I'm going to talk a little about what the future is with the HUD loan as it relates to Cayuga Press and see what we can do to put this to rest and move forward.

Marty Christofferson: What's his role?

Peter: Jon is our attorney.

Marty: OK.

Peter: And he was obviously responsible for all the paperwork with the original loan and all that.

Marty: I have some questions about the original loan and just how you went about getting it. It was HUD money right? It wasn't money that came out of the town coffers?

Jon Orkin: Correct.

Marty: And it was a HUD grant, but the town is a sponsor for that or something? How does that work?

Jon: The town is the recipient of the money. It came from the federal government - HUD. We went through our application through the county. We were fortunate enough to receive it. The conduit for us to get the money is it came through was the town, meaning that they are the recipients of the federal money once we pay it off. Then it becomes money for the town to use for other projects in the future.

Marty: So because you initially filed the paperwork to get the money from the Feds, you came to us to deal.

Jon: Correct.

Marty: When you pay it back to us we don't have to pay the Feds back.

Jon: Correct. If we had been in Lansing, Lansing would be getting the payments and they would have the money to use in the future.

Marty: So because you took the initiative to do this, the town is benefiting.

Jon: Correct.

Marty: OK. It wasn't the town that went out and did this. This was something you guys saw as an opportunity to -

Jon: No, it was an ad in the paper that we saw.

Peter: In fact there was an ad in the paper and Cayuga Press was the only one that took the time and effort -

Marty: And it cost a fair amount of money to do that.

Peter: It's a long arduous process getting through there. But we did it together with the town board that was there.

Steve: Are you in the town of Cortland?

Peter: City of Cortland, yes.

Steve: OK, so it's not a town too? The city is not inside the township?

Jon: It's a city within a city.

Steve: OK, does the city of Cortland participate in HUD loans at all?

Peter: No. Not that I know of. I don't know.

Steve: I'm wondering if you could do the same process. You could pay your loan off, and then get a HUD loan through them and take nine or 10 or 12 years to pay it off. And when you get the money you can give it back to us. I could give you the eight or nine or 10 years to pay off the same amount of money. I just wonder if that is possible. I don't know. It's just something that occurred to me.

Jon: I don't know. Like I said, this went through Tompkins County. I did this through the county offices.

Mary Ann Sumner: I'm sorry. You got the grant or the loan about five years ago, right?

Peter: 2001?

Jon: 2001.

Mary Ann: And when did you start looking at moving?

Peter: A while ago.

Jon: That's not fair. That's just not fair.

Mary Ann: Well, I'm sorry. It is a question.

Jon: Quite honestly, Cayuga Press really didn't start - the answer to the question is that Cayuga Press. I don't know how to answer the question. We have been trying to move for years.

Peter: We weren't looking to move. We have needed more space for probably about three to five years. We had wanted to find something or build something in Dryden. That was our first choice. This building became available in Cortland. We literally had to blow up walls and were stacking jobs on top of each other. I finally just said this is ridiculous. We can't operate. We can't hire more people. I have no room. People did not have places to park. I had to do something.

Mary Ann: I understand. You explained it to us.

Peter: So as far as moving, that came up a few months before we did.

Jon: It was a difficult process. We did not want to move. It's that simple.

Mary Ann: I understand. We have talked about this before. But I am thinking that when you got the loan, you understood that the contract said that if you move that is a default condition.

Marty: Well, I don't know if that is true Mary Ann. I'm not sure why -

Mary Ann: It's in the loan agreement.

Marty: It says the town board has the opportunity to review it.

Mary Ann: Have you read the loan agreement?

Marty: Yes I have. The whole thing. OK? Soup to nuts. And we have the opportunity to negotiate and work with that. We could call the whole thing right now if we wanted to. Or we could work and leave the loan as is.

Mary Ann: Right.

Marty: So it is up to us to decide.

Mary Ann: Absolutely.

Marty: So whether it is default and demanded right now, I think that is different than saying we have the opportunity to work with some people in the community who have been here a long time, developed a lot of jobs. They're the ones who initially put the time and energy into getting the loans to begin with. We had nothing to do with that.

Mary Ann: I understand that.

Marty: So I don't know why we are trying to not work with these guys.

Mary Ann: I'm having a problem with the idea that this came as a surprise to Cayuga Press. It seems like it was part of their plans.

Jon: Wait a second. Can I answer that? Let me answer that. First of all, I don't gainsay for a second that under the actual terms of the loan document, the loan security agreement, that if Cayuga Press moves its base of operations, then that constitutes a default. You are correct.

But when you get to the default provisions of the loan security agreement, what the town can do with it is entirely discretionary. You can go from A to Z, from a regular house closing with a due on sale clause, you may have the entire amount due or you could do nothing.

All I just want to say is - I was thinking a lot about this. To say that it came as a surprise - it certainly did not come as a surprise, because Peter came to the town board. It wasn't to this town board, but he came to town board. He discussed it with them. He said right out, "I want to talk to you folks. I want to try and figure out a way to resolve this". And it dragged on and it dragged on and it dragged on.

The point is this. I'm a football fan. The Baltimore Colts are run by a guy by the name of Art Modell. One night Art Modell backed his tractor-trailers up to the Baltimore Colts offices, took every helmet, chute, and carted them to Indianapolis. Now that's a relocation.

This too is a relocation. But there is relocation and then there is relocation. If you take a look at what has happened here, how many of the Dryden residents who received jobs pursuant to this HUD loan, still have their jobs? I believe the answer is all of them. All of those jobs for low-income families have been created by this. They moved five miles away.

Mary Ann: Jobs in Cortland are not the same as jobs in Dryden.

Jon: But see, that's - I don't know what that means. I read your blog. And I understand it. No, I'm a good Democrat. I read the blogs.


Jon: Yeah, what do you want? But my point is this. The Cayuga Press moved as the crow flies maybe five or six miles from here.

David Makar: They tracked the driving mileage from the previous location to Cortland as 17.46 miles. It is a 25-minute drive.

Jon: Well -

David: So it's not five miles. A 25-minute drive is not five miles.

Jon: Point well taken. David, that's fine. But the reality is, I am a resident of Dryden. I have been for 23 years. I have been their lawyer, for Jim, for 20 years. I am a taxpayer. My client is still here. Peter is still a resident of Dryden. Chris Clauson your judge -

Mary Ann: You understand - I mentioned that in the article, too.

Jon: I know, I hear you. And you were very fair.

I think your issue was these are Cortland jobs. And that's what I take issue with, that the Dryden residents who had jobs created by Cayuga Press by this grant, and the Dryden residents who had jobs created by Cayuga Press still have those jobs.

All I'm asking, and I'll finish, all I'm asking is that if the action that you take does something that causes Cayuga Press to restrict, to cause an economic burden during a time of their transition, which is a tough time for any company, the downfall of that may affect Dryden residents.

That's what we don't want to have happen, that's what you don't want to have happen, and I hope that you just take that into consideration. It's not the mileage that's the issues. These Dryden residents are earning money, they're paying Dryden taxes like they always have.

Not a lot has changed. (Typo fixed: Earlier said 'Now a lot...')

David: Are you suggesting that if the loan was called you'd have to fire people, you'd have to lay people off?

Jon: I'm not saying... I don't run Cayuga Press. I'm saying that any time you ask any kind of commercial entity to immediately come up with $250,000, that's going to cause a hardship.

David: And that's why we haven't asked them..

Jon: And I appreciate that.

Mary Ann: Recognizing that Peter is a Dryden resident and he's been able to keep the Dryden employees is why we've extended, we're saying we're won't even consider calling it for a year. Almost a year now, because time is passing.

There will be 90 days notice on top of that. We're not talking about immediate.

Jon: We're not here to do a public negotiation or to talk to you about those terms this time here.

All we're asking is: "What is the reason behind calling the loan due? What is the reason why they extended the 90 days? Is it punitive? Is it, what, I don't know.

Mary Ann: I'll tell you, I'd be happy to explain it. There are two issues.

One is that it's very low interest. It's less money than we would be making on an equivalent amount of money in the bank. So there's a consideration for raising the interest rate.

The other consideration is that we have people looking for economic development loans, and we will be advertising soon the availability of money for economic development loans also and we would rather give the money to somebody who's doing business in Dryden.

We're willing to not consider it for almost a year now because it will take us that long to get through this process. And, if we do get an applicant we'll let Peter know and there will still be a 90-day window to resolve it.

The issue is the low interest rate and the interest in making the money available to Dryden businesses.

Marty: How has that negatively affected Dryden, though. How has that - I mean - how has it negatively affected Dryden?

Mary Ann: It's not positively affecting Dryden.

Marty: I didn't ask that. It's that how is it negatively affecting?

Mary Ann: Because the money is not available to Dryden businesses and because we're making less money on the investment than we would be if it were in the bank.

Marty: But, I mean, it isn't negatively affecting - it's just left


Mary Ann: Sounds like two negative effects to me.

Dan Kwasnowski: How much sales tax did you get though, with those people living there, buying their groceries, getting in their car and buying their gas over the years? These guys are doing business.

Marty: I'm sure they're paying taxes...


Dan: We made money off this.


Marty: I don't know why you guys are so after these people.

Mary Ann: But not any more because.


Martha Robertson: This is a program that Tompkins County Economic Revolving Loan fund that the county actually does a lot of the paperwork in the administration, and then hands it off to the municipality for the paybacks.

Marty: Did the money come from the county or did it come from the federal government?

Martha: The administration and the paperwork and recruiting, all of that comes from the county.

Marty: So processing of it came from the county, but the chunk of money came from the Feds.

Martha: That's right.

Marty: OK.

Martha: But this is a program that the county operates in either [crosstalk].

Marty: But now we operate it. I mean you passed it to us and now it's our burden, right?

Martha: That is part of the service the county offers.

Marty: So what's your point?

Martha: Excuse me, Marty!

Marty: I'm just trying to see where you're going.

Martha: I'm getting to my point.

If you saw the Ithaca Journal today, somewhere in the intersection of the first section there's a very significant article about Empire Zones and industrial development agencies in New York failing to insert what's called "fall back provisions" when they give tax breaks and abatements and etc. to businesses that promise to produce jobs and then don't.

In many cases they even just sort of reorganize and change their name and call it a new business and say: "We're bringing in new jobs."

They get tax breaks for this and because of a good old boys network or whatever they don't bother, if somebody doesn't produce, they don't bother to call back the loan, require the tax abatement to be paid back.

That's not true in Tompkins County, I can promise you that.

What bothers me here is that, this is town money, this is my money, this is your money, this is everybody here's money that was loaned in good faith and now we're actually losing money on it because of the low interest.

As Mary Ann said, if it only sat in the bank that's town money we could be making interest on.

So, I think it's a very generous offer to have this extended time period and let them pay it back but raise the interest and have a 90-day clause. I think that's extremely generous.

But, I really think this is town money that is just being handled...

It just makes me wonder if there is some promise before you move, Peter, that: "Oh well, you won't have to, we won't make you pay the loan back."

You had to, I'm sure, figure into your business plan when you moved, the possibility you'd have to pay the loan back. I mean, you had to figure that in.

Peter: I'd never said that I didn't. That's why I came to the board to discuss it. What I am saying is that..

Martha: So your business plan includes the possibility..

Peter: No.

Martha:...that you might have had to pay the loan back.

Peter: No.

Martha:...and therefore it was still worth it to you.

Peter: No.

Marty: Martha, you should really be addressing us.

Martha: Why?

Marty: I don't think it's appropriate that we get into this kind of conflict. And I'm not sure what you mean by the good old boys network, because I don't know of any good old boys network.

I think that the examples that you gave in the Ithaca journal aren't appropriate here, because jobs were created. So, I'm not sure, again.

Martha: The point is that is the original terms are not being.. yes.

Marty: I'm not sure why a small group of people is really after Cayuga Press. I don't know what's going on here. I'm all for raising the interest rate some, and I'm all for having a shorter term, but I think we've got to do something that gives these guys some kind of business plan to work with.

Mary Ann: Well that's what we... had in proposal


Marty: From what I understand the term is very short. I don't think the interest rate is the


David: The resolution we passed last month was twelve months and now it's the earliest we can call it, that would be 90 days, plus 15 days.

Marty: You passed a resolution, or you proposed it?

David: Yes, we passed it last month when you weren't here.

Mary Ann: We passed it and we notified Cayuga Press


David: And we passed it at the 4% rate.

Mary Ann: And presumably you heard us say that that proposal was not reasonable?

Marty: Was there a resolution?

Mary Ann: Yes.

Steve: There was a resolution of 4% to eight 1/2%.

Mary Ann: No, from 2% to 4%.

Steve: Yes, up to 4%, now 4% not 2%.

Peter: No, I'm sorry I wasn't notified about that.

Mary Ann: Mahlon, Mr. Shug says he wasn't notified of the resolution we passed last month?


Bambi Hollenbeck: I don't think we passed the resolution. The only directions were to prepare a proposed document, which I think we did and sent to [crosstalk]


Mary Ann: OK, and you sent that to..?

Peter: I haven't received anything.

Mahlon: Didn't I send it to you?


Peter:...told it was being proposed but than nothing had actually been voted on, that's why I'm still...


Jon: That doesn't matter.


Mary Ann: All right, but you were informed of the idea, OK, let's call it an idea, yes?

Jon: Yes, yes, I was.

Mary Ann: And it was my understanding that you were objecting to that idea, am I right?

Jon: Yes.

Mary Ann: OK.

Jon: But I think what I'm hearing is not the percentage as it is the term.

Mary Ann: That 16 months...

Marty: Is it 16 months or 90 days?

Mary Ann: It's a year plus 90 days.

David: So it's 15 months from April. So the earliest that you'll have to pay us is July 9th, 2008, in full. You would have an increase in the rate from 2% that you pay now to 4%.

Mary Ann: If a year from now we have an applicant for the money, we could give you 90 days notice to repay. Is that right?

David: That's the earliest we could ask for. If another business says: "We want the money, we're trying to grow our business." Or there's three businesses that want..

Peter: I think we're glossing over a lot of the details. You're making it sound like we're like Johnson, like we're moving to Florida and displacing everybody. We're not doing that...

Mary Ann: We wouldn't dream of saying that.

Peter: Excuse me, just a minute please. We're also maintaining jobs in the town of Dryden still between our office in Dryden and the Mailbox of Ithaca, which is a sister company.

We're still operating, we still own the buildings that are there. We didn't pack up and dump on Dryden.

And I feel that, quite honestly, what you're doing here is more, it feels like it's a punitive damage because I took a piece of metal that HUD said that we could put in the Town of Dryden and create jobs with, and I moved it down the road.

Those jobs are still there with it and really, the only thing, the only obligation I'm missing here, is I moved that press to another place.

Mary Ann: And that there's 35 people that were working on it.

It's not punitive at all. We actually talked about this...

Marty: Would you be okay with four or five years? [crosstalk]

Mary Ann: Excuse me... felt that it was a reasonably generous offer because you're a Dryden resident.

Peter: I disagree, I don't feel it's generous. It doesn't. To me... we have nine years on the term.

David: Peter...

Mary Ann: The option, the extreme option, is to call it immediately or raise the interest to 8%. You know, it's not that bad.

David: The best loan, I went and looked at the three banks in town, and the best loan I could get as a commercial rate for $250,000, the amount that you have left...

Peter: This isn't commercial money, this is...

David: But if you were going to grow your business and you wanted to buy the same, this equipment..

Peter: Right.

David:...and you wanted to get the loan for $250,000 to do that it would be a 7.75% loan. So, maybe you'd make the business decision not to do that. Or maybe you'd say: "I'm going to make this investment at 7.75% because it's going to help my business."

Now the town has given you, the town through the government has given you a 2% loan. We're asking to bring it to 4%, which is less than what we'd earn in a CD.

Peter: I have no issue with the increasing it to 4%. I think that is very generous. I understand that.

What I have issue with is, I'm trying to run a business, I'm trying to maintain jobs and I can't.. if a chunk of the money that we have out there I can't just anytime have somebody say: "OK. I guess we want our $250,000 back." It just isn't that easy.

We just built a new building, added a lot of stuff. We're leveraged to the hilt right now. We have a huge amount of debt.

Part of our thinking in this was taking the existing debt that we had and maintaining it. Not having to come up with another $250...

Reality is, like you said, next April: "We'd like $200,000 and some thousand dollars right now, as somebody else needs it."

Steve: What would you feel like in two years and probably six months? Would that.. I'm trying to figure..

Marty: I mean, do you have a term that's better for you? What would you counter...?

Steve: A number of years...


Steve: But we wanted something..


Jon: I don't know the town law. We can go to Mahlon. Is there a way that we can discuss this with Mahlon?

I mean, we're talking about his business here and it's difficult to open his business to the whole world and have to... I feel uncomfortable with that.

I don't know if it's a violation of the Open Meetings Law. If we can present proposals through Mahlon, or I can do it.

Mary Ann: I think it's got to go to Steve.

Jon: Whoever, I just...


Jon: Can we do that?

Mary Ann: Mm-hmm. [agreeing]

Jon: And I thank you for the offer.

Mahlon Perkins: Any decision is going to be made in public meetings.

Steve: Public debate.

Jon: Fair enough. I just don't want to talk about the business of Cayuga Press.

I just have to comment on one, do you mind? I know you guys are here forever and are going to be here forever, so I apologize.

I have to take exception to something that was said here, and it was something that you, I'll call you Marty, I don't know you well enough.

Marty: That's fine.

Jon: This isn't any back room dealing here. This isn't any claw-back or...

They created the jobs they were required to create. They still have those jobs, and we don't want to lose those jobs.

So, this kind of image of something nefarious going on, that didn't happen here. Everybody knows we've always been open and said what we're doing.

That needs to be said as a matter of record. We never tried to put over anybody on anything.

Marty: I know this family really well.

Mary Ann: You don't have to talk to me about this, Marty! I totally sympathize.

Marty: These are nice people and they are trying to run a business, you know. And, I think it's our job to work with people in our town and think this isn't fair [crosstalk]

Mary Ann: I agree wholeheartedly. And now I'm frustrated that we've been talking about this for almost a year. It's our responsibility as well as theirs. I mean, we can't...

Jon: Now, We've been here for two weeks, three weeks, maybe, since I've talked to Mahlon.

Mary Ann: Well, yes. There's part of the problem, right. But it's not a punitive issue at all and I'm not... I don't believe anyone here believes there's any backroom dealings at all. I just want to move on and get it settled.

Jon: Fair enough.

Mary Ann: And I don't understand why it's talking so long.


Mary Ann: Yes, right.

Simon St. Laurent: I guess I'd like to point out to Councilman Christofferson that saying that he's known these people for years doesn't do a whole lot to dispel the notion that he's trying to dispel, that there's nothing going on.

Marty: You know what, Simon, Simon...

Simon: And I'm trying to picture myself going to the bank and saying: "I have a mortgage on my house, but I'd like to move the house. Can I keep the mortgage with it?"

Marty: The bank's happy to make you a mortgage.

Peter: Let me ask you a question. Would you buy a house and get a mortgage on it where the bank says: "In six months or nine months we can just ask for all the money back right away?" [crosstalk]

Marty: Simon, let me tell you something. How I know Peter is through his kids and sports and this.. I have never been to his house and never done anything...

Simon: Marty, Marty, all I'm saying is..

Marty: And I don't like you telling that kind of story here, cause it's wrong!

Simon: You're the one telling that story.

Marty: I'm telling you I know these people like you would know these people if they were in your neighborhood. If they lived in your neighborhood you might know them and have a better sense of what's going on and the kind of business people [crosstalk] I don't like it, Simon!

Simon: Marty, I'm suggesting that you not raise your personal relationships when you're talking about it.

Marty: We live in a small town, we know a lot of people!

Steve: Thank you for your time.

Steve: Town Highway Superintendent, Department of Public Works.

So, if anyone is still reading this, we seem to have:

  • A loan that was issued with one key criteria being the location of its use (HUD loans are generally like that, while other federal programs are more flexible);

  • Clear and admitted violation of the terms of that use;

  • A business plan that seems to have assumed that violation would be accepted without question;

  • Jobs that were created in one place - per the expectations of the loan - moving to another place, outside the jurisdiction of both the county and town that processed and adminster the loan;

  • Money from that loan which can be applied to further economic development in the Town of Dryden;

  • A Town Board member, Marty Christofferson, who denies that there's any old-boy network here but cites the value of his friendship with Peter Schug as a reason to advocate on his behalf;

  • Two Town Board members, Mary Ann Sumner and David Makar, who'd like to see the HUD money put toward the purpose of helping Dryden;

  • A supervisor, Steve Trumbull, who sounds like he's looking for a compromise; and

  • A negotiation over terms that Cayuga Press doesn't sound like they want to have in public.

There's also some rhetoric about "punitive" action. I have to say that this seems about as punitive as what would happen if I told my mortgage company that I was violating the terms of the note but really hoped they wouldn't mind. Much as I dislike contract law and its many abuses, it's hard to see the foreclosure that would lead to as anything other than the inexorable logic of a contract I'd signed. (I should go read my mortgage again...)

That said, there may well be room for compromise. The good news for Dryden in all of this is that a higher interest rate would eventually lead to more funds available for economic development in Dryden. If Cayuga Press keeps up on its payments, Dryden will make a lot more from a loan in the range of 4% to 7.75% than it would have on a 2% loan.

At the same time, though, Schug's description of the financial state of Cayuga Press isn't exactly the highly stable and profitable story that lenders generally want to hear. Whatever the undisclosed state of Cayuga Press's finances, this story that seems more likely to win sympathy from a friendly board than to win credibility with the cold eyes of lending institutions. How much of a lending risk is the newly extended Cayuga Press?

In the end, it seems that the question will come down to whether the Town Board thinks there's more to be gained for the people of Dryden by extending this loan under different terms or by calling it back in. Given that there is no dispute that the terms of the contract have been violated, it's clearly up to the Town Board to find that balance.

Posted by simon at May 14, 2007 9:02 PM in ,
Note on photos


Mary Beth said:

It seems to me that another important point that some people may not be clued into is that when Cayuga Press moves to Cortland, while they take those employees who live in Dryden with them, who will fill those jobs when the Dryden residents move on, whether it's due to retirement, the commute being too far, etc...? Is CP going to make a concerted effort to market open positions to Dryden residents as opposed to Cortland residents? I doubt it.

Additionally, there's the day to day impact on the Dryden economy. Specifically, CP employees, and I would wager that any CP customers and suppliers who stop in at CP, purchase goods and services nearby. Whether that means gas, a cup of coffee, lunch or a haircut, previously they've been purchased in Dryden. With CP moving their operation to Cortland, those Dryden businesses near CP will be losing out on that revenue, and the associated tax revenue will go to Cortland.

Don't get me wrong, I don't have anything against Cortland, or Cayuga Press, but I live in Dryden and do think that given the repercussions caused by this move and the binding contract that CP entered into, our elected officials would be remiss in not imposing some sanctions on CP. Given that this is the first loan, now is the time to set the precedent for future business.

Mary Ann said:

Simon, thank you so much for this transcript. I'm happy to say it sounds very much like my recollection of the discussion (tho' it might help to distinguish Steve S and Steve T). It was a frustrating discussion because, as so often happens, not everyone started with the same information. It didn't help that Councilperson Christofferson had missed the previous three board meetings.

I will say I'm concerned, as you are, with the references to the hardship refinancing this loan might cause Cayuga Press. They've been making loan payments just fine. But the implication that they might not be able to get a commercial loan suggests they might not be a good credit risk for the town either.

Steve T and I will be meeting with Peter(and perhaps others) later this week. I don't think you need to worry much about transparency here. You know I'm not much for secrets.