Thursday, June 3, 2010

Summation Document

In the planning portion of an urban area, money stands above all the rest. An area is not possible to develop, maintain and be sustainable if people are unable to have a vocation. Transportation, environmental concerns and other urban planning projects and idea rely on individuals having jobs that can produce funds for funding to the project. Wither the funds are collected through government taxes or private donations is a non issue if an area’s management of the funds is not sustainable. In addition to budget concerns, there are several articles showing innovative solutions to common problems.

Currently there are budget shortfalls nationwide from the federal to the county level. There are some stark examples of poor planning and not planning for the worst, the most prominent being Los Angeles, CA, Detroit, and Harrisburg, PA. It was surprising the lack of sustainable urban planning that went into budget decisions in LA and Harrisburg, and how innovative solutions while cool might not be the smartest budget decisions. There is hope though, where in the article “Strapped City cuts and Cuts, there is a great example of Colorado Springs, CO where the populations is taking over simple government function and doing a good job of it.

An example of an innovated solution with huge budget concerns was the trash incinerator purchased by Harrisburg, PA. The article “Harrisburg, PA Weighs Bankruptcy the 288 million dollar incinerator project, has interest payments that are larger the city’s annual budget now. While the incinerator is a very cool way to deal with trash, it was a foolish budget decision. An innovated solution to address trash was the trash tubes install in NYC. They have been an great example of planning and will be interesting to see how it works in the future.

As articles were being gathered an interesting theme developed where ad hoc urban planning situations developed. The example of “The Parking Lot where Pilots Sleep” and “Gramercy Park” were very interesting in how local people are working though urban planning problems normally seen in larger districts. The case of the propaganda posters being used in the Queens was a phenomenal example of individuals addressing issues in a smart manner.

As urban planning continues to mature as a field, and people look to urban planners for more insight into large projects requirement funding, they would be wise to consider the budget impacts of their designs. As LA and Harrisburg are showing us, there is no company, city or region that is “too big to fail”.


Doug Bates “Time to get real on Oregon's state budget”, The Oregonian May 13th, 2010

Harry Esteve “Oregon faces $563 million budget hole, Governor promises layoffs”, The oregonian, May 25th, 2010...

Andre Meunier “Blurring the urban-rural line in Damascus”, August 08, 2009

Cari Tuna “University of California Plans to Slash Spending”, Wall Street Journal May 18th, 2010

John R. Emshwiller “L.A. Project Gets Caught in Limbo” Wall Street Journal, May 29, 2010

Eric Morath “Restructuring Experts predict more municipality bankruptcy “, Wall Street Journal May 17, 2010

Aaron Rutkoff ‘On Roosevelt Island, A Tribute to Trash TubesWall Street Journal May 18, 2010

David Ranson “The Revenue Limits of Tax and SpendWall Street Journal May 17, 2010

R.M. Schneiderman “With Metropolitan Etiquet”, Wall Street Journal April 26, 2010

Gary Fields “Washington's New Gun RulesWall Street Journal May 17, 2010

Pia Catton “Gramercy ParkWall Street Journal May 10, 2010

Los Angeles International Airport “The Parking Lot where Pilots Sleep”, Wall Street Journal, April 15, 2010

Romy Varghese “Harrisburg, PA Weighs BankruptcyWall Street Journal April 28, 2010

Tamara Audi “Los Angeles Outlines Budget CutsWall Street Journal” April 20, 2010

Eric Mortenson, “Metro and 3 Portland counties approve urban expansions” The Oregonian, May 6 2006

Nick Winfield “The New San Francisco Suburbs, a Plane Ride Away”, Wall Street Journal April 15, 2010

Michael J Trinkleman “Altered StatesWall Street Journal April 17, 2010

Leslie Eaton “Strapped City Cuts and CutsWall Street Journal, April 13, 2010

Nick Timiraos “Foreclosures hit the rich and famousWall Stree Journal April 9, 2010

Tamara Audi “Los Angeles Maps Rail Plan With a Key Stop: WashingtonWall Street Journal March 11th

Steven Greenhut “Vallejo's Painful Lessons in Municipal Bankruptcy”, Wall Street Journal March 26, 2010

Wednesday, June 2, 2010

Time to get real on Oregon's state budget

By Doug Bates, The Oregonian

May 13, 2009, 5:29PM

The state budget proposal offered Tuesday by Republican lawmakers in Salem is a thing of great beauty in a time of crisis.

It would maintain schools and state government pretty much at their current levels of service.

It would make no draconian cuts in aid to Oregon's most vulnerable citizens.

It would keep cops on the highways, teachers in the classrooms and crooks in the prisons, all without a nickel of new taxes.

It would even include a $1.4 billion surplus that could be used to shore up agency budgets if serious needs arose.

In short, it's a brilliant budget that legislators would be crazy not to adopt, if only it were grounded in reality.

Unfortunately, it is not. Republican leaders unveiled it Tuesday using the latest official revenue estimate, which is two months out of date. If they'd waited just three more days, they could have used the new revenue estimate that will be released Friday -- a number that just about every economist in Salem predicts will be painfully lower than the March estimate.

The new figure may very well blow a billion-dollar hole in the Republicans' budget, but they had a transparent reason for rushing it out ahead of the grim forecast: It's not really a budget. It's a political statement -- something GOP legislators will run on in the next election.

The fiscal crisis has indeed put their rivals, who control both chambers of the Legislature, in a political bind. Deep cuts in education, human services or public safety would not be popular. Nor would tax increases, but Democrats may have to do some of both to meet a revenue shortfall that's likely to exceed $4 billion.

The most recent budget proposal offered by Democratic leaders would give K-12 schools about $5.5 billion, which might mean early closures for some schools in the state. The Republican leaders countered with a $6.2 billion K-12 figure, enough to stave off early closures.

The GOP legislators, however, are far from being the only ones floating numbers that are likely to be hopelessly rosy. Portland schools Superintendent Carole Smith's original budget, recently reduced, also used the $6.2 billion figure, and so does a proposal being circulated by the Oregon Business Association.

Neither Smith nor the OBA nor the Republicans deserve to be attacked for their optimistic budgets, but their plans won't mean anything if they're built on numbers that don't hold up. After Friday's revenue forecast, everyone in Oregon -- legislators, school officials, business people, all of us -- will be obligated to face reality.

No more will anyone be able to deny the costly impact of the prisons bill that passed last fall.

No more will anyone be able to claim there's no increase in social worker caseloads as unemployment rises.

No more will anyone be able to pretend we have ample revenue for schools and public safety, if only it were spent more wisely.

Friday we'll get the real numbers, and then it will be time to get real ourselves.

Oregon faces $563 million budget hole, Governor promises layoffs

SALEM – Shock waves from the recession continue to wreak havoc in Oregon, punching a big hole in the state budget and prompting Gov. Ted Kulongoski to order hundreds of millions of dollars in cuts to schools and other state programs.

The cuts, if they stand, could eliminate school days, idle some state police troopers, and lead to pay freezes and benefit rollbacks for state workers.

"There will be layoffs," the governor stated flatly.

Although Congress could come through with additional money for troubled states, Kulongoski said he can't count on a federal bailout.

"I have learned -- and am convinced -- that in a situation like this, the best response is swift and decisive action," Kulongoski said. He asked all state agencies to prepare for cuts that amount to 9 percent of their remaining budgets.

Their lists should be ready within two weeks. Once those are in, and Congressional action is more definite, cuts will be made, he said.

The governor's comments came in response to Tuesday's revenue update,which projects the state will have $563 million less than what's called for in the current two-year budget.

The sheer size of the drop stunned lawmakers, who listened in stony silence as state economist Tom Potiowsky and senior economist Josh Harwood went through the numbers. Potiowsky noted the "disconnect," given that the recession has given way to a mild recovery in Oregon.

Harwood said he revised the state revenue numbers downward after income tax collections came in far weaker than expected, including a sharp drop in expected taxes from income on capital gains. Some people, may be paying late, which could help balance the books later, he said. In the meantime, the recent uptick in the economy has not been strong enough to offset the damage done last year.

"We had a horrible storm in 2009," Potiowsky added later. "This is cleaning up the remnants of that horrible year."

Senate President Peter Courtney, D-Salem, complained about the difficulty of getting accurate forecasts to use for budgeting. Unlike the federal government, states must balance their budgets.

"We have been caught by surprise and I'm upset about it," said Courtney, who was briefed on the new budget numbers earlier in the week. "We knew it was down. But not this bad."

Courtney, joined at a news conference by House Speaker Dave Hunt, D-Gladstone, said he didn't see the need to call lawmakers back to Salem for a special session because there's no chance of coming up with more money to fill the hole.

"There's nothing more difficult than the hell of a budget special session," Courtney said, recalling 2002, which included five special sessions to deal with drops in revenue.

Hunt didn't rule out a special session once the budget picture becomes more precise. He said the state still has $175 million in reserves that could be freed up to help schools.

Under state law, if the Legislature doesn't adjust for a budget shortfall, the governor must spread the cuts proportionately throughout state government. On Tuesday, Kulongoski released a list of amounts for each agency to make up the $563 million shortfall.

The Department of Education faces the biggest proposed reduction -- about $252 million, of which $237 million would come out of K-12 school budgets.

For students, the cut could mean reduced school days and increases in class sizes, said David Williams, government relations director for Portland Public Schools. Teachers could see cutbacks to benefits and pay and layoffs.

"There's a lot of options available, none of them good," Williams said.

The proposed K-12 cuts are equivalent to the pay and benefits for 4,000 teachers, said Oregon Education Association President Gail Rasmussen. She said educators are hoping for a slice of the $23 billion in federal funds that Sen. Tom Harkin, D-Iowa, has proposed as a way to avoid nationwide layoffs of teachers, principals, librarians and other school workers.

Kulongoski said he is also concerned about the $51 million slated to be cut from the Department of Corrections, which he called the most "boxed in" agency because of voter-passed sentencing requirements.

Corrections director Max Williams said the department is tightening up "every little place we can look at," but hasn't come up with a detailed cut list. Williams announced an immediate hiring freeze, noting that 24-hour staffing makes up much of the department's expenses.

In addition to calling for agency cuts, Kulongoski said he would continue a pay freeze for all nonunion state workers, and he asked union representatives to meet with state labor negotiators to look at pay freezes, benefit cuts or furlough days as a way to avoid layoffs.

The proposal got an immediate negative response from the union that represents prison guards and some other state workers.

"We are not interested in reopening our contract," said Ken Allen, director of Oregon's American Federation of State County and Municipal Employees. He said "frontline" state workers already have sacrificed, and managers should bear the brunt of further cuts.

The disappointing revenue news led to scathing comments from legislative Republican leaders.

House Minority Leader Bruce Hanna, R-Roseburg, said the shortfall "is a product of the Democrats' massive overspending and the $1.8 billion in new taxes and fees they've passed since 2009." Hunt responded by noting that nearly every budget passed in 2009 did so with large bipartisan majorities.

The two candidates for governor also weighed in. Democrat John Kitzhaber said he "fully supports" Kulongoski's actions. Republican Chris Dudley said lawmakers should revise the budget, not just let the governor make proportional cuts. "If educating our children is our number one priority, we cannot treat it like every other state agency, we must ensure that it is funded," he said.

The forecast included one ironic twist -- corporate income taxes, which make up a small portion of the revenue pie, are projected to be higher than expected. That could trigger the state's "kicker" law, which would mean a rebate for some companies.

Jessica Van Berkel of The Oregonian staff contributed to this story.

-- Harry Esteve

Blurring the urban-rural line in Damascus

DAMASCUS -- Larry Thompson has always been ahead of everybody else.

He stopped using pesticides and fungicides on his fruit, berries and vegetables years before organic became iconic, and long ago eliminated the middleman distributor by selling direct at his fruit stands and at seven farmers markets.

His harvest crew, including three generations of what began as a migrant family, has been documented, paying taxes and earning Social Security since 1986. He donated the use of 3.5 acres to Mercy Corps Northwest, which teaches Russian and Cuban immigrants how to farm Oregon-style.

He earns ovations at land-use conferences, gladly consorts with government planners and won a Western region sustainability award at the 2008 New American Farm conference. At 55, he's trim and shrewd in a cowboy hat and big Chevy pickup truck.

But not even Larry Thompson has grown a city before, and his ideas this time would turn Oregon's heralded land-use system on its head.

The region's growth regulators seeded the new city of Damascus on Thompson's 77-acre farm. In Thompson's vision, the city can be a place where urban development and agriculture entwine like his graceful marionberry canes.

Part of the farm could be developed for housing, he suggests, while he continues to farm the better soil. The farm's crops could supply an "eco-restaurant" at the top slope of the property. Along the road below could be a fruit and produce stand. Next to it could be a community kitchen and education center where customers could preserve the berries they just bought or learn how to improve their home gardens.

Thompson acknowledges the idea "steps way out of bounds."

Because if it's done nothing else, Oregon has drawn a bright line between urban and rural. Development occurs within tight growth boundaries; farming and forestry happen out in the country. Period.

Thompson says it's time to blur those lines.

"Instead of saying, 'Here's the boundary for growth,' maybe we should start with the farm first and create the community around farms," he says. "That's my intent."

Metro, the regional government, planted Damascus on the edge of Portland in what many now see as a confounding expansion of the urban growth boundary. A lack of infrastructure -- adequate sewer, water and roads -- made traditional development severely expensive, and Damascus became the punchline to the area's development joke.

Seeking to control their destiny, residents of the rolling hills incorporated in 2004, but the subsequent recession and collapse of the housing market have left Damascus virtually unchanged. Anita Yap, community development director, describes it as "10,000 acres and 10,000 people." The view from Thompson's pumpkin patch contains no highways or high-rises.

Before incorporation, the one institution many Damascus residents had in common was the Boring Fire District. Five school districts and two water districts serve the area. City offices are in the area's lone commercial center, an abbreviated strip mall along Oregon 212 that includes a Bi-Mart, Safeway, hair salon and other businesses.

"City hall?" A man waiting in an insurance office 50 yards away has to think on it. "I hear they have one now," he offers.

But stalled development has given Damascus time to imagine itself, and in every discussion residents made it clear they value the area's farms and fruit stands, including Thompson's.

At the same time, the Portland metro area embraced the value of a regional "foodshed" and of slow food. And more: the security of growing and eating locally, and the climate change problems exacerbated by transporting products and traveling to stores. Farmers' markets have exploded in popularity, backyard chicken coops and gardens are increasingly common and small-acreage farms sell veggies to subscribers.

Thompson acknowledges that his first thought when Damascus became a city was, "I'm rich. Wow, I've finally made it. I could develop my land and retire and be wealthy."

His second thought was, "This is my heritage. It's a lot bigger than Larry Thompson."

His parents, Victor and Betty, arrived from South Dakota in 1947 and proceeded to "raise strawberries and kids." Thompson, the youngest of four children, is the only one to farm full-time. He says it is what he was meant to do.

Farming is important to society, he says. It feeds people, yes, but it also sustains something we have difficulty naming. Something emotional; connection with the agrarian roots from which most Americans are still just two or three generations removed. It is the green space we take our children to see.

Oregon farming is a $5 billion annual business, employing more than 50,000 workers on farms and 19,000 in food processing plants. It thrives even as the state's population jumps and urbanizes; fast-growing Clackamas and Washington counties ranked fourth and fifth in crop sales value, and Multnomah County is in the state's top 15.

Growth boundaries, required of every city, have allowed agriculture to hang on by separating it. But along the urban fringe, farms are elbow to elbow with new residents who often don't understand or appreciate dust, long hours and machinery noise.

"High-density apartments on one side, and the other side is combines," as Clackamas County Commissioner Charlotte Lehan puts it.

"Oregon land use is very dichotomous," she says. "You're either urban or rural -- urban with 10 houses per acre or rural with one house per 80 acres. I'm coming to the opinion that maybe we need to recognize another kind of animal which is neither fish nor fowl."

That describes Thompson's idea.

"All the people are on the bandwagon saying they want to save farms, but the way to do that is to make sure farms are making money," he says. "This is a way to do that while you develop an area."

Thompson is an able spokesman for urban agriculture. He befriends a neighboring subdivision by letting residents freely walk his property, favors U-pickers because it reconnects them with farm life, and tells anyone listening that making a good living goes arm in arm with being a responsible caretaker of the land.

Thompson has an important ally in Yap, the Damascus community development director. Although Damascus can't zone Thompson's land as Exclusive Farm Use, it may be able to treat it as industrial land or open space, zone it residential with an "agricultural overlay" that allows continued farming, or call it "land-based employment" property.

Oregon's land-use system has protected agriculture well for 30 years, "But this is a new city," Yap says. "Land-use law doesn't talk about climate change and peak oil" and doesn't address agriculture in terms of food security, community identity and economic development, she says.

In an article for this summer's edition of Oregon Planners' Journal, Yap and co-author Dean Apostol said Damascus is Oregon's first new city in 22 years and the first to be pre-planned. As such, it may be allowed to "test the edges" of the state's land-use system.

"We may be testing state assumptions by using various tools to set aside land for continued use for growing food and integrating active farming and the agricultural heritage into urbanization," they wrote.

Development groups and state and regional policymakers, are keenly interested in what Damascus is up to.

Damascus is proposing to treat agriculture as an urban economic activity similar to commercial or industrial development, says Jim Johnson, land-use coordinator for the state Department of Agriculture. "In some ways, what Damascus is doing is recognizing the obvious," he says.

But he's concerned that reserving acreage for farming within the urban growth boundary will cause development groups to seek expansion of the boundary as compensation -- and bump farther into farmland.

Johnson also cautions that what works for Larry Thompson, known as one of the region's most innovative and progressive farmers, might not work for others.

"What happens when Larry leaves?" Johnson asks. "Will someone else want to farm in that (urban) environment? I don't know."

Thompson says he has no retirement or succession plans. He and his wife, Kathy, have two children: Michelle, a counselor, and Matt, a student at the University of Oregon. Matt Thompson has expressed interest in farming, but it won't be forced upon him, Larry Thompson says. On the other hand, a successful venture with Damascus might make the farm attractive to a buyer who would continue the operation.

Metro Councilor Rod Park of Gresham, himself a farmer on the UGB fringe, says the success of urban agriculture may depend on its scale. Nearby residents would have to remember that "Farming is a verb, not a noun," Park says.

The Damascus concept may be doable, "Given where people are at right now with concern about where their food is coming from," he says.

Jon Chandler of the Oregon Homebuilders Association says the Damascus idea sounds like a thoughtful approach, but says the region should question whether farming is the best use of land within the urban growth boundary.

The current system promotes the most effective placement of roads, sewer and other infrastructure, says Greg Manning, vice president of the Oregon chapter of NAIOP, a commercial real estate development association.

"When you break that up with intermittent, alternative uses it can reduce the efficiency of land use and infrastructure use," Manning says. "Do we have three subdivisions, 400 acres of farmland, then a shopping mall?"

Portland land-use lawyer Ed Sullivan says state law may make it difficult for Damascus to set land aside for farming. State statute, based on an Oregon Court of Appeals decision, says land within the growth boundary must be urban or "urbanizable."

"I wouldn't bet the farm on it, to coin a phrase," he says. "I can't say categorically that they would never make it, but I think this is a hard row to hoe."

Damascus is proceeding with the conditional blessing of Richard Whitman, director of the state Department of Land Conservation and Development.

"I'm not prepared to say it can't be done under Oregon law," Whitman says. "I think there are ways to do it. I think we should be able to accommodate that within the system."

But Damascus has an obligation to Metro to take on its share of the region's population and job growth, Whitman says. If land within the city is reserved for farming, the tradeoff is that some neighborhoods may have to be developed more densely, he says. It would be "problematic" if urban agriculture was used as an excuse for expanding the growth boundary, Whitman says.

Larry Thompson believes Oregon has reached the point where it can open the gates now separating the people who eat his pumpkins, corn, zucchini and berries from the land that produces it.

"It would be a reason to move to Damascus," Thompson says. "Our identity was lost when the UGB came and we incorporated. We went from a pastoral setting to, 'Now what?' "

University of California Plans to Slash Spending

The University of California was set to unveil plans for a sweeping financial and administrative overhaul that could reduce annual operating expenses by more than $500 million, as the much-scrutinized public university system moves to deal with a widening budget shortfall.

Under the efficiency plan, which will be presented at a UC Board of Regents meeting Wednesday, the system intends to streamline, consolidate and standardize operations across its 10 campuses. Among other things, UC plans to roll out common supply-procurement and human-resources systems to replace individual campus systems.

Steve McConnell/UC Berkeley NewsCenter

Students at U.C. Berkeley's 2010 commencement. The university system is dealing with a budget shortfall.

Other measures include accelerating energy-efficiency projects, consolidating information-technology operations and loaning campuses money for equipment leases in lieu of more-costly third-party loans.

The overhaul followed steps taken by universities nationwide to cut administrative fat amid falling state funding and withering endowments.

In total, UC's plan was expected to save more than $500 million from its $20 billion annual budget within five years of implementation, including at least $100 million from supply procurement, UC officials said.

The plan will also result in administrative job cuts, though officials declined to say how many jobs would be eliminated, citing the early state of the restructuring.

"We're forced to make some fundamental changes in the way this place operates," said Peter Taylor, UC's finance chief. "We don't have a choice."


Robin Garrell, a chemistry professor at the University of California, Los Angeles and chair of its faculty body, welcomed an operational overhaul. "This is an area where there certainly are opportunities to save money with little impact on academic programs," Prof. Garrell said. But, she added, "I would be wary of a one-size-fits all model," especially for cutting administrative jobs, because "each campus has its own needs and character."

Nationwide, in fiscal 2009, which began July 1, 2008, for most states, state funding for higher education fell $2.8 billion to $77.9 billion, though the drop was largely offset by $2.3 billion in stimulus funds, the State Higher Education Executive Officers, a nonprofit policy association, reported.

The UC system is closely watched as the nation's largest university system by budget, and it has been hit particularly hard by California's fiscal troubles.

Over the past two fiscal years, California has cut funding per student by 22% to $7,570, UC officials said. Adjusted for inflation, state funding per UC student has fallen 54% since the 1990-91 fiscal year, they said.

According to the State Higher Education group, excluding federal stimulus, total state and local funding for higher education in California fell 24% per student between the 1990-91 and 2008-09 fiscal years, compared with an 11% drop nationwide.

The budget shortfall for UC, which has around 230,000 students, has grown as a result. The budget gap is projected to rise to $1.2 billion for 2010-11 from $1 billion for the 2009-10 year, according to UC officials.

In response, UC has cut $232 million in operating costs over the past two years by laying off 1,900 workers, furloughing employees and cutting academic programs, among other measures. Some of the moves, including raising undergraduate fees 32%, have sparked student protests across the state that at times have turned violent.

Even with higher fees and a possible $305 million restoration in state funding, UC remained $237 million in the red for the coming 2010-11 fiscal year, officials said.

UC officials are considering other proposals to shore up its finances. One is to offer online courses for university credit, which drew sharp criticism from a group of UC Berkeley faculty last week.

Some fear such online courses could undermine faculty control over curricula and degrade instruction quality, said Wendy Brown, a political-science professor and co-chair of the Berkeley Faculty Association.

L.A. Project Gets Caught in Limbo

LOS ANGELES—Unlike many real-estate deals across the U.S., developer Sonny Astani's downtown condominium-construction project here wasn't killed by the property market's collapse. The death of the project's lender, however, has left a big mess.

Last September's failure of Corus Bank, a Chicago-based unit of Corus Bankshares Inc., put the $163 million construction loan used to finance Mr. Astani's project in the hands of the Federal Deposit Insurance Corp. The loan now is controlled by a partnership of the FDIC and an investor group led by Starwood Capital Group, part of an unusual public-private push to increase returns on loans and real estate inherited by the FDIC.

Editors' Deep Dive: FDIC Watch

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The 56-year-old Mr. Astani says his efforts to finish the project, called Concerto, have been impeded by the FDIC and Starwood, which eventually could result in them seizing the property Concerto could be "a treasure chest for these guys," he says, contending the project, which includes a 30-story condo tower, retail space and a one-acre park, is worth more than the amount of the construction loan.

Corus Construction said Thursday that a tentative agreement has been reached with Mr. Astani that would allow the project to continue and the real-estate developer to retain ownership. Mr. Astani says negotiations have begun and are making progress but that no agreement has been reached.

Clashes between real-estate developers and lenders are common, especially during tough times. But the dispute over Concerto is an example of the litigation and other snarls facing the FDIC as it tries to work through tens of billions of dollars in loans, foreclosed real estate and other assets from failed financial institutions.

Some subcontractors have griped that Corus Construction Venture LLC, the entity formed to manage Corus's loans, has hindered their efforts to get paid. City officials say the delay has cost Los Angeles construction jobs at a time when the struggling local economy needs them.

A spokesman for Corus Construction says the Concerto loan is in default, which Mr. Astani disputes. In court filings, Corus Construction contends that the project is worth less than the amount Mr. Astani owes, accusing him of trying to "play fast and loose" with the loan terms by selling part of the project to raise cash. Corus Construction denies blocking money to subcontractors and has begun paying some of their claims.

More than 230 banks and savings institutions have failed since the start of 2008. Acquirers of seized banks usually take most of their assets, except when the loan portfolio is horribly battered. Of the $7 billion in assets that Corus had when it was taken over by the Office of the Comptroller of the Currency, the FDIC got about $4 billion.

Christina House

Developer Sonny Astani, outside his Concerto condo project in Los Angeles last month, is fighting the FDIC to maintain control of the project.

Hoping to avoid selling loans at fire-sale prices, the FDIC in 2008 launched a plan to bring in private investors. Such investors put in some of their own money, oversee asset dispositions and share proceeds with the FDIC.

The idea is to "capture the expertise and efficiency of the private sector, as well as improvements in market conditions," says James Wigand, an FDIC deputy director. So far, the agency has entered into 13 joint ventures involving more than $15 billion in assets. FDIC officials plan additional partnerships with investment firms.

Corus is the biggest public-private loan-workout alliance yet. Mr. Astani's loan was part of a package of assets with a face value of $4.45 billion. The Starwood-led investor group owns 40% of the venture, while the FDIC owns 60%.

Mr. Astani says he has pumped $55 million of his own money into Concerto. In 2007, he got a $190 million loan from Corus to finance construction of the 30-story tower and a seven-story loft building.

By early 2009, though, Corus's financial condition was deteriorating, and the bank faced mounting pressure from regulators. Mr. Astani says he encountered resistance in winning approval to keep the project moving. Last August, he sold the 77 loft units in a one-day auction that raised nearly $29 million. But because of the lousy real-estate market, the sales prices fell far short of the minimum specified in his 2007 loan agreement.

Completion of the loft sales required approval by Corus. But the bank was seized before Mr. Astani got the clearance he needed. Six days after the bank's failure, Mr. Astani put the Concerto project into bankruptcy proceedings in Los Angeles, hoping a judge would sign off on the loft sales and let him use some of the cash to finish the tower.

In an interview, Mr. Astani says he believed the FDIC "would be very happy" with his plan.

The FDIC objected to the move, accusing the developer in an October court filing of trying to "play fast and loose" with the collateral for the loan. The FDIC added that Mr. Astani's financial projections ignored the "grave market and economic conditions" in the downtown Los Angeles real-estate market.

In October, Mr. Astani won permission from a U.S. Bankruptcy Court judge to complete the loft sales and use some of the proceeds to finish the condo tower. To protect the loan, though, the judge ordered the Concerto project to pay $1 million a month to Corus Construction, which also would have to sign off on further spending.

Since then, the FDIC-Starwood partnership has dragged its feet on approving a budget and construction payments, Mr. Astani says. The Corus Construction spokesman says that Mr. Astani provided insufficient information needed for the budget and has "routinely submitted incomplete or improper loan-draw requests."

The FDIC-Starwood venture is offering unpaid subcontractors 95 cents on the dollar for their claims. The offer is an "end run" to undermine support for Mr. Astani among the creditors' committee in the bankruptcy case, contends Ronald Hudson, who claims his wall-installation company is owed $1.6 million for work on Concerto. He says he hasn't been offered a payment.

The Corus Construction spokesman says the offer "simply acknowledges" that subcontractors "deserve to be paid" and isn't aimed at influencing the bankruptcy proceeding. "Several" have accepted the offer, the spokesman adds.

Write to John R. Emshwiller at