Daily Report

This Afternoon's Headlines / Tue, January 29, 2013


Morales splitting Commonwealth Advisors

Well-known investment adviser Walter Morales, who has been accused by investors and the Securities and Exchange Commission of lying to his clients about their investments and trying to hide their losses through a complex series of trades, is getting out of the retail investment business. Morales tells Daily Report that his Commonwealth Advisors, which was known for consistently delivering better-than-average returns and once had a portfolio approaching $750 million, will split in two, pending regulatory approval. The retail, or individual investor, side of the business, which has about $100 million in assets, will be transferred to a new, employee-owned firm called 3rd Street Capital Management. Its principals are Gerald Warrington and Noel Caldwell. The institutional side of the business, which has about $85 million in assets, will remain with Commonwealth. Morales concedes that given the damaging allegations in the SEC suit and the fact that he will be "dealing with it for years," transferring the assets of the individual investors into a new firm made sense. "We don't want our clients to be involved in a firm that has issues with the SEC," he says. "This keeps them insulated." Morales has denied the allegations in the SEC suit, and also in a suit filed by attorney Patrick Broyles on behalf of local investors. To read more about the allegations, click here. —Stephanie Riegel

Marriott may soon be up for sale

The Baton Rouge Marriott on Hilton Avenue—the iconic high-rise visible from both directions on Interstate 10 near College Drive—may soon be on the market. Sources familiar with the situation tell Daily Report the company that owns the 297-room hotel, Columbia Sussex Corp., is in the process of tendering the property back to its lender, Bank of America, which became the mortgage holder when it acquired LaSalle Bank National Association several years ago. Though the nearly 40-year-old hotel, originally branded as a Hilton, is not in foreclosure, sources say Columbia Sussex—which is a franchisee for major national hotel brands with dozens of properties around the country—is unwilling to invest the millions needed to upgrade the aging structure. Sources also say the property could change hands within the next 90 days. An official with the Kentucky-based Columbia Sussex declined to comment on the situation. But at least one local developer has his eye on the hotel. Mike Wampold, who in October purchased 2.5 acres of undeveloped land across the street from the Marriott with plans for developing an upscale restaurant and maybe a small hotel, says he would be interested in the Marriott if the price is right. "On the raw land across the street I envision a nice restaurant and hotel," he says. "And if you have a full-service hotel and a limited-service hotel near each other and they are cooperating, that would create some synergies." —Stephanie Riegel

Case regarding definition of 'family' in B.R. to resume next week

Judge Janice Clark today ordered both the city-parish and Steve Myers back to her court in one week to file post trial briefs in lieu of closing arguments in a dispute over the definition of "family" in the city-parish's Unified Development Code. Attorney Grant Guillot, who is representing Myers, says he expects the judge to take at least 30 days to issue her ruling after receiving the briefs. At issue is the definition of "family" as it relates to residences in the city-parish zoned A1 single family. Section 2.8 of the UDC defines "family" as "two or more persons who are related by blood, marriage or legal adoption." There's additional language in the definition, but that's the part that primarily concerns the Myers case, which dates back to a complaint a neighbor filed against him regarding one of his rental homes on Cherrydale Avenue in September 2011. The city responded by demanding that Myers comply with regulations, which would have meant kicking out four tenants whom the city deemed unrelated. At the trial today, an expert witness for Myers' defense says there are many families whose modern demographics would not meet the definition of "family" in the UDC use. Dana Berkowitz, a professor in the sociology department at LSU, says there are many same-sex couples who have foster children in their homes, for example, as well as unmarried couples who cohabitate a home with children from other relationships. In these scenarios and others, the tenants would not meet the definition of "family" in the code. —Adam Pearson Read the full story here.

Barfield: Tax reform will have 'very few losers'

Louisiana Department of Revenue Secretary Tim Barfield is pushing back against what he says are common misperceptions about the Jindal administration's still-evolving tax reform package. Broadly speaking, Gov. Bobby Jindal wants to eliminate personal and corporate income taxes, but still raise the same amount of revenue with higher sales taxes and fewer exemptions. Among the points Barfield stressed to the audience at a breakfast hosted by Business Report today:
—Impacts on poor and middle-class people: The administration wants to protect tax breaks for food, medicine and home utilities, and wants to preserve the state's earned income tax credit in some form.
—Oil and gas taxes: Referring to a media report that suggested eliminating oil and gas extraction taxes was on the table, Barfield says the idea has not been seriously considered, although he does not dismiss it entirely.
—Sales tax collection: He says the state isn't looking to take over local sales tax collection, but rather wants to partner with the locals on a unified system that would be simpler for business owners and help the state comply with possible federal legislation governing Internet sales taxes.
—Stability: Barfield says sales taxes are "generally the most stable tax base out there." Sales tax receipts tend to grow more slowly than other revenue sources but don't fall as fast during a downturn, he says, suggesting that's a trade-off worth making. —David Jacobs

Local business owners and executives welcome yet wary of tax reform

Pat Felder, owner of Felder's Collision Parts and chairwoman of BRAC's board of directors, says Louisiana needs major tax reform. "It's always had the reputation of being very business-unfriendly," she says. However, Felder is concerned about possibly losing incentives for small businesses, and fears higher sales taxes will harm businesses that sell big-ticket items. She'd be happy to see LED's Enterprise Zone program go away, which she says has strayed from its purpose of helping blighted areas. "You've got big national drug companies sitting on prime real estate, taking advantage of the Enterprise Zone," she says. (LED Secretary Stephen Moret says the program could be tweaked to ensure it is spurring net job growth.) Patrick Mulhearn, director of studio operations for Raleigh Studios Baton Rouge, says if the income tax goes away, maintaining film and digital media incentives as state tax credits is preferable to a pure rebate program. He suggests letting oil and gas companies reduce their severance tax liabilities by purchasing the credits, thereby creating a partnership between a traditional Louisiana industry and an emerging one. Entrepreneur Sean Simone says eliminating the personal income tax could help him attract and retain employees, and help Louisiana attract angel investors. "I'm not against tax credits," he says, "but we can't rely on them. That's not what's going to build the state." Felder, Mulhearn and Simone were among more than 400 attendees at a breakfast hosted by Business Report, where the Department of Revenue's Tim Barfield addressed tax reform. —David Jacobs

Maginnis: Jindal says D.C. is no place for GOP

By now, Gov. Bobby Jindal should hope he has given his last rebuttal speech. Like his first one, in February 2009, his latest, to the Republican National Committee last week in Charlotte, N.C., followed the party's dashed hopes in another national election. For Jindal, at least, his was a better-received performance than the guffaws and ridicule that greeted the singsong delivery of his national debut. This time, instead of unnaturally slowing his rhythm, he let it rip in his customary rapid-fire fashion, even blowing through pauses for applause. The governor doesn't need a speech coach. He needs a speech editor. The recent rebuttal, at 25 minutes, ran one and a half times longer than President Barack Obama's second inaugural. Had he slowed to the cadence of the president's address, he might still be talking. In content, Jindal spent more time rebutting the Republicans than the president. As he did in comments after the election, and again in a Washington speech on Sunday, he dished out the tough love, urging the GOP to stop being the "stupid party," to reach for all voters instead of a percentage, and to quit insulting the intelligence of voters with dumbed-down slogans in 30-second commercials. It's sound advice for both parties, in a civics-textbook way. But such is not the real point Jindal is driving home in these speeches. His more radical, compelling and, yes, self-serving message to Republicans is to turn away from Washington and the debate over who should control the federal government. Read the full column here.

(John Maginnis publishes LaPolitics Weekly, a newsletter on Louisiana politics, at LaPolitics.com.)

EBR sales tax collections up 7.1% in November

At $14.5 million, sales taxes collected on retail goods and vehicle sales in East Baton Rouge Parish rose 7.1% in November compared to the same month in 2011, according to a report from the city-parish Finance Department today. Excluding taxes on vehicle sales—which are considered a less reliable measure of economic conditions—collections in the city and parish were at $13.5 million in November, up about $830,000, or 6.6%, compared to November 2011. Collections were up inside and outside the city limits on the month. In Baton Rouge alone, sales and vehicle tax collections totaled $7.3 million, up 4.6%. Outside the city limits, combined collections were $7.2 million, a nearly 10% increase. With one month left to report for 2012, combined collections in the city and parish stand at $156.6 million through November. That's about $10.5 million more than was collected through November in 2011, or an increase of just over 7%. You can check out the entire monthly and year-to-date sales tax collection figures for the city and parish here.

'Real Estate Weekly': Lakes of Magnolia Trace back on track

The Lakes of Magnolia Trace was once a wasteland of discarded trash, tires, and burnt couches and mattresses: little more than a dump site and breeding ground for snakes finding habitat in waist-high grass. Yet today, the property is clean, three families live in homes in the subdivision, and 16 more houses are under construction, according to D.R. Horton Inc. The national homebuilder bought the subdivision in March 2012 and built a 3,179-square-foot model home by November. "Sales have been brisk since our opening in June," says D.R. Horton sales counselor Jessica Herry. The homes range in size between about 2,000 to nearly 3,200 square feet and are priced between $240,000 and $320,000. The current activity is a far cry from the abandoned development that infuriated neighbors. "The grass got real high, I mean super high," says David Guillory, interim director of the Department of Public Works, of the former state of the 81-lot subdivision off O'Neal Lane. "It was really too big to maintain." It remained desolate for about three years after roads and sidewalks were paved, underground utilities were laid into place, and streetlights were installed in 2008; not a single house had been framed on the lots—priced between $120,000 and $180,000. By October 2011 the 60-plus acre development was foreclosed upon. —Adam Pearson Read the rest of this story in the new Real Estate Weekly e-newsletter here.

BP will pay $4B in criminal penalties for role in 2010 Gulf disaster

A federal judge today approved an agreement for BP to plead guilty to manslaughter and other charges and pay a record $4 billion in criminal penalties for the company's role in the 2010 oil disaster in the Gulf of Mexico. Before she ruled, U.S. District Judge Sarah Vance heard testimony from relatives of 11 workers who died when BP's blown-out Macondo well triggered an explosion on the Deepwater Horizon drilling rig and started the spill. BP agreed in November to plead guilty to charges involving the workers' deaths and for lying to Congress about the size of the spill from its broken well, which spewed more than 200 million gallons of oil. Much of it ended up in the Gulf and soiled the shorelines of several states. The company could have withdrawn from the agreement if Vance had rejected it. Neither the Justice Department nor BP presented arguments to the judge before her decision in New Orleans today. Vance says the plea deal was "just punishment" considering the risks of litigation for BP and the alternatives to the settlement. Today's deal doesn't resolve the federal government's civil claims against BP. The company could pay billions more in penalties for environmental damage. BP separately agreed to a settlement with lawyers for Gulf Coast residents and businesses that claim the spill cost them money. BP estimates the deal with private attorneys will cost the company roughly $7.8 billion. The Associated Press has more on this story here.

News roundup: No privatization planned for LSU's Lallie Kemp … Ships idle for Mississippi River oil cleanup … U.S. consumer confidence dives on higher taxes

Status quo: While most of LSU's south Louisiana hospitals are set for privatization, the head of the LSU hospital system says its facility in Tangipahoa Parish will stay under university control for the foreseeable future. Frank Opelka, LSU's vice president for health affairs and medical education, says he hasn't been able to find a "community partner" that would be a good fit to run Lallie Kemp Regional Medical Center in Independence.

Without a paddle: Freight barges were idled today among some 50 vessels lined up along a normally bustling stretch of the Mississippi River that was closed as crews worked to clean up leaking oil spilled in a weekend barge accident. Workers have been skimming oily water around-the-clock near Vicksburg, Miss., since a barge carrying thousands of gallons of oil struck a railroad bridge and began leaking before dawn Sunday. The accident forced the closure of a 16-mile stretch of the lower Mississippi. The full story is here.

That uneasy feeling: American consumer confidence plunged in January to its lowest level in more than a year, reflecting higher Social Security taxes that left Americans with less take-home pay. The Conference Board says that its consumer confidence index dropped 8.1 points in January from December to a reading of 58.6, the lowest since November 2011. More details can be found here.

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