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Comments
to Richmond City Council
February 16, 2005
I'm
John Gerner, a Richmond taxpayer and business owner. I'm also Managing
Director of Leisure Business Advisors and have been evaluating proposed
developments for more than 20 years. I am here totally at my own
expense, compelled by my knowledgeable concern about the proposed
Shockoe Bottom stadium project.
The developers are trying to convince us that there is no risk to the
City of Richmond or its taxpayers if the proposed stadium project is
approved. That even if the planned development did not succeed,
Richmond would still have its new baseball stadium essentially for
free, since the promoters have assured us that city government would
not be legally responsible for paying the $80 million in bonds.
Although technically true, there is a great difference between the
technical illusion of this type of bond financing and its practical
reality. We have the recent experience of Washington DC and a similar
$250 million downtown mixed-use project called Gallery Place as a
history lesson about this difference. As reported in the Times-Dispatch
this morning, Timothy L. Kissler, one of the principals in Global
Development Partners, was also involved with that project. In 1999, his
company at that time, along with real estate developer Herbert Miller,
asked for tax increment financing or TIF bonds from the District
government for Gallery Place. This was reported in the Washington Post
on October 9th, 1999, in which Mr. Miller assured readers that the bond
financing would be painless for taxpayers. The assumption there, just
as with the Shockoe Bottom stadium, was that only the incremental taxes
from the project could be used to pay the bonds.
That was technically true. However, as noted in a newspaper article at
that time, Valerie Holt, Washington DC's chief financial officer pointed out
that "while the District's full faith and credit does not secure the bonds,
the District may be viewed by bondholders as having a moral obligation to
repay. If the District allowed outstanding bonds to default, there's a
reality to that, she said. Our ability to sell TIF bonds subsequent to
that would be zero."
And it's important here to point out that TIF bonds are traditionally used
for projects such as public housing and a default on these stadium bonds
could greatly affect Richmond's ability to attract bond buyers for other
future projects. Bondholders need strong assurance that their bonds will
be repaid. The interest rate is relatively low and therefore they are
unlikely to buy these bonds unless there are guarantees that they will be
paid back.
In 2002, $73.6 million in TIF bonds were sold for the Gallery Place
project. At that time, the developers assured DC government that the
project would be completed by October 2003, but still have not been able
to attract all of the needed anchor tenants. As a result, today more than
a year after its scheduled completion, the project remains incomplete.
The question for us here in Richmond is what has happened to the
bondholders? Are they being paid and who is paying them? The answer can be
found in the DC Government's 2005 budget, which can be downloaded from
their website. On page G-19, it states that Pursuant to Council
Resolution, the District is required to establish a reserve to be used to
meet the bond obligations associated with the Tax Increment Financing of
the Gallery Place and Mandarin Projects. In the Fiscal Year 2005 Budget,
the District is requesting authority to expend up to $9,710,000 from the
District's general fund balance as needed to meet this requirement. The
debt service payments associated with the Gallery Place project are
$5,201,489 in FY 2005"
That annual debt payment is based on a total amount of $73.6 million.
Since the proposed stadium bonds would be $80 million, we can assume for
now that the debt service for these bonds would also be more than $5
million each year.
Regardless of the assurances from the developers, just like those given to
Washington DC taxpayers in 1999, we the taxpayers of Richmond would
ultimately be responsible for paying the $80 million dollars in bonds.
Based on actual experience, the City of Richmond would likely need to
establish a separate reserve from its general fund of more than $5 million
each year and be fully prepared to make the payments on these bonds. Or
else, City government would have to be prepared to directly impose a
special stadium tax on property owners within the jurisdiction of the
proposed community development authority to pay for these bonds. There are
substantial real risks to Richmond taxpayers from this proposed project
and we should all be aware of them from the very beginning.
We need to clearly understand how the proposed bonds would be paid for
under the worst-case scenario, not the best-case we've already heard
about. With the recent demolition of Sixth Street Marketplace and our
expectations that we will not repeat the mistakes of the past, it would be
wise for us to hope for the best, but only move forward when we are
willing to accept and begin preparing for the worst.
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