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Wednesday, November 12, 2008

New Tax Possible for Arena

By Dan McKay
Journal Staff Writer
       City Hall could finance a $344 million events center and hotel complex by imposing a new one-eighth percent gross-receipts tax and by tapping revenue generated by the project — but it would need to find other money for related improvements.
    And the city must also be willing to use its existing tax revenue as a "backstop" in case the new tax isn't enough to pay off the debt, according to a financial analysis by the firm Piper Jaffray.
    City Hall would need to find separate funding for about $53 million in related improvements around the project's Downtown site, such as a canopy over the railroad tracks, plazas, road improvements and parking garages, the report said. City officials say the state government is one potential source for that money, plus some of the city roadwork would have to be done even if the project isn't built.
    The financial overview by Piper Jaffray was presented to the City Council's finance committee this week. The full council will hear about it in a study session Thursday and in a presentation at Monday's regular City Council meeting.
    Piper Jaffray was hired by the development team designing and studying the feasibility of a Downtown event center and hotel. The work of Piper Jaffray, along with all the other consultants, is being reviewed by an independent team with no stake in the project, according to the city Department of Municipal Development. RBC Capital Markets, for example, is reviewing the Piper Jaffray report.
    The city hasn't decided whether to move forward with the project.
    The tight economy and meltdown on Wall Street could complicate matters. The city and state governments each plan to cut spending because of lower-than-expected revenues.
    City Council President Brad Winter said that, amid a budget crunch, he's skeptical about the possibility of finding money for the extra $53 million not covered by the new tax and operating revenue.
    "Things are just down. It's a bad time," he said. The developers are "not looking at reality."
    But Councilor Debbie O'Malley said the project would create construction jobs, boost the economy and revitalize the city at a time when help is needed.
    "Families are going to be out of work, and here's an opportunity to employ hundreds of people," she said. "It's an investment."
    The city administration, meanwhile, has stressed that it's doing independent evaluations of the studies and moving cautiously. "Every report gets vetted," said Michael Riordan, deputy director of municipal development.
    The council has several reports to consider in the coming days. Here are some highlights:
    n A traffic study by Bohannan Huston Inc. recommends closing part of Central Avenue to traffic during special events. The area between Broadway and First Street would be reserved for pedestrians and the loading and unloading of buses and shuttles. The city might also need to station people at nearby intersections to direct traffic and post message boards.
    n A report by Economics Research Associates estimated that the "economic benefits will be larger than the costs over the life of the project." There would be a boom in construction jobs while the project is being built in the early years. After that, however, the new one-eighth cent tax would slow down the economy slightly, creating a negative impact for a while. But those negatives don't outweigh the initial positive impact or the benefits enjoyed in later years of the project, the report said.
    n The ERA report also says the project might erase or minimize the $1 million-a-year subsidy the city now provides to the Convention Center because new business would be coming in. The company called that "icing on the cake" for the city.
    n Turner Construction Co. estimates the events center and hotel would cost about $344 million to build. It would cost another $53 million for two parking garages; a plaza on the West Side of the project; a railroad canopy, plaza and platforms; and city road and utility improvements. Some of the road improvements would have to be made over the next 30 years anyway, even if the project isn't built, city officials said.
    n The existing revenue used as "backstop" for the project might not be needed. It should be available, however, in case the project's operating income or revenue from the new tax don't cover costs, officials said.
    Plans at this point call for a 550-room hotel next to the Convention Center and a 10,000- to 11,000-seat event center nearby at the railroad tracks.
    Winter questioned whether supporters of the project would put the tax increase before voters or just have the council consider it.
    The renderings are "absolutely breathtaking, but it's like we're building with a blank checkbook because it's taxpayer money," he said. "I have an issue with that."
    Councilor Isaac Benton said the city has potential as a better tourist destination.
    "I'm optimistic," he said. "I still want to digest all this. I'm looking forward to looking at this in more detail."