ARENA PROJECT Talks to focus on finance contract
Last week's presentations by three developers gave a glimpse into upcoming financing issues.
By ROGER G. SMITH
CITY HALL REPORTER
YOUNGSTOWN -- Grand visions and pretty pictures of potential downtown civic center projects are nice.
But like all economic development, such projects hinge on one issue: money. More specifically, whose money and how much.
Financing will be central to talks that will start once city officials settle on one of three developers in a few weeks.
There were few specifics, but last week's presentations by those developers gave a glimpse into financing issues and where the city -- taxpayers -- might fit in.
Mayor George M. McKelvey has made it clear that the city won't be part of any deal involving direct financial liability. The $26.8 million in federal money the city holds for a civic center should be more than enough incentive for developers, he has said.
That means the city won't accept any direct role on some issues, said David Bozanich, city finance director. Among them are paying back debt on the project, construction overruns or shortfalls in operations of an arena, conference center or hotel.
That doesn't mean the city won't be involved in what Bozanich calls indirect financing.
Alternatives
For example, the city is open to talking about offering developers alternative revenue if that's needed to make a project work, he said. Examples include user taxes on hotel rooms, tickets or parking.
Even city ownership of the buildings isn't out of the question. Such ownership can be arranged so the city carries no financial liability, Bozanich said.
The city is open to talking about any development deal that maximizes its federal funds without direct liability, he said. The city wants an arena, a conference center, a hotel and other development if it can get it, he said.
Negotiations really come down to how much private investment the city can squeeze from developers using the federal money that must go toward an arena, Bozanich said.
The developers are Garfield Traub Development of Dallas; the Landmark Organization of Austin, Texas; and the Waterford Group of Waterford, Conn.
As the city had expected, none of the developers gave any real indication last week of how much money they'd be willing to invest. That's what negotiations are for.
There was a theme on how financing would work, however.
Tax-exempt borrowing
Developers seemed to agree that tax-exempt borrowing through the city would be used. That borrowing would finance the hotel and conference center because the federal money has to go toward an arena.
Tax-exempt borrowing cuts debt costs by up to 40 percent, Bozanich said.
Using the city's tax-exempt status makes money available that otherwise wouldn't be, said Raymond Garfield Jr. of Garfield Traub. Private money to finance hotels is difficult to find these days because of the economy, he said.
The city faces a $2.2 million deficit and future money problems, hardly a good time to borrow. Tax-exempt borrowing shouldn't affect the city's credit, however, because the developer guarantees the loan. Lenders would base their decisions on the developer's credit, not the city's, Bozanich said.
Also, tax-exempt borrowing would let the city keep any money left after the debt and operating expenses were paid, Garfield said.
The city's position on liability makes public ownership of any buildings seem undesirable.
Suggests rethinking issue
But Garfield explained why the city would want to own buildings, especially a hotel, via a nonprofit corporation. That setup lets the city control continued investment into the hotel, he said.
Cities that control arenas or conference centers -- but not the nearby hotel -- get frustrated if the hotel's quality slips, he said. That hurts bookings into the other buildings.
The city "ought to own it," Garfield said.
The city can't determine if it needs to own any of the buildings until after negotiations start, Bozanich said.
If need be, there are ways to layer ownership using companies such as insurers that will leave the city with no financial liability, he said.
rgsmith@vindy.com