Funding gap for arena continues to increase

Officials say the numbers keep changing because the project is still under way.
By DAVID SKOLNICK
VINDICATOR POLITICS WRITER
YOUNGSTOWN -- The city could be forced to borrow as much as $12.1 million to make up a funding gap for its convocation center.
City Finance Director David Bozanich stressed Wednesday that the $12.1 million is a "worst-case scenario" figure, and that it probably won't be as high as that amount.
However, the amount of money the city projects it will need to borrow for the arena continues to increase.
City officials pegged the number at about $8.15 million Friday, increased it to $10.65 million Monday, and then to $12.1 million Wednesday.
Bozanich and Mayor George M. McKelvey say the fund gap is changing -- and will continue to do so, although they say probably to a lesser amount -- because the project isn't done.
Most of the $2.5 million change from Friday to Monday was because city officials forgot to mention $2 million in unanticipated water and sewer work paid through the water and sewer departments.
The change from Monday's figure to the one given Wednesday is because Bozanich wants to use the worst-case scenario figure.
McKelvey said the project's construction budget should be 6 percent to 7 percent over original estimates. However, the mayor said projects of this magnitude can typically go 10 percent or more over budget.
Under Bozanich's worst-case scenario, the arena would cost $45,379,842.94. The city had used a $41.25 million figure for the last year until questioned about it last week.
Obtaining funds
The city received a $26.8 million federal grant for the facility, a $2 million commitment from the state and a $550,000 energy grant from Ohio Edison, and used about $4 million in water and sewer work paid through the water and sewer departments, not the general fund.
The city also anticipates obtaining an additional $3 million from the state, but that money won't come for two to three years, Bozanich said. That means the city must borrow the $3 million until it gets it from the state.
The $3 million in addition to the funding gap adds up to $12,029,842.94, but Bozanich rounded the number to $12.1 million.
One of the nation's most prominent Democrats to support President Bush's re-election last year, McKelvey said he is lobbying the federal government to provide the money needed by the city to close the funding gap.
Borrowing from the city
In the meantime, the city plans to sell a one-year note to pay the funding gap, and then convert that note to a 20-year bond a year later.
Bozanich's worst-case financial scenario calls for the city to borrow the money with an interest rate of 7 percent. The actual interest rate should be somewhere in the mid- to upper 5 percent range, he said.
"I'm being ultraconservative with my numbers," Bozanich said.
The city and the arena's management team is working with vendors and sponsors to keep costs down and to raise revenue, he said.
Any profits from the arena first goes to pay off the city's debt. At the 7 percent interest rate used, the city would pay $852,353.29 toward its debt in the first year.
The arena's profit is expected to be $1,153,802 in the first year, said Bozanich, who emphasized that the profit figure is also conservative. Those involved with the project expect profits to be greater than that, he said.
After debt is paid, the city gets the first $300,000 in profit from the facility, and then gets 70 percent of any money after that. The other 30 percent goes to the companies managing the arena.
That scenario would leave the management companies with a $434.61 profit for the first year. When told of the tiny amount, Bozanich again emphasized that he didn't believe the worst-case scenario would occur.
Councilman's response
Councilman Artis Gillam Sr., D-1st, whose ward includes the arena, wanted to know how the project's cost escalated from $41.25 million to $45.38 million.
"This is millions more than we were told," he said. "This drives me up a wall."
Gillam said he was upset that he first read about the funding gap and the project's increased cost in the newspaper instead of hearing it from city officials. He also said he doesn't want the federal government coming after him years from now and putting him in prison because of problems with the arena.
McKelvey said that would not happen.
Also, the city is having an independent CPA firm, the state auditor and the U.S. Department of Housing and Urban Development, which provided the federal funding for the project, conduct audits of the arena and its invoices, McKelvey said.
Exclusivity grumble
Gillam also objected to a provision in the proposed contract with the Youngstown SteelHounds minor league hockey team, the arena's main tenant, that gives it exclusivity when it comes to other sports teams playing at the facility for one year.
The provision came to light when backers of an AF2 (Arena Football League 2) franchise complained about it. McKelvey said he has no doubt that AF2 will be at the arena next year.
"I think it's unfair," Gillam said. "A lot of folks won't watch hockey."
McKelvey said a contract with the SteelHounds will be signed in a few days, and to remove the exclusivity clause now would be to bargain in bad faith and would probably kill the deal.
Other council members said they didn't want that to happen and don't oppose the one-year exclusivity clause.
skolnick@vindy.com