To: Mayor and Board of Aldermen
From: Paul Smith
Date: May 11, 2007
Re: Harry Grove Stadium
Based upon the information I have gathered on financing of the renovations for Harry Grove Stadium, I have some comments to share and a proposal.
1. At this time the City has spent approximately $867,000 on stadium renovations.
2. The State has promised to reimburse us for one-half of these expenditures. I don’t believe the City has yet requested the reimbursement from the State.
3. The current expenditures ($867,000) have been made from pay-as-you-go funds, such that the City has yet to use any loans for these expenditures. Accordingly, there has yet to be any debt servicing for the stadium renovations.
4. The remaining stadium renovations are to be paid for from CIP funds. City CIP funds are usually provided from bonds which are amortized over 20 years at a current interest rate of approximately 4.5%. Normally all CIP funds are lumped together, such that several projects are funded from one bond issue.
5. Assuming the figures suggested in comment # 4, above, and if the City funds $4.4 million in stadium renovations and that this entire amount is amortized over a 20-year period, then annual debt service (interest payments) for the City’s $4.4 million improvements could cost the City an estimated average of $200,000/year for 20 years. (This will be referred to as the “worst scenario” debt service cost.)
6. This debt service is a greater expense than I believe is appropriate to pay for stadium renovations. It would approximately double the cost of the renovations.
7. The “worst scenario” debt service cost is not accurate, and this “worst scenario” amount is much higher than the actual debt service charges because some of the renovations cost funds come directly from tax revenues. It is possible for the City to accurately track the costs of the stadium renovations, including which amounts come directly from tax revenues and which come from bonds (which bring an attendant debt servicing charge).
8. I understand that it is possible for the City to fund the stadium improvements straight from tax revenue funds, rather than from general obligation bonds. In my opinion this would be the best way to fund the stadium improvements. If there are sufficient tax revenues to fund the renovations from those revenues and not from bond debt, then the City should do so.
9. I understand that the City has the ability to treat the stadium renovation CIP funds differently from other CIP funds, in the manner that I suggested. I understand that there is nothing improper about this disparate treatment.
I propose: (1) That the stadium renovations be funded directly from tax revenues to the extent this is possible, such that City bonds are used for the renovations only to the minimal extent necessary; and (2) That the City track the source of funding of the stadium renovations so that it can be readily shown the amount of debt that is used to fund the renovations and the amount of debt service costs for the renovations.
Because of the scrutiny and criticism that is given to the stadium renovation issues and because of what I believe to be inaccurate information that is being disseminated, which information presents the stadium renovations to be excessively expensive, I believe that the above proposal would be appropriate and would be in the best interests of the City. Therefore, I request the Mayor (and Board of Aldermen, if appropriate) to fund the stadium renovations in the manner suggested.