While we all sit around and debate the pros and cons of a baseball stadium in Shockoe Bottom, we can observe the death throes of a similarly structured public/private development project currently playing out in real time, and just right down the street. From the RT-D’s Mike Martz:
The authority already expects to face a shortfall of $1.58 million in debt service over the next year in the budget it adopted Thursday. Richmond is obligated to pay up to $3 million a year in debt service on the bonds if there isn’t enough money from parking revenues to pay the bill…
The parking authority hasn’t been able to generate the revenue that had been projected to finance $67.5 million in bonds issued in 2003 to spruce up the Broad and Grace street corridors in anticipation of a new performing arts center and hotel that were much slower to be built than expected then. As a result, the authority can’t afford to build garages on two surface parking lots, or complete the renovation of three floors on an existing parking garage.
We should all be shocked (shocked!) to see a deal that private investors wouldn’t touch without a city guarantee unfold so gloriously - actual revenues have come in at about 50% of what was projected. And the city already contributes, either directly or through the RRHA, nearly one quarter of the CDA’s funds. So, even before this bailout, in no way has this project ever been “free” as advertised.
So I think this provides the appropriate context in which to view the proposed stadium. And for the record, I am a huge baseball fan and would love to see something like this built downtown. I would also like to be 2 inches taller, 10 lbs lighter and offer the citizenry free ice cream on Fridays in the summer. Maybe once it gets built we could even work out a publicly-funded “Free Lapdance Night” with Sam Moore across the street at Club Velvet. Now that is a proposal I could get behind. But, I digress.
The common thread throughout all of these public/private deals is that the profits are privatized while the risks are socialized. In most cases it is even worse than a “heads they win tails we lose” situation. Instead it is a “heads they win and tails they still win and we lose” setup. Consider all of the fees and reimbursements paid to the developer, ECI Investment Advisors, LLC for their sterling management of the project. Oh, and we gave them the Miller and Rhoads property too. They did rehab it into condos (which we so desperately need more of) and a hotel, but it looks like they received zillions of tax credits and other subsidies to mostly pay for that.
In addition to ECI, there is one more group that is getting a pretty sweet ride as a result of the bailout - the CDA bond holders. They are being paid what amounts to a “junk” bond rate, 7.5% tax free, while having the backstop of a AA-rated major city. And before you poo-poo 7.5%, consider that the interest is exempt from Federal and state income tax (for Virginia residents). That is a taxable equivalent annual yield of about 12.5%. Not too shabby, eh? It’s an even sweeter deal if the bondholders could somehow make sure the city would ride to the rescue when things went south - because without the city this thing would be headed to default and the bonds would be worth about as much as your average subprime mortgage. But if you knew the city would step in, then there really wouldn’t be any risk to it at all - right?
So, who are these intrepid investors? George Soros? John Paulson? the Oracle of Omaha? Well, unfortunately we just don’t know. What we do know is that back in 2003 the CDA tried and failed to sell the bonds without a city guarantee. As the project looked like it would collapse, the city caved and gave its “moral obligation” and boosted the bonds’ interest rate. The bonds finally sold, and thanks to Silver Persinger, keeper of RT-D archives, we know that:
Since city taxpayers are now on the hook for this thing, I think it is time to unmask these fine fellows. I think it’s important to see if some of these individuals are the same people that foisted this project upon us in the first place. Then maybe we can have an honest discussion as to whether they should be bailed out. And as for the identity of the five “individual” CDA bondholders, it’s just a guess, but the smart money is betting that one of them is this guy…