Tuesday, July 26, 2011

Event Center Funding Update

The city finance director gave an Event Center Bond Financing and Operating Budget presentation to the City Council on Monday, July 18th. The administration continues to assure the public that no new taxes will be required for the funding of the Event Center.

We now know that the construction of an event center will be financed through bonds obligating the 2nd penny sales tax for the next 20 to 25 years. The construction costs are estimated at $110M and with the cost for the debt service reserve and issuance of the bond bringing the bond cost to around $120M. The actual construction cost from Mortensen hasn't come in yet, so this is still a moving target.

The concern is not that taxes will go up. The concern is that the projected growth of the second penny sales tax will actually occur to meet the $7-$9 million annual bond payment over those 20-25 years and leave enough money to address the current and future infrastructure needs of the city.

Historical 25 year sales tax growth figures were used in sales tax growth projections. In the past that historical data was pretty much on target. Today's reality is much different, however.  Projections are not reality. Counting on the "horse power" of the 2nd penny sales tax is the foundation of the financing plan. The economy is in trouble and the federal deficit has a serious impact on local reality as well.  Where will funding come from if the construction costs exceed the projected $110 million in bond debt and the sales tax growth projections don't materialize?

The event center talk seems to be centered on construction, but we also need to focus on the operating costs of the event center once built. The administration assures the public again that taxes will not go up. There is assurance that property tax and first penny sales tax will not be used for construction, debt service or the operation costs of the event center. Private money, along with projected revenue, is to fund the operating costs of the new event center, along with the Entertainment Tax for capital needs.

The city intends to lump all three facilities (Event Center, Convention Center and Arena) together for financing purposes in the future. The projection is that after event costs and cost of operation, the operating income will be $1.1M to$2.6M. Repair and maintenance costs and capital needs were not in the expense projections. The Arena lost $123,000 net in 2010 and the Convention Center lost $560,000 in 2010. I guess that means that the Event Center revenues will subsidize the Arena and Convention Center operating expenses and still make a profit of $1.1M-$2.6M?

Uses for the 3rd penny Entertainment Tax Fund continue to expand. The Entertainment Tax brings in around $5M. Of that $5M, $2.25M goes to retire the debt service on the Pavilion and Convention Center and to assist in the operation, major repair and maintenance and capital needs of these two facilities. These bonds are projected to paid off by 2014.  The freed up funds are to support the capital costs of the Arena and will be used as a fall back to cover the capital and operating costs of the Event Center. In addition, the Entertainment Tax Fund will also now cover the operating costs, repair and maintenance and capital needs of the Orpheum and the Great Plains Zoo.  The question is, will there actually be enough money in this fund to go around. Which entity will have first priority for the Entertainment Tax Fund and which entity or entities will go wanting?

Will the public know how much private money has been raised for the operation of an event center before the proposed vote in November? The mayor sent out over 400 invitations to the business community to  hear his plan  last week.  I heard 150 actually showed up. I hope those private partnerships are coming in so we can hear how successful he is in "marketing" his financing plan to operate the Event Center and subsidize the costs of running the Convention Center and the Arena.

Before I vote on the event center, I want to know if there is actual private money committed to run the thing for the next 20 years and beyond. Can the City Council adopt an ordinance that specifically outlines the funds to be appropriated for the construction and operation of the Event Center?

The financial appropriation legacy of this event center will be laid at the feet of future city councils to fund. The repayment of the Event Center bond financing is based on 2nd penny sales tax growth and the operating costs of the Event Center are based on private funding and projected revenues, according to the Mayor's plan. Funding may be based on conservative assumptions, but it sounds more like a hope and prayer to me.

Show me the money!


  1. A simple review of Turbak's Power Point from July 18 paints a very different picture on the cost of a new event center. The mayor's plan to essentially use a credit card to build the EC puts taxpayers on the hook for $191 million, considerably more than the $110 million figure being tossed around. Add up the debt service numbers at the bottom of page 4: http://docs.siouxfalls.org/sirepub/cache/0/qusfn155jw2sts55h1fmc245/17495307262011084845377.PDF.

  2. He is going to build it on the backs of the city employees who he is refusing to give any kind of cost of living increase, saying the city does not have the money. Isn't this the corporate Premier Bankcard way? Underpay your employees and take a large salary for yourself and department heads.

  3. Timely story in the Grand Forks Herald on the Alerus Center. Their finance director came before the city council last night and asked for $271,000 to cover projected losses for the facility, blaming losses on the “dearth of concerts” and lack of artists touring the region. In the past three years, the facility has lost $46,000, $145,000, and $271,000 (projected). Interesting that our proposed facility is going operate $1M+ in the black, when the Alerus Center is $250K in the red.


  4. Jen, I know everyone things you're just a hater but the facts are the facts. This plan is getting more expensive every time they have a powerpoint presentation and it hasn't been delayed at all since they started the project. Meaning the cost overruns aren't because the process is slowed down...it's because this sucker is out of control. The Mayor doesn't have an easy job but he signed up for it and he needs to do a better job at selling his ideas. So far not too many people are buying it. People keep telling me the private businesses won't put their support behind the project until the public votes. If that's the case this thing is doomed (as it should be b/c the plan stinks). If people who have to make money to stay alive think it's a bad idea then I"m trusting their investments (or lack there of) over the Mayor's hopes and dreams.

  5. I have heard some say that the mayor gets elected on the turnout of city employees. Well mayor, start packing.

  6. Alerus isn't the only one:

    "The city-owned events center lost $398,000 last year after losing $451,000 in 2009. ShoWare officials project the arena will lose $290,000 in 2011, according to the budget forecast released Jan. 27 by SMG, the operator of the facility."


  7. Isn't this the corporate Premier Bankcard way? Underpay your employees and take a large salary for yourself and department heads.

    While department heads and "managers" for anything and everything are grossly overpaid in this city, I would not go so far as to say the typical front line city employee is underpaid. They do quite well compared to their private industry counterparts. Same with the retired group of city employees...especially after factoring in "spiked" pensions and last year payouts of accrued sick leave hours. I'm all for unions, but it is clear abuses like this that give them a bad name.

    Polly Amalo

  8. Yet another facilty whose sales pitch isn't matching reality:

    "It's time for the Cheyenne City Council to take a harder look at the Taco John's Events Center.

    Yes, it is true that city-owned facilities like this rarely break even.

    But it also is true that then-Mayor and now-City Councilman Jack Spiker argued that the facility would do just that - and maybe make a profit - when the city traded land for it in 2007.

    And that is not happening. In fact, the ice center is losing more money now - $223,678 in fiscal year 2009-10 - than it ever did when it was run by private investors (they lost $64,067 in 2006).

    And the city's losses have come in spite of the fact that it is not paying either a mortgage or property taxes. In other words, under the leadership of Rick Parish, director of parks and recreation, the Events Center is hemorrhaging red ink."


  9. And the beat goes on:

    "Neely presented those numbers during Thursday’s Clovis City Commission meeting, and said Friday that more events will be scheduled at the center thanks to the expansion of Clovis Community College’s Cultural Arts Series. The program is moving some events to the center, like a September concert with an Eagles cover band, because of the center’s larger capacity and ability to serve food and alcohol.

    The general fund, however, will still take an annual hit to maintain the center and pay its 30 full time and part time employees.

    “There are only about a handful of convention centers like us that break even or make a profit,” Neely said. “Going into this project, the city had anticipated a $350,000 loss per year. We’ve been able to stay under that.”

    The center lost $189,091 in its first year.


  10. Yet another one, even closer to SF;

    "But, in the past several years, local groups such as the Black Hills Symphony Orchestra, Shrine of Democracy Chorus, A Cappella Chorus and even the Shrine Circus have either left due to increasing costs or found themselves fiscally challenged by last year’s sudden 60 percent increase.

    Civic center general manager Brian Maliske has said rental rates at the civic center hadn’t been increased adequately over the years to keep up with operational costs. As a result, the Civic center was losing money on many nonprofit events in the theater, including the Black Hills Symphony Orchestra."

    Read more: http://rapidcityjournal.com/news/skyrocketing-cost-to-rent-civic-center-pushes-nonprofits-to-hunt/article_9ab68f30-b02f-11e0-ae62-001cc4c002e0.html#ixzz1TKVOsYND

  11. Didn't we just have Darrin Smith and his naming rights Consultant buddy highlight the "loge seating" as a major revenue stream? Maybe they should ask around:

    "The loge boxes and the improved loading docks were major pieces of the renovation proposal when public discussion began last fall.

    The boxes -- basically small, open luxury boxes -- could be sold to businesses for as much as $2,500 per seat per season, Petrovek said. Companies often use luxury boxes to treat employees and clients to a night out.

    While those seats are often easy to sell for sporting events, they don't always sell as well for other events, such as concerts, "Disney on Ice" or other programming, committee members said.

    Each loge seat takes up twice as much space as a regular seat, so adding them would reduce the venue's total number of seats by as many as 80.

    Because of that, if the civic center can't sell the loge seats for higher prices, it may actually lose money on them during non-Pirates events"


  12. How about our newest and apparently most naive Councilor Karsky who recently posted on Facebook about his trip to Schaumberg's Convention Center and how we need to follow their lead:

    "In 2005, village officials in both Schaumburg and Wheeling were boasting of their investments in hotels. Schaumburg itself is the owner of the Marriott Renaissance at the village’s convention center, Interstate 90 and Meacham Road. Wheeling provided a $23 million subsidy for the new Westin North Shore, 601 N. Milwaukee. The hotel’s developer said the subsidy was “totally, completely, unequivocally essential” to the project."


    "This year’s budget for the Schaumburg hotel estimated its financial loss at $5.7 million in 2009, $4.6 million this year and said the village’s cash reserve for the hotel will dwindle to about $4.4 million by year-end. Its projected revenue this year is about 40 percent less than what was assumed in a 2004 financial plan used to sell the investment to the Village Board."