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!