THE FINANCE PLAN. Background and Summary

Size: px

Start display at page:

Download "THE FINANCE PLAN. Background and Summary"

Mavis Ryan
6 years ago
Views:

1 THE FINANCE PLAN Background and Summary The City of Portland has prepared a finance plan (the Plan ) to attract Major League Baseball (MLB) to Portland. The Plan is consistent with several principles developed by the partners in this effort, including the City of Portland, State of Oregon, and the Oregon Stadium Campaign. These principles include the following: No existing city revenues are to be redirected to the project. To the extent possible, the economic activity attributable to MLB would be used to finance the project. No new broad-based taxes are to be sought. In crafting this Plan, the City tried to avoid placing an undue burden on any of the stakeholders called on to contribute to the Plan. The goal was for stakeholders to see the benefits of their participation far outweighing any burden. For the team, this means no required equity payment to help pay for the facility. For the business community and for only those businesses within walking distance of the ballpark this means participation that the City believes is modest and equitably distributed. Another objective of the Plan was to provide options and flexibility to the team and owner as to their form of contribution. As outlined below, the City is seeking support from the team through a ticket tax, concessions tax, and a small annual lease payment. There is also a charter seat program that works to the benefit of both the Plan and the owner, as discussed below. Should the league and/or a team owner desire to structure the contribution from the team in a different way, the City would consider alternative forms of participation. Project Revenues, particularly the revenues from Oregon income taxes paid by baseball players and officials under Senate Bill 5. A following section on Bonding Assumptions and Structure contains additional details on these issues. Because Project Revenues are cross-pledged in the bonding structure, a pro-rata methodology had to be used to estimate how much bonding capacity is attributable to the various revenue streams. As a result of this pro-ration, the financing capacity values of some of the revenue streams have shifted when compared to earlier versions of this Plan. Bonds would be sold to provide net proceeds of $310 million for construction of the new ballpark, with Project Revenues being used to repay these bonds. In addition, $40 million would be contributed from Other Revenue Sources, including: tax increment proceeds, local improvement district (LID) assessments, and the charter seats program. While this $350 million total is slightly below the latest projected site costs, this Plan is just the starting point for negotiations with the league and a potential owner. Elements of the Plan can potentially be adjusted to match the site costs when the stadium is constructed. This small gap (4 percent) is not viewed as a significant issue. The following pages contain the components of the City s Plan. Each component is listed along with a brief description and the estimated financing capacity each contributes to the overall Plan. THE FINANCE PLAN Background and summary The City and its partners have worked diligently over the past 18 months to produce a solid Plan that is consistent with project principles outlined above. This Plan is subject to change and will require the approval of the stakeholders, including the Portland City Council, before it can be implemented. The City s Plan utilizes a tiered bonding structure where Project Revenues (payroll taxes, ticket taxes, concession/merchandise taxes, stadium district fees, hotel/vehicle taxes and team lease payments) are pledged to cover a series of prioritized bond issues. This structure is necessary to maximize the financing capacity of the 23

2 The Rose City

3 THE FINANCE PLAN Project Revenues State Income Tax Bonds $115 million On August 25, 2003, the Oregon State Legislature passed Senate Bill 5, which allocated all Oregon income taxes paid by baseball players and officials to pay up to $150 million towards the construction of a MLB stadium. Because Senate Bill 5 does not sunset, this financing tool will be available whenever a MLB team relocates to Portland. (A copy of the bill can be found in the Appendix section of this document.) Analysis by the City applying the tiered bonding structure concluded that the bill can provide approximately $115 million in project funding. While restrictions placed in the bill prevent the City from capturing the full $150 million, Senate Bill 5 still represents the largest single component of the Plan. Key Assumptions: $75 million home team payroll in Year 1. $82 million average MLB team payroll in Year 1. Average 5 percent annual growth in league and home team payrolls. Ticket Fee $85 million The City s Plan includes a 10 percent fee on all tickets sold at both the new stadium and at PGE Park during the time it serves as the interim MLB facility. Since Oregon does not have a sales tax, this will be the only additional charge on the price of tickets. Sales taxes apply to ticket purchases in most MLB cities and average over 8 percent, and most of the proceeds do not go toward stadium funding. Projections show this component yielding $85 million in financing capacity through the tiered bond structure. Key Assumptions: PGE Park: 20,204 average paid attendance per game with ticket prices ranging from $10 to $65. New Ballpark: 27,965 average paid attendance per game with ticket prices ranging from $10 to $75. On average, ticket tax revenues will grow by 3 percent per annum. Stadium District Programs $56 Million Under City Charter authority to license businesses, a Stadium District would be created surrounding the new ballpark. Businesses within this district would be required to obtain an annual license and pay a fee based on gross receipts generated from business activity within the city limits of Portland. The Stadium District fee would be in addition to the existing City license fees. The Stadium District would be drawn one-half to three-quarters of a mile from the ballpark site, representing an area that would likely see increased business activity from the projected 2.4 million annual patrons of the ballpark. For each of the sites under consideration, the annual gross receipts earned in Portland are measured in billions of dollars. On a gross receipts basis, a rate of a few hundredths of one percent would be sufficient to generate the required revenues. The specifics of how this program will work will vary depending on the final site selected for the ballpark since it is location sensitive. In all cases, the City would develop a two-tiered fee structure to acknowledge that some business sectors will see more tangible economic benefits than others, and should help fund the facility at a higher rate. The City has held meetings with many business leaders on this financing tool in recent weeks and, in general, the initial response to this funding mechanism has been positive. The Stadium District would also include a special license program for parking used for stadium events. The nearest 7,300 parking spaces providing event parking representing estimated parking demand would be required to have a district parking license. The fees for the parking program would be scaled based on proximity to the park and would range from approximately $50 per year for parking at the edges of the district to $175 per year for those facilities closest to the ballpark. In combination, the revenue programs in the Stadium District will support $56 million in bonds. The Finance plan PROJECT REVENUES 25

4 THE FINANCE PLAN PROJECT REVENUES THE FINANCE PLAN Project Revenues cont. Concessions/Merchandise Fee $29 million The Plan includes an 8 percent fee on all concessions and merchandise sold at the stadium. Again, since Oregon does not have a sales tax, this is the only fee that will be charged against concessions and merchandise sales. This fee is projected to yield approximately $29 million in capital financing. This element was added in response to hotel and restaurant interests in exchange for their participation in the Stadium District Programs. Key Assumption: The estimation of concession and merchandise income is based on a per capita expenditure of $8.00 for concessions and $2.00 for merchandise at both venues. The per capita expenditure for suite concessions is $20, reflecting a higher level of catering services provided to suite holders. On average, revenues from these sources are projected to grow by 3 percent per year over the life of the financing. Re-allocation of Hotel and Vehicle Taxes $13 million The City currently receives annual payments from the Visitor s Development Fund (VDF) to support PGE Park debt payments. The VDF is funded by taxes received from hotel and vehicle rentals within Multnomah County. serve as the interim venue. The proceeds from this lease are expected to be used to reduce the debt on PGE Park and facilitate the reallocation of current hotel and vehicle rental taxes to support debt service on the new ballpark. If the projections used to create this Plan prove to be correct, excess revenues will be available after making annual debt service on all stadium-related bonds. The City s Plan contemplates using a portion of these excess revenues to offset the annual lease payment (See attached chart for estimated net lease payments). Under this approach, it is anticipated that over half of the lease payment could be rebated over the 30-year term of the finance plan. (Please note that the rebate structure assumes that all excess payroll tax revenues after Tier 1 debt service has been paid can then be used for Tier 2 debt service or team lease rebates. This will need to be included as a negotiated element in the grant agreement with the State). The $12 million in project capital is based on the net lease payment after credits for annual excess revenues. After PGE Park is used as an interim venue for the City s MLB team, the City plans to defease the remaining bonds on PGE Park and will evaluate redevelopment opportunities for some or all of the PGE Park property. This defeasance will enable the existing annual payments from the VDF to be reprogrammed to help finance the new facility. This element of the Plan can finance $13 million based on the existing revenue stream that is now dedicated to debt service on the PGE Park bonds. Team Lease $12 million To fully capitalize the project, a modest annual lease payment paid by the team will be necessary. Cash flow projections indicate that a lease starting at approximately $3.5 million and growing at three percent annually is needed to complete the financing. This lease payment would take effect when the new ballpark opens. The City will also require a lease payment while the team plays in PGE Park. This lease would be negotiated with the team for the three seasons PGE Park is projected to 26

THE finance plan Other Revenue Sources Charter Seats $25 million The Plan includes the sale of charter seat licenses to raise up-front capital for the project.

5 THE finance plan Other Revenue Sources Charter Seats $25 million The Plan includes the sale of charter seat licenses to raise up-front capital for the project. The City is targeting $25 million to be raised through a charter seat program. It is contemplated that the team would manage the charter seats program and transfer all funds to the City for stadium construction. Please see the attached Charter Seat Licenses Plan in the Appendix section for more details on the Charter Seat program. As noted in the Background and Summary section of this Plan, the City will consider alternative forms of owner/team participation. For example, if an owner would prefer to make a cash contribution in lieu of a charter seat program, the City would be open to that alternative. THE Finance plan Other revenue sources Key Assumption: 5,000 seat licenses sold at average price of $5,000 Tax Increment $10 million Five of the seven sites currently under consideration are in existing Urban Renewal Areas. In Urban Renewal Areas, growth in property tax revenues due to new development and appreciation in property values are sequestered and used to pay debt service on public bonds. Moreover, bonds are used to pay for public infrastructure and to stimulate private investment in these districts. Tax increment dollars can make a significant contribution to the Plan, and it is likely that a site within an existing urban renewal district will ultimately be selected. A $10 million contribution from urban renewal funds is not only achievable, but it is also possible that additional funding from this source could be realized in certain districts. Off-Site Improvements (LID) $5 million It is expected that the stadium project will include off-site improvements to public infrastructure including streets, lighting, sidewalks, traffic controls, utilities and other public amenities. These project elements will not be known until a site is selected and specific project elements are defined. Stadium location and the level of off-site improvements to public infrastructure will ultimately determine the form and amount of this financing tool. Under the LID procedure a majority of property owners must support the project to secure this funding. MOUNT HOOD and City View 27

6 Pearl District Lofts

7 THE Finance plan Bond Structure and Assumptions As referenced in the introduction, the City s bonding strategy calls for a prioritized, tiered bond structure to maximize the capital financing from the projected revenue streams. Since the State income tax bonds will not carry the full faith and credit of the State, additional pledged revenues are needed to optimize the financing capacity of this important revenue source. Under the tiered bond structure, all project revenues will be pledged first to pay annual debt service on the State income tax bonds. Once debt service is met on the State income tax bonds, remaining project revenues would flow to servicing bonds issued by the City of Portland and supported by project revenues. These bonds would carry the City s full faith and credit pledge. It is also assumed that all revenues from the payroll taxes will flow back into the project through a clause in the grant agreement with the State. The Plan includes a set of assumptions and estimates that underlie the bonding structure and capital financing projections. The key assumptions and estimates are summarized as follows: Bond Term 30 years with ascending debt service. Interest Rates Assumed to be taxable. State Income Tax Bonds at 6.25 percent and City Project Bonds at 6.15 percent. Bond Coverage 2.0 for State Income Tax Bonds; 1.1 for City Project Bonds. Bond Insurance On State Income Tax Bonds at 2.5 percent. No bond insurance on City Project Bonds. Reserves Maximum annual debt service reserve on State Income Tax Bonds. No reserve on City Project Bonds. ESTIMATED NET LEASE PAYMENTS 1 YEAR LEASE PAYMENT LEASE REBATE NET LEASE PAYMENT 1 NA NA NA 2 NA NA NA 3 NA NA NA 4 $3,465,000 $573,542 $2,891,458 5 $3,568,950 $649,152 $2,919,798 6 $3,676,019 $728,787 $2,947,232 7 $3,786,299 $817,820 $2,968,480 8 $3,899,888 $912,169 $2,987,719 9 $4,016,885 $1,015,550 $3,001, $4,137,391 $1,125,652 $3,011, $4,261,513 $1,307,112 $2,954, $4,389,358 $1,501,781 $2,887, $4,521,039 $1,704,941 $2,816, $4,656,670 $1,920,876 $2,735, $4,796,370 $2,149,854 $2,646, $4,940,262 $2,392,398 $2,547, $5,088,469 $2,648,282 $2,440, $5,241,123 $2,920,360 $2,320, $5,398,357 $2,823,844 $2,574, $5,560,308 $3,014,377 $2,545, $5,727,117 $3,445,646 $2,281, $5,898,931 $3,897,149 $2,001, $6,075,899 $4,369,859 $1,706, $6,258,175 $4,864,793 $1,393, $6,445,921 $5,383,022 $1,062, $6,639,298 $5,925,666 $713, $6,838,477 $6,493,902 $344, $7,043,632 $7,043,632 $0 29 $7,254,941 $7,254,941 $0 30 $7,472,589 $7,472,589 $0 TOTAL $141,058,880 $84,357,696 $56,701,184 THE Finance plan Bond structure and assumptions $56 mil $12 mil $115 mil PROJECT REVENUES $310 MILLION-NET FOR PROJECT Payroll Tax $115 million, 38% 1 Based on projections and assumptions used in development of the Finance Plan Ticket Tax $85 million, 27% $13 mil Concession/Novelty Tax $29 million, 9% $29 mil Original VDI Revenues $13 million, 4% Stadium District Programs $56 million, 18% $85 mil Lease Revenue $12 million, 4% 29

San Francisco Multi-Purpose Venue Project. Fiscal Impact Analysis: Revenues. Draft Report. Prepared for: The City and County of San Francisco

Draft Report San Francisco Multi-Purpose Venue Project Fiscal Impact Analysis: Revenues Prepared for: The City and County of San Francisco Prepared by: Economic & Planning Systems, Inc. April 27, 2015