City weighs financial options for baseball stadium, Bull Street development ahead of Tuesday council meeting

The baseball stadium has been pegged to be the catalyst for economic development in the Bull Street development, according to supporters like Columbia Mayor Steve Benjamin, the Chamber of Commerce and Greenville-based developer Bob Hughes.

But with a price tag of more than $90 million, city staff has put together a financial strategy to pay for the ballpark and Bull Street site developments that could put a heavy burden on the city’s debt for several decades if potential revenues don’t pan out.

Any stadium agreement between the city of Columbia and Atlanta-based baseball management company Hardball Capital, run by Jason Freier, hinges on whether council members will agree to the finance package city staff have crafted to cover the costs to break ground on the project.

The city is looking at three revenue sources that could fund the development and baseball stadium, two of which are bonds that could cost the city roughly $70 million or $80 million over the next several decades.

Hospitality Bond

At the time of the Feb. 4 meeting, Brent Anderson, the city’s financial adviser, had presented Columbia City Council two ways the city could pay off the $30 million hospitality bond.

The first option would “wrap” the bond around the city’s existing bond debt. Right now, the city is making annual debt payments of approximately $1.3 million. This structure would add another $1.3 million, doubling the city’s annual payments to about $2.6 million.

None of the principal on the new hospitality bond would be initially paid. Rather, the rest of the existing debt plus some interest would be paid off. According to city documents, after 10 years from the first debt payment in 2015, total yearly debt payments would dip slightly to $2,567,334 as the city’s existing debt would be paid off by then.

The city still would incur high annual payments as the $2.5 million then would start to pay off the remaining principal of the loan until 2044.

The second option would “layer” or, as the city’s Chief Financial Officer Jeff Palen described it, level the bond’s debt. A greater payment portion of the new debt taken out for the project — about $1.8 million — would be added to the city’s existing debt. The total yearly debt payments would jump to about $3.2 million for 10 years starting in 2015. That would pay more interest and principal on the new debt as well as pay off the city’s existing debt.

Anderson estimated about $8,550,000 of the principal of the project’s bond would be paid off in that 10-year period.

Annual debt payments would drop drastically by 2025 to just under $2 million as the old debt is wiped off the books. The remaining debt payments, however, would remain $1.8 million as the city’s total debt levels off to pay the rest of bond.

Essentially, this option would maintain one debt payment amount throughout the life of the loan versus changing about midway through as the wrap bond structure does.

Both bond options have a 30-year maturity and are based on the fiscal year 2013 hospitality tax revenue, which was about $9.5 million, not changing. Palen said that annual revenues, though, increase by 5 percent — about $500,000 — and should continue to go up.

“Unless we hit a recession, people quit eating out, or a bunch of restaurants close … that number will be going up,” he said.

Palen said council would have to weigh whether they agree to pay more upfront but maintain a set annual price overtime or pay lower costs on the loan initially but incur a slightly higher payment as the bond matures.

“Do you want it now, do you want it later?” he asked.

Palen also said council members must consider the choice to take some funds away from organizations who look to hospitality tax allocations to help them finance programs and projects.

“There’s a difference in $500,000, so who’s not going to get funded,” he said.

If council decides to go with the “layered” bond option, they could recoup some of the lost hospitality tax revenues quicker than if they went with the “wrapped” bond option.

Investment Purchase Bond

Palen said the the $57 million investment purchase bond is designed to be flexible in applying different payment sources.

“We can use anything as long as it’s an allowable source of funds, he said. “We can use just about anything to make the payment.”

In what Palen called the base case scenario — meaning no development or construction occurred in the Bull Street development to capture revenues — the city would issue general obligation debt to pay off the bond, Palen said. Current issued debt has a short term cycle, which is usually ten years, and Palen said any new debt would have a shorter term.

Yet, the city’s 8 percent debt limit, which Palen said sits just under a million dollars, has been nearly depleted. Columbia’s full debt capacity — its ability to issue debt — generally peaks at about $42 million.

Additionally, if general obligation debt was issued in 2014 to pay for project costs, the mill rate would increase slightly to 12 percent, which the city would have to find revenues to offset the extra costs.

Those numbers could change if revenues like the state’s emission tax or fees and property taxes from the development and the stadium are generated and applied to the debt, Palen said.

“This [debt] limit would end up growing as you add assessment value within the city. So you actually would have more capacity to borrow for parks, buildings, whatever it is you need down the road,” he said.

The city already is projected to pay back about $5 million of its debt by June 2013, Palen said.

Palen said depending on how the city arranges the agreement with Hardball Capital, either through an upfront down payment or lease payments, the city would use that money to pay for those slight upticks in the mills as well as the rest of the debt to avoid passing it on to taxpayers.

He said with additional revenues the city’s debt capacity could hit in excess of $20 million within the next six or seven years.

“From that part we feel pretty comfortable that we haven’t over-extended the debt for the city,” Palen said.

The Finance, Audit and Budget Committee meets Tuesday morning to discuss the initial fund projections for fiscal year 2014. At the 6 p.m. City Council session, council members will hear an update on the investment strategy for the development as well as an analysis of potential funds from the stadium.

Columbia City Council meetings occur at City Hall at 1737 Main St. To view a copy of the agenda, go to the city’s website.