The moment of illumination came about an hour into last week's public forum on where to build a new baseball stadium, held in an auditorium at the Richmond Times-Dispatch's steely Grace Street headquarters.
After months of town hall meetings and back-and-forth debate over the $368 million Shockoe Bottom ballpark proposal, Charlie Diradour, the local developer who has become the plan's staunchest critic, asked simply: “Where's the beef?”
His question to the ballpark developers — Paul Kreckman of Highwoods Properties and Bryan Bostic, head of the baseball team ownership group — centered on the promise that if the city approved their plan, more than $300 million in private development would blossom around the new ballpark and generate considerable economic spinoff. All they need is the city's permission to create a special tax district in the Bottom to float $70 million in bonds to pay for the ballpark, which would then be paid back with the tax revenues generated by the private development.
So, asked Diradour, where are the market and demographic studies, the list of retail tenants that would come?
The question generated little response from the audience, and Kreckman brushed it off with his cart-before-the-horse blasAc. “It's a little backwards, Charlie,” Kreckman said. “First of all we have to have the ability to go out and do the ballpark at this location. We don't have the beef today.”
In the wake of Mayor Dwight Jones release of the much-anticipated consultants' report regarding the feasibility of the Highwoods proposal — and the conclusion that the bonds wouldn't sell without the city's financial support — the mayor's guarded enthusiasm for the project's “transformative” potential seemed still-detached from the reality that there are no market studies, no tenants, no beef.
Pete Boisseau, a spokesman for the Highwoods, and Bill Axselle, the developer's legal counsel, both said they were pleased with the mayor's apparent enthusiasm for the project, even if he's yet to endorse it.
“I think the [consultants'] numbers validate our position that the [tax-increment financing] could pay off the bonds,” Boisseau said afterward.
Not exactly. The consultants, led by Davenport and Co., concluded it was “highly unlikely” that the bonds would sell without “credit support from the city.” If the city supported the bonds, however, “the proposal would be highly feasible.”
But the Davenport report also says it would cost the city $56 million in debt capacity, or about 10.7 percent of the city's proposed capital budget from 2009 to 2016, which means less money for things such as schools and police cars.
All along, the developers have promised the bonds could be sold without the city's support by using the ballpark as the primary backup collateral — but the city's consultants say that's “highly unlikely.” Public finance experts have poked holes in the Highwoods' plan for one simple reason: If the tax revenues fall short and the bonds default, a stadium wouldn't be worth the $60 million it cost to build it. Why? Ballparks are one-trick ponies that don't retain their value like other commercial properties.
Not to mention the ballpark and the project itself are in an area largely devoid of retailers and the residential base to support such a large scale project. Indeed, the consultants concluded that even with the city's financial support, the Highwoods development would need to generate gross sales of $67.3 million, or 2.1 percent of the total city spending in 2008 of $3.1 billion.
Between 2005 and 2007, annual spending in the city grew by only 3.9 percent. In other words, half of the city's retail growth will need to take place at Shockoe Center.
It's a matter of risk, says Karl Seidman, a senior lecturer in the planning and urban studies department at the Massachusetts Institute of Technology in Boston. Tax-increment financing, as proposed in the Shockoe plan, works best when the risk of the project failing is highest.
“It's more a question of what happens if the project fails,” says Seidman, an expert on public finance. “Who bears the risk if the project fails?”
If the city backs the bonds, as the Davenport report recommends, then the city would be left holding the bag, which negates the key reason Highwoods initially proposed using tax-increment financing to pay for the ballpark.
If the city decides to back the bonds, then it probably makes more sense for the city to go ahead and issue its own municipal bonds to pay for the ballpark. In fact, Seidman says, the higher the probability that the project will succeed, the more efficient it is for the city to finance the ballpark on its own. Using general obligation bonds backed by the city significantly lowers the interest rate and the need to build in millions of dollars in reserve funds in case revenues fall short.
“If the project succeeds, it would be more efficient without tax-increment financing,” Seidman says. “[Tax-increment financing] tends to be an expensive way to borrow money. A general obligation bond would be less costly.”
In other words, if the project is a slam-dunk, the city should pay for it. The bonds get paid off sooner with less money, and all that excess tax revenue the project would generate would go directly to city coffers — not to the bondholders.
Of course if the city pays for it, as the Davenport study suggests, that undermines one of the chief selling points the Highwoods team uses to justify building the stadium in Shockoe Bottom. In the Bottom, they've promised to build it at no cost to taxpayers; on the Boulevard, everyone pays.
That's the myth of tax-increment financing, known as a TIF, says Andrew Zimbalist, professor or economics at Smith College in Northampton, Mass., who has written extensively about publicly financed sports stadiums.
“The TIF is a charade,” says Zimbalist, explaining that tax-increment financing is public financing because it utilizes local tax dollars. “The TIF is a phony financing mechanism — it doesn't provide any new revenue.”
Unless the project alone can increase retail spending in the city by 50 percent annually, it won't be new revenue, but money that was siphoned from somewhere else. Now the developers must show the city it's got the “beef” to make that happen.
“I'll be expecting more information from the developers,” Jones said at his press conference Monday. “We want to proceed cautiously.” S