Originally posted March 12, 2013
Are the Falcons underestimating the Atlanta City Council?
By Al Gray
As University of Georgia grads know, an untimely tipped ball tantalizingly close to the goal line can kill championship dreams. The Atlanta Falcons have executed a well-orchestrated plan over the last two years to carefully plan and execute the win of a free $1.2 billion new stadium. Now the weakened opposition is down to an unlikely, untested, last line of defense called the Atlanta City Council. Its members were spectators suddenly called into a game with no advance preparation. Only a disaster can stop the Falcons now. Surely a bunch of city council members can’t muster anything heroic. Everything has been so perfectly played that half of the backfield has been cloaked with invisibility.
Political maneuvers bail out GWCCA, get Falcons to first and goal
Moments after the opening whistle in 2010, the Georgia World Congress Center contingent on the team realized that they had a huge problem. If they fully surrendered stadium operations to the Falcons, not only would GWCCA be giving up $20 million a year in hotel motel tax funding (Consultants’ numbers lead to totals of $1.2 billion over 35 years), it would be giving away $15 million a year in net income on a successful Georgia Dome operation. If someone only looked at the financials there could be trouble. A worse problem was the $2 million to $3 million in GWCCA overhead that the Georgia Dome has been absorbing for years. Then someone realized that money is fungible and that the Atlanta Convention and Visitors Bureau (ACV partnership with GWCCA could be used as a conduit to shift costs equivalent to those then covered by dome operations. In 2011, the team got a new 1% hotel motel tax passed worth $6 million a year to expand the ACVB’s marketing of events in the World Congress Center and elsewhere. About $4 million of the new tax appears on the GWCCA’s 2012 FY financial statements. That might have tipped some people off, so GWCCA’s Frank Poe proclaimed, truthfully enough, that the new tax was not going toward stadium construction. The contract between ACVB and GWCCA was modified in 2011 uneventfully. The cost shift will be a handy tool.
The series of plays in the General Assembly enabling the Falcons takeover extended the hotel motel tax and, just last week, killed a conservative bill strengthening right to work laws that would threaten the, “community investment,” now needed to have any chance at victory in Council chambers.
Another saving grace in the potential damage to GWCCA’s finances is that Georgia Governor Nathan Deal, who has had a major role in the stadium negotiations, and GWCCA’s Frank Poe, now 62, will probably be retired before the harm to GWCCA becomes known in 2018. $15 million Dome annual net income contributions might be too great a loss to overcome, necessitating a state bailout.
On first down –
Tipped Ball #1 – Public costs are not capped at the $200 million advertised according to City’s and GWCCA’s own documents that are posted online.
The Falcons negotiators, Gold Dome allies, and GWCCA facilitators have stayed remarkably on message that public funds are only $200 million, while the Falcons will be paying $800 million of construction costs. When the deal with Atlanta Mayor Kasim Reed was announced on Thursday, March 7, the press release said, “The public contribution for stadium construction is capped at $200 million.” Maybe the Mayor thinks the council won’t mind that the legal summary says:
“Budget/Contributions: Estimated $948 million, comprised of….. Public Contribution: $200 million net proceeds of the HMT Revenue Bonds”
(Editor’s Note: Legal Summary no longer available online.)
The legalese says the $200 million is an estimate, not a cap and puts stadium borrowings on the same funding stream that a Citi consultant projected would produce bond proceeds of $360 million. Even more critical is that those funding assumptions are terribly conservative, given the extraordinarily lower interest rates are available to Atlanta than the 4.15% rates used and that Hotel-Motel tax revenues are currently up 7.49% over last year.
Second Down –
Tipped Ball #2 – No one is explaining a $612 million cash gap in hotel/ motel tax funds ($211 on a debt funding basis) over the “$200 million cap” and fully funded O-M accounts (which are being ignored as a public contribution).
A key Citi presentation of June 2011, secured by agraynation.com, was integral to the planning of the stadium agreement. This agreement used the 2.7% annual growth rate in H-M tax revenues and it showed the debt service required at then-existent rates for $360 million in debt. If the debt is reduced to $200 million, where debt is to be “capped,” it leaves $612 million in cash outlays unaccounted for, or $210 million in estimated bonding potential. These public funds are being pretended out of existence.
The legal summary contains this bombshell about the extra funds, “City would agree that all HMT revenues not required under the Funding Agreement to provide for the payment in full of the HMT Revenue Bonds (including appropriate reserves) shall be deposited with a separate GWCCA HMT Fund Custodian, where such funds shall be applied to pay for any costs relating to the construction and operation of the NSP, as provided in the HMT law.” In other words, excess funds can go into stadium construction that are over and above the $200 million cap.
Third Down –
Tipped Ball #3 – The $186 million that the Atlanta agreement puts into “other event staging” through FY 2051 is to make up for the much, much higher costs the Falcons plan on charging as stadium managers than GWCCA did, isn’t it?
This one might tip off the public and Atlanta City Council that, “StadCo will be responsible for the cost (to be identified) of providing its staff and other support that historically has been provided by GWCCA.” They might awaken to the fact that Falcons costs as stadium manager are required to be built into all GWCCA events, GWCCA legacy events and Atlanta hosted events – events that now account for nearly 60% of Dome attendance! There are indications that Dome legacy events might be “not on economic terms” after the Falcons take over. Having to allocate $186 million to “other event staging” to make the existing venues and events viable reveals a controversial truth about the contract – the GWCCA won’t be staffing the stadium and will have to pay the Falcon’s cost structure, which may be considerably higher. (GWCCA’s consultant having already predicted 20% (after tax) ticket price increases and 44% concession price increases) Having to inject $186 million to make your own events “economic” after the Falcons take over isn’t a surprise to Atlantans?
Fourth down, Arthur, but don’t sweat it –
Tipped Ball #4 – The Falcons only agree to pay that which the public contribution cannot be “maximized” to cover, not $700 or $800 million.
The Atlanta agreement says, “All NSP costs in excess of the Public Contribution to be paid by StadCo” (the Falcons). Worse it says this about handling of funds when the bonds are sold in August 2013: “Invest Atlanta shall issue the Hotel Motel Tax (“HMT”) Revenue Bonds and StadCo shall establish an account into which its contribution will be deposited. ” This doesn’t even set an amount or a requirement that any money be deposited by the Falcons, only that an account be established! Beyond this, crafty lawyers restricted Falcon responsibility to “NSP Costs” which are established by a maximum price. The trouble with this is that an increase in the “maximum price” (which can change throughout the project) is not necessarily a change order for which the Falcons are responsible.
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Expect the great Falcons special stadium team to pick up the tipped ball and run in for the score. The officials will push the ball carrier across the goal line. “Whatever it takes,” is the Georgia and Atlanta politicians’ motto.
After the victory is scored, the Falcons can proceed into the construction phase of revenue enhancement, where the next $50 million to $100 million in public funds lay waiting.
Why not make the full agreement open for public scrutiny instead of just the legal summary? Why not make this process easier on all concerned and just ante up another $250 million, that is perfectly justifiable under sound strategic planning and will make this project palatable to the public?
Another $250 million from the Falcons remains a bargain, Arthur.
-AG
Update: The Atlanta City Council has since voted to approve the Falcon’s New Stadium Project