Erie County reconsiders financing plan for hockey stadium.

Erie County, N.Y., may scrap a bonding plan to finance a stadium for the Buffalo Sabres hockey team after the county's comptroller produced a study showing that the proposal is too expensive.

County officials say they are reviewing their $20 million industrial development agency bonding proposal following a report issued by county Comptroller Nancy Naples.

Naples said the county could save $20 million in interest payments and transaction costs over 30 years by issuing general obligation bonds instead of the agency revenue bonds, as originally proposed.

The initial plan, proposed by county executive Dennis Gorski, calls for the creation of an economic development corporation, which would borrow funds from the Erie County Industrial Development Agency. The agency would sell bonds to finance the county's portion of the $122.5 million Crossroads Arena.

In a press release, Naples said that "by cutting out the middle-men," such as the development corporation and the county agency, and by issuing GOs, the county would save $20.12 million.

Despite their interest in Naples' approach, county officials have their doubts. Naples' GO plan could pose timing problems for the arena construction, thus eroding any savings the county GOs might have achieved, said Gorski appointee Richard Tobe, the county' s commissioner of environment and planning.

In order to issue GOs, Erie County may need an amendment to the state legislation outlining the terms of the arena financing.

Without the county's participation before the end of the year, the construction of the stadium could be delayed indefinitely, putting the deal's financing at the mercy of eroding market conditions, Tobe said. And any increase in interest rates could make the GO financing more expensive than an immediate revenue bond issue.

"We knew all along that the complicated scheme would bear a financial penalty," Tobe said. Naples "recommended going with GO bonds, and I felt it was appropriate to reconsider going with a GO issuance. She made a compelling fiscal argument, but there are other considerations."

The city of Buffalo, Erie County, the industrial development agency, and private investors are scheduled to close the arena's financing by Dec. 31. Gov. Mario Cuomo, who leaves office Jan. 1 to make way for Gov.-elect George Pataki, would have to call a special session of the legislature before the measure could be re-examined.

Currently, bond counsel Nixon, Hargrave, Devans & Doyle in Rochester is studying whether Erie County could go ahead with Naples' proposal without legislation, Tobe said. If the county cannot, it may be forced to issue the revenue bonds, he said.

Even if the county opts for the revenue sale, the issue will probably face problems. Last month, Naples said, she met separately with the four major bond insurers to see if they would insure the county's portion of the Crossroads Arena financing

Investment bankers had told both Naples and Tobe that insurance would be available for the complicated debt structure, "so we were proceeding on that assumption," Tobe said. But the insurers had serious problems with the complicated deal, and said that rating agencies would give a non-investment-grade rating to the revenue bond issue, Naples said.

In addition, the insurers stated their own qualms about the financing. The insurers said they did not like the structure of the issue, because it depends on county government appropriations for debt service payments.

In addition to the $20 million of county financing, the project will draw $10 million of bonds from the city of Buffalo, $25 million from New York State through the Urban Development Corporation, a $32.5 million loan from a concessionaire, Delaware North Corp., and a $35 million private financing piece provided by a consortium of banks.

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