WASHINGTON -- A panel of the District of Columbia council is scheduled to vote today on a resolution supporting a new $200 million sports arena financed with taxable bonds that would be issued by the district or a planned sports authority.
The full council, which recognizes that the district must help finance the privately sponsored project, plans on Tuesday to take up the resolution.
A private corporation formed recently to oversee the project estimates that the $200 million cost would consist of $150 million for development and construction, $38 million for financing, and $12 million to acquire land.
An agreement between the new National Capital Development Corp., which would build the facility and own it for 20 years, and the owner of two professional teams that would be housed at the arena calls for the issuance of $80 million of project bonds.
To be backed by non-tax revenues from the arena and a pledge of additional revenue by the owner, the project bonds would be obligations of the corporation, not the district, corporation official Terry Golden said.
In addition, the agreement provides for issuance by the district of $92 million of tax revenue bonds, to be backed by taxes derived from a yearly assessment on businesses. The district council is considering legislation to make permanent a one-time "public safety" fee levied on businesses to balance the fiscal 1994 budget to back the bonds.
The bonds would not be issued until the start of construction, which is projected to begin in 14 months, but the role of any new sports authority that could issue bonds is not yet defined. The district council is not expected to have a final vote on legislation authorizing tax revenue sources and a sports authority until this fall, council chairman David Clarke said Friday at a hearing on the plan for the arena.
Even though the bonds would be taxable, they would be important to the district from a public finance perspective because the project could significantly improve the health of the district's credit position, a finance official said. This would be so, he said, especially if the arena is "synergistic" with other developments such as a proposed convention center expansion.
Private business interests in March formed the nonprofit National Capital Development Corp. to build and own the arena for 20 years until the bonds are paid off. At that time, the district would take over ownership, but corporation officials said at the hearing that it is unclear whether a separate sports authority would jointly own the facility with the district government.
Abe Pollin, owner of the Washington Bullets basketball team and Washington Capitals hockey team, would operate the facility as well as the existing USAir Arena in Landover, Md., where the two teams now reside.
Clarke and other council members expressed concern that the proposed arena would compete with other existing and planned facilities in Maryland and Virginia, including the USAir Arena. Any cost and revenue projections must take this into account, they said.
Corporation officials said details of Pollin's operation of the district arena in relation to the USAir Arena would be addressed in a future lease agreement.
The proposed arena is part of a "one-two punch" for the district along with the proposed new convention center, both of which would expand the district's tax revenue base and create jobs, council member Charlene Drew Jarvis said. "We intend to see that this works," she said.
Clarke said any questions raised now are not intended as a negative signal to the project developers.
This Wednesday a 30-day standstill agreement, or "review period," expires. During this time, the district and Pollin have been laying the groundwork for an "implementation period" for negotiating leases, development and management agreements, and other transactions. The implementation period would occur through October unless either Pollin or the district pulls out.
The agreements would be negotiated in consultation with the district's bond counsel, financial advisers, special counsel, and other professionals, said Stephanie Phillipps, special counsel to the corporation.
The district, which owns the proposed downtown site at Gallery Place, would receive lease payments for a 30-year term from the development corporation. As operator of the facility, Pollin would pay rent to the corporation.
The resolution to be acted on today calls on the district to exempt the arena from real property taxes.
Key terms of the proposed lease between Pollin and the development corporation provide for yearly revenue to the corporation of $3.5 million from rent, $3.1 million from executive suite seating, and $3.5 million from club seats.
In the first year of operation, projected debt service is $8.8 million, and the corporation's ground lease payment to the district is estimated at $1.1 million.
The district would pay for debt service using revenue from the ground lease payment, arena revenue, direct and indirect sales tax revenues, an increase in income tax revenue resulting from new jobs, and parking tax revenues. Since projected total revenues to the district in the first year of operation are about $9 million, and projected debt service is $8.8 million, the project would initially be revenue neutral, corporation officials said.
However, a presentation made by the corporation at Friday's hearing projected a return from operations of $2.4 million by the fifth year of operation, $6 million in year 10, and $34.4 million in year 20 when the bonds are paid off.
But the deal still has a long way to go and the numbers are only preliminary, council and corporation officials said. Other jurisdictions are wooing Pollin, who is free at this time to negotiate with others.