CHICAGO - A crucial piece of the financing puzzle for a sports complex planned in Cleveland fell into place last week when Cuyahoga County commissioners approved issuing $75 million of taxable bonds to complete the project's arena portion.
County Controller Roger Deicke said the combination of fixed- and variable-rate bonds would be sold the week of Sept. 14 in a deal headed by McDonald & Co. Securities. The bonds will be backed by non-tax revenues of the county, such as fines, fees, and investment earnings, he added.
The issuance of the economic development bonds has been cited as one of the last financial hurdles. facing completion of the $362 million stadium and arena complex by officials with Gateway Economic Development Corp., the nonprofit developer.
In December 1990, Gateway issued $146.7 million of tax-exempt bonds for the stadium portion of the complex. The bond issue was one of the last tax-exempt deals sold for sports facilities under transition rules granted by the Tax Reform Act of 1986, which ended the use of tax-exempt debt for the facilities.
Because the arena was not included in the transition rule and will be largely used by the Cleveland Cavaliers basketball team, which will pay rent to Gateway, the county's bonds will be taxable, according to Barbara Hawley, a partner at Squire, Sanders & Dempsey, bond counsel for the deal.
She added that the deal will be one of the first major financings by an Ohio county to pledge non-tax revenues for an economic development bond issue since last year's passage of a state law allowing counties to pledge those revenues.
Timothy Offtermatt, Gateway's chief financial officer, said even though the $68 million of the county's annual non-tax revenues will secure the bonds, Gateway is obligated to repay the county for the $75 million of bond proceeds.
He pointed out that under agreements between,the county, Cleveland, and Gateway, the county will be repaid for the estimated $6.5 million to $9.5 million of annual debt service from net revenues of the arena after expenses. If that money is not sufficient, the county could then tap the 6% admissions tax Cleveland will charge at the arena, he explained.
Another source.of repayment is the incremental increase in the county's hotel/motel tax once the complex is completed and any excess funds from the cigarette and liquor taxes county voters approved in 1990 for the project, he added.
An additional piece of the financing is expected to be completed later this month with the issuance of $71 million of tax-exempt bonds by Cleveland to build two parking garages that will serve the sports complex, as well as a separate city garage, according to Steve Strnisha, the city's finance director.
He said the city is in the process of talking to credit enhancers for the bonds, which will be backed by parking and other non-tax revenues of the city.
Late last year, Gateway officials asked the county and the city for the bond issues, saying they were critical to completion of the project.
Gateway is also close to obtaining a five-year letter of credit for $31 million of the tax-exempt bonds secured by stadium revenues it sold for the stadium in 1990.
Mr. Offtermatt said Fuji Bank, whose short-term letter of credit expires at the end of the year, has declined an offer to extend the credit enhancement.
Instead, Gateway is in the final phase of negotiations with a group of Ohio banks led by Banc One to provide the long-term letter of credit, he said. Gateway officials have said that without a new letter of credit, the bonds would have to be redeemed and the stadium for the Cleveland Indians baseball team would not be built.
The remaining $115.7 million of the $146.7 million of tax-exempt bonds are backed by the special countywide cigarette and liquor taxes.
One of the last hurdles for the project is obtaining $25 million over the next four years from the state's capital budget. Paolo De Maria, assistant director at the state's Office of Budget and Management, said Gov. George Voinovich is expected to announce the budget, which requires legislative approval, sometime in November.
"I think [the governor] looks very favorably on the project and is supportive of including funding for it in the budget," Mr. De Maria said.