Plan for Cleveland Sports Complex at Risk As Ohio House Defeats Tax Limit Measure

CHICAGO -- Plans to build a bond-financed baseball stadium in Cleveland may be in jeopardy after Ohio's House of Representatives rejected a measure last week that would have capped property taxes on the development.

Officials at Gateway Economic Development Corp., which is spear-heading the project, had turned to the General Assembly to get the taxes permanently capped at the current level of $400,000 a year. Without the cap, they estimated the annual tax bill for the developed property would be $4 million.

"It's very important," said Lora Thompson, Gateway's public relations director, referring to the legislation. "We cannot afford to pay $4 million a year in taxes. The project would not be built."

The ability of Gateway to secure the tax break as well as other revenues is essential to the release of $31 million of the bonds, backed by a short-term letter of credit from Fuji Bank, from escrow. David Goodman, a partner at Calfee, Halter & Griswold, Gateway's bond counsel, said the existence of a tax break would weigh in the determination of the financial feasibility of the project.

The tax measure, which has the support of Gov. George Voinovich, sailed through the Senate on a 22-to-11 vote on Sept. 25. However, the House put up a stiff resistance, defeating it 65 to 28. According to Rep. Wayne M. Jones, D-Cuyahoga Falls, an opponent of the tax break, the major concern was that the public-private financing plan put in place for the $350 million project was getting too public.

"We were concerned they would continue to press for public money on this issue," he stated. "It's turning out to be a public financing of a deal that's not certain to pan out in the end."

Gateway, a private nonprofit organization set up by Cleveland and Cuyahoga County to plan, finance, and build a sports complex in downtown Cleveland, had issued $146.7 million of tax-exempt revenue bonds for the stadium portion of the project last December. The deal was one of the last done under the transition rules granted by the 1986 Tax Reform Act that ended the use of tax-exempt bonds for sports facilities.

Ms. Thompson said Gateway was confident the tax cap measure would be reconsidered favorably by the House later this month.

"We will try to better inform the legislators," she explained, adding that some did not "fully understand" what the measure entailed.

According to the legislation, taxes on the sports complex would be permanently capped at $1 million a year, encompassing $400,000 in property taxes and $600,000 in income taxes generated from the development once it is completed. Those income taxes would be split between Cleveland and the city's public school system.

If the measure fails a second time, Ms. Thompson said it would be brought to the legislature's conference committee for further consideration. Rep. Jones said he anticipated opposition to the tax cap would remain strong in the House. And he added that Gateway's plan to use Cleveland's $24 million share of the state's upcoming two-year capital budget also would provoke a battle. Gateway is counting on that money to help alleviate a $40 million deficit uncovered earlier this year in the project's financing.

Mr. Goodman explained that the financial soundness of the project would have to be demonstrated before Gateway could obtain a long-term letter of credit from Fuji or another credit supplier to replace the short-term one that is due to expire Dec. 31, 1992. A long-term letter of credit would trigger the escrow release, while the lack of one by the expiration date would trigger a bond redemption with the unspent proceeds.

"There are no specific requirements in the bond document that call for a cap on taxes," he said. "But Gateway must demonstrate the fact it can function and generate revenues in excess of expenditure levels. The ability to cap taxes is one of the means to do that."

Gateway is already in the throes of a marketing campaign to sell $20 million of 10-year luxury seat and suite stadium leases by Jan. 15. Those revenues are being used to secure the $31 million of bonds. Gateway officials have said reaching the goal of $20 million in leases would also be necessary for determining the financial feasibility of the project.

Yesterday, Gateway announced it had sold $8.8 million in leases so far.

The remaining $115 million of bonds for the $160.7 million Cleveland Indians stadium are backed by revenues from county-wide excise taxes on cigarettes and liquor. Gateway also plans to use excess revenues from the taxes and other non-bond revenues to build a 21,000-seat, $120.9 million arena for the Cleveland Cavaliers basketball team. Both projects are scheduled for completion in 1994.

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