Sunday, October 10, 1999

Use stadium tax for 'The Banks'?

The Cincinnati Enquirer

        The latest big idea for Cincinnati's waterfront raises a big question: Should the stadium sales tax be tapped to build up the rest of the riverfront?

        Funding strategies suggested by the Cincinnati Riverfront Advisory Commission to create a new riverfront neighborhood called “The Banks” rely heavily on using part of Hamilton County's half-cent stadium sales tax.

        But Hamilton County Commissioners Bob Bedinghaus and John Dowlin are leery of using money earmarked for stadium construction to pay for the riverfront plan. And the man who led the fight against the sales tax in the first place calls the notion a “bait and switch.”

        The panel's suggestion to use sales tax funds is based on the idea that the tax revenues will grow by more than what's needed to pay off hundreds of millions of dollars in debt for the new Bengals stadium, the new Reds ballpark and the garages in between.

        That growth, however, is not a sure thing.

        While sales tax revenues across the country have grown substantially during the economic boom, that could change quickly when the good times end, said Eleanor D. Craig, associate professor of economics at the University of Delaware and an expert on municipal finance.

        “The American public has bought like there's no tomorrow — durable consumer goods like cars, furniture and appliances,” she said. “Come the bad times, after a big period of building this base, you don't need to buy another new car.”

        And the fewer cars and big-ticket items people buy, the lower sales tax revenues will be.

        Hamilton County officials have taken care to use conservative sales tax growth estimates when issuing debt for the stadium projects. For the $344.5 million in bonds issued for the Bengals stadium, the county projected the sales tax would grow by 2 percent.

        That's far more conservative than the 5 percent sales tax growth the county has experienced historically, and it helped the county get a favor able interest rate on those bonds. (The lower the interest rate, the lower the financing costs for the whole project.)

Costs have grown
        For the next bond issue, however, the county plans to use a 3 percent growth projection. The stadium projects have grown more expensive, and using a higher growth estimate allows the county to borrow more money to cover those costs.

        Mr. Bedinghaus said he has no doubt investors will still view that 3 percent projection as conservative based on the county's history. He won't know if he's right, though, until the debt is issued.

        The riverfront advisory panel wants the county to push those projections even further to fund “The Banks,” the waterfront neighborhood the panel wants to see built between the two new stadiums.

        In its report, the panel asked the county to use a 3.6 percent growth estimate. That extra six-tenths of a percent could be used to issue an estimated $56 million worth of what's known as a subordinate bond issue.

        That means the bonds for the Bengals stadium, the parking garages and the new Reds ballpark would get paid off first, and the bonds for the other riverfront improvements would be paid with whatever stadium sales tax revenues are left after the county's primary commitments.

        Riverfront advisory panel member Thomas H. Humes Jr., president of Great Traditions Land & Development Co., likens the concept to a home equity loan.

        Such debt is riskier, which means the county would likely have to pay a higher interest rate on the bonds.

        The county's staff, bond lawyers and financial advisers are studying the idea and will give commissioners their analysis at a meeting scheduled for Nov. 1.

        Investors are likely to look at the county's history to decide whether subordinate bonds are a risk worth taking, said Stephen D. Berger, a partner in the public finance division of the Wyatt, Tarrant & Combs law firm in Louisville.

        “As you get away from a very conservative estimate, you're increasing the risk,” Mr. Berger said, adding that governments typically hire experts to create projections based on historical collections.

        But even if such a financing plan were possible, Mr. Bedinghaus and Mr. Dowlin aren't sure it's wise to use stadium sales tax dollars to pay for the other waterfront improvements needed for The Banks.

        “The idea that the sales tax is this untapped resource that can be used for any good project is just not the case,” Mr. Bedinghaus said.

        Those concerns put Mr. Bedinghaus on the same side as lawyer Tim Mara, who fought Mr. Bedinghaus over raising the sales tax in 1996.

        “What you are proposing to do is convert the stadium sales tax into a riverfront urban renewal tax,” Mr. Mara wrote in a response to the advisory panel's plan.

        “That is not what the people of Green Township, Montgomery, Norwood and other communities outside the city of Cincinnati voted to tax themselves for,” he continued. “I really doubt that even most residents of the city feel comfortable with this bait and switch.”

        County Commission President Tom Neyer Jr., chairman of Al Neyer Inc. developers, said the county should figure out whether the subordinate debt is doable before deciding whether the county should issue it.

        Investors, he added, will determine whether the subordinate debt is simply too risky.

        “Key to the riverfront advisers' recommendations is the willingness of investors to purchase this subordinated debt,” Mr. Neyer said. “If that willingness does not exist, the question kind of goes away.”

Getting it done
        But Cincinnati City Manager John Shirey said he thinks the county should use the sales tax revenues to help fund the infrastructure needed for The Banks project if at all possible.

        “We need to look at available financing tools, and use those tools to the best advantage of the whole com munity and not pay particular attention to whose toolbox they're in,” Mr. Shirey said.

        Without the subordinate debt funded by the sales tax revenues, the funding plan for The Banks is left with a $56 million hole.

        That's more than half the money needed to cover $46 million in roadwork and $52 million in extra amenities suggested by the advisory panel, such as building platforms over part of Fort Washington Way and building a boardwalk near the water's edge.

        (The total cost of the project is $248 million, but that includes $135 million for parking garages and $15 million for utility work. Those items are being paid for in other ways.)

        The advisory panel's Mr. Humes won't say The Banks is dead if the sales tax financing doesn't come through. In fact, he and other panel members stress their funding idea should be viewed as a “concept” that they hope will help lead to the final funding solution.

        The advisory panel also suggested the new taxes generated by new development along Third Street that The Banks could spur could be invest ed into the riverfront project, reducing the amount of subordinate bonds that would need to be issued.

        But Mr. Shirey said he thinks those new tax revenues will be needed to help finance the developments on Third Street, which wouldn't leave any extra for The Banks.

        City Councilman Phil Heimlich questions, then, how the city could fill that funding gap if the county can't or won't issue the subordinate debt.

        “The city could well be asked to contribute our own funds for that additional $56 million. I hope that council's decision to fund $51 million in bonds for the convention center won't keep us from doing this project,” said Mr. Heimlich, the only council member to vote against the convention center funding.

        Mr. Shirey said he isn't worried.

        “My attitude is, where there's a will, there's a way,” he said. “If I had to worry about every aspect of every one of these projects, I'd never get any sleep.”


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