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Bill Freehling is a business writer for The Free Lance-Star and Fredericksburg.com. This blog is on Fredericksburg-area business. Send an e-mail to Bill Freehling.
Report shows Fredericksburg stadium projections
COMPLETE COVERAGE: View all related stories and images on the Fredericksburg baseball proposal
The projections are in a report by Washington-based Brailsford & Dunlavey, which Fredericksburg’s Economic Development Authority paid $9,000 to help the city evaluate whether to move forward with a minor league baseball stadium project.
The city and its elected officials are now considering a proposal from the Hagerstown Suns, a Class A affiliate of the Washington Nationals, that could lead to the team relocating from Maryland to Fredericksburg in time for the 2015 season.
A July 9 public hearing is scheduled in front of City Council to gauge public support for the project. Depending on the outcome, additional public hearings could be held in the next few months on details of the plan, according to City Manager Bev Cameron.
The stadium project will require 18 months to adequately design and construct on budget, according to Suns owner Bruce Quinn. The season begins in early April.
Under the proposal currently being discussed, the Suns would lease the publicly owned facility from the city for 30 years and put up $3 million for the land to be acquired for the stadium. The city of Fredericksburg would issue up to $30 million in bonds to construct the 5,000-seat stadium.
Two sites at Celebrate Virginia South have been identified as likely locations for the stadium: the 38 acres where the National Slavery Museum was once proposed and a 22-acre site off Gordon W. Shelton Boulevard where the road currently dead-ends. Both sites are visible from Interstate 95, which could help land a lucrative naming rights deal.
The city has not released the entire B&D financial analysis, citing a state law that permits a locality to keep certain information confidential to assist with negotiations. The city on Wednesday afternoon did release two pages of the report that show anticipate revenues and expenses from the stadium, as well as an overview of how construction could be funded.
Cameron said the city distributed information on the proposal this week to help people understand that evaluating it is “a lengthy process that requires Council involvement, Planning Commission involvement, citizen involvement and a great deal of details that need to be worked out among city advisers and city staff.”
The B&D report breaks down all projected expenses and revenues that the city can expect in 2019 from the stadium under the current lease proposal and tax rates. The city expects the stadium to produce more revenues the first few years when it is brand new, but wanted 2019 to be the basis for the analysis to get a better picture of what can be expected after the initial buzz wears off.
B&D projects total stadium revenues to the city of $672,000 annually. That includes $100,000 for the city’s 50 percent share of the naming-rights revenue, $105,000 in lease payments from the Suns, $35,000 in profit-sharing between the city and team, and $432,000 in direct tax receipts.
The report also anticipates that the city will have $398,000 in annual expenses from the stadium: $265,000 to provide police and EMS protection during Suns games, $50,000 in maintenance, $50,000 in capital improvements and $33,000 in insurance.
That leaves a $274,000 surplus that the city could put toward debt service on the stadium or use elsewhere.
The report includes only direct revenues from the stadium. It doesn’t go into potential indirect tax revenue increases from people shopping at nearby stores, eating at area restaurants, buying gas or staying at hotels before and after the games, concerts and many other events that are planned at the stadium.
Cameron noted that the report is a consultant’s projection, and that the terms of the lease that the analysis is based on have not been accepted by City Council. A final stadium deal, if approved, may differ substantially from what is now on the table.
The Fredericksburg City Council on Tuesday approved spending $50,000 to hire bond counsel, financial advisers and other consultants to analyze the proposal.
How to pay for it
The part of the B&D report released by the city also gives some detail on how the city would pay for the $30 million stadium.
Annual debt service on a $30 million, 30-year general obligation bond issue is estimated at $1.84 million, which is based on a 4.5 percent interest rate.
This past spring, the Virginia General Assembly added Fredericksburg to the list of localities that can keep a percentage of state sales taxes generated at a stadium for affiliated minor league baseball to service the debt used to build the facility.
B&D estimates that tax “clawback” would generate $129,000 a year toward debt service. That is on top of the $672,000 in total stadium revenues that B&D estimates. The clawback can be used only for debt service.
After the clawback is factored in, the city would still need to raise about $1.71 million a year to cover the debt service unless it decides to allocate some of the surplus revenues to servicing the bonds. There has been some discussion about other ways to raise money toward the debt service—with a parking surcharge, for example.
The current financing plan relies primarily on a new tax district being created on most of the developed properties in Central Park and Celebrate Virginia South. Undeveloped land would be added to the tax district as it is sold and built upon.
The current assessed value of the real estate in the proposed new tax district is about $528.3 million. To raise the $1.71 million needed for debt service, there would need to be a new annual real estate tax on properties in the district equal to 32 cents per $100 of assessed value.
That would be on top of the city’s regular 74-cent tax rate, which would equate to a 43 percent tax increase for affected property owners. In many cases, those increases would be passed down to the businesses leasing the space.
Some Central Park property owners have expressed concern about being required to shoulder such a heavy portion of the debt service.
Ben Graves, an executive for the South Carolina-based company that owns the Haven apartment complex in Celebrate Virginia South, noted that the Haven complex could face an additional $100,000 or more of taxes each year due to the district, which to him “does not seem reasonable” since it wasn’t part of the original deal when his company invested in Fredericksburg. He noted that would break down to about $450-$500 more a year for each apartment.
“Some of our residents may be willing to pay more rent to live near a stadium, but I suspect that most of the 482 households in Celebrate Virginia South would rather support the team by buying tickets like their fellow citizens,” Graves wrote in an email.
The tax rate in the service district would likely decrease over time as the total assessed value of the included properties rises. If the stadium outperforms expectations, the City Council could decide to lower the tax rate and pledge more stadium revenues to the debt.
Proponents of the plan have noted that special tax districts used in Spotsylvania County retail centers such as Cosner’s Corner and Harrison Crossing range from 33 cents to 65 cents per $100 of assessed value, which is on top of the county’s 88-cent real estate rate, and that the affected property owners in Central Park and Celebrate Virginia would still be paying less than Stafford County’s regular real estate tax rate of $1.07 per $100 of assessed value.
Proponents have also made the case that the additional traffic from the stadium will boost business in Central Park and Celebrate Virginia.
Guarantees for the city
One concern that has been commonly raised is the impact for the city if the Suns decided to relocate from Fredericksburg during the 30-year lease, or if the team filed for bankruptcy.
Minor League Baseball and Major League Baseball protect the host locality in those scenarios, said Eric Krupa, president of the South Atlantic League in which the Hagerstown Suns play. Teams that want to relocate must receive approval from their league, Minor League Baseball and Major League Baseball.
To receive that permission, Krupa said, teams must submit proof that they are under no contractual lease obligations in the city they are trying to leave. Teams that still have lease commitments to fulfill would not be granted permission to relocate unless they negotiate an arrangement with the city they are leaving—for example, paying off the remainder of the debt on the stadium being vacated.
If Minor League Baseball didn’t uphold those rules, there would never be any new stadiums built, Krupa said.
Krupa said he has not yet received an application from the Hagerstown Suns to relocate, but that would be expected after the team finalized a lease with Fredericksburg.
The Suns currently have a two-year lease at Hagerstown’s Municipal Stadium that is set to expire after the 2014 season. That stadium was built in 1930 and lacks the family-friendly amenities of a modern minor league baseball stadium.
There are also protections in place in case the team goes bankrupt, Krupa said. In that scenario, Minor League Baseball would step in to run the team until a new owner could be found.
Krupa noted that independent baseball leagues don’t have those same guarantees.