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Natwar M. Gandhi, Chief Financial Officer
Certifying two private financing plans for ballpark
April 5, 2005

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Press release Letter to Linda Cropp PowerPoint presentation

GOVERNMENT OF THE DISTRICT OF COLUMBIA
OFFICE OF THE CHIEF FINANCIAL OFFICER

FOR IMMEDIATE RELEASE
Tuesday, April 11, 2005
CONTACT: Maryann Young
(202) 727-0058

CHIEF FINANCIAL OFFICER RECOMMENDS BEST FINANCING OPTION FOR THE DISTRICT’S NEW BASEBALL STADIUM

(Washington, D.C.) Chief Financial Officer Natwar M. Gandhi announced today his office’s determination of the best method for financing the baseball stadium proposed to be built just west of the Anacostia River in Southeast D.C. Gandhi recommended using $246 million provided by Deutsche Bank. In exchange, the bank would receive the rent and the ticket, concession and parking taxes collected at the stadium. For the balance of the stadium’s cost, the District would issue revenue bonds backed by a utility tax on non-residential customers and a reduced Ballpark Fee, which were included in the District’s financing package passed last December.

The Deutsche Bank proposal is one of two alternative financing plans for the new stadium certified last month by the Office of the Chief Financial Officer (OCFO), in accordance with the Private or Alternative Stadium Financing and Cost Trigger Emergency Act of 2004. Once these plans were certified, the Council of the District of Columbia requested that the OCFO compare the certified plans with the original public financing proposal and recommend the best option for the District.

Three criteria were used to determine the best financing option for the new stadium: 1) the cost of capital to the District; 2) the impact on future borrowing for the District; and 3) the effect on the Ballpark Fee, which will be levied on District businesses with gross receipts exceeding $5 million.

Use of the Deutsche Bank plan would reduce the amount of revenue bonds the District originally planned to issue, and would allow the Ballpark Fee to be reduced from $14 million annually to approximately $8 million annually after the first 10 years. It would also negate the need for the District to issue general obligation bonds, which preserves the city’s debt capacity for future needs.

Gandhi noted in his recommendation that the other certified alternative financing plan by The Gates Group could be used to provide the stadium with additional parking, which could help mitigate potential parking issues in the surrounding neighborhood.

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Government of the District of Columbia
Office of the Chief Financial Officer
1350 Pennsylvania Avenue, N.W., Suite 209
Washington, DC 20004 
(202) 727-2476 www.cfo.dc.gov

Natwar M. Gandhi 
Chief Financial Officer

April 5, 2005

The Honorable Linda W. Cropp
Chairman
Council of the District of Columbia
1350 Pennsylvania Avenue, NW, Suite 504 
Washington, DC 20004

Dear Chairman Cropp:

As requested in the Private or Alternative Stadium Financing and Cost Trigger Emergency Act of 2004, the Office of the Chief Financial Officer (OCFO) reviewed and evaluated the eight alternative financing plans submitted to my office on or before January 18, 2005. On March 14, 2005, I certified the plans submitted by Deutsche Bank and The Gates Group as alternative vehicles for financing the construction of the new baseball stadium.

On March 15, 2005, the Council requested that I provide a recommendation on what financing alternative is best for the District. In undertaking this task, I examined the following scenarios:

  1. District General Obligation Bond Issuance
  2. District Revenue Bond Issuance
  3. Partial District Revenue Bond Issuance/$ 100 million from The Gates Group 
  4. Partial District Revenue Bond Issuance/$246 million from Deutsche Bank

To determine what is "best" for the District, I evaluated these four alternatives according to the following criteria:

  • What is the cost of capital to the District?
  • What is the impact on future borrowing for the District?
  • What is the effect on the Ballpark Fee? (the tax levied on District businesses with gross receipts exceeding $5 million)

Based on these criteria, I have determined that the best financing plan for the District is to utilize $246 million from Deutsche Bank and to issue District revenue bonds backed by the utility tax and a portion of the Ballpark Fee. This plan is the best financial option for the following reasons:

  • The District needs $224 million less in revenue bond proceeds.
  • Utilizing revenue bonds rather than General Obligation bonds will preserve the District's ability to issue GO bonds for future needs and can help the District maintain a low cost of capital in the future.
  •  This plan allows the Ballpark Fee to be reduced from $14 million annually to approximately $8 million annually.
  • The remaining $6 million would only need to be collected in the first ten years, in order to create a reserve fund; thereafter, the $6 million would be necessary only if revenues fall short.

Although I have not recommended the plan provided by The Gates Group as the best financing option for the District, I recognize that The Gates Group plan could provide the stadium with additional parking, which could help to mitigate potential parking issues in the neighborhood surrounding the stadium. The Mayor and the Council may choose to consider this plan as the process moves forward.

I would also like to reiterate that the stadium could provide an excellent economic development opportunity in the near Southeast community. Some of the plans that were not certified could provide a vehicle for the District to accelerate the economic development of this area. The Mayor and the Council may also choose to consider these plans as the development process moves forward.

Please feel free to contact me at (202) 727-0065 if you have any questions.

Sincerely,

Distribution List
Councilmember Carol Schwartz (At-Large)
Councilmember David Catania (At -Large) 
Councilmember Phil Mendelson (At-Large) Councilmember Kwame R. Brown (At-Large) 
Councilmember Jim Graham (Ward 1) 
Councilmember Jack Evans (Ward 2) 
Councilmember Kathleen Patterson (Ward 3) 
Councilmember Adrian Fenty (Ward 4) 
Councilmember Vincent Orange (Ward 5) 
Councilmember Sharon Ambrose (Ward 6)
Councilmember Vincent C. Gray (Ward 7) 
Councilmember Marion Barry (Ward 8)
Robert Bobb, Deputy Mayor and City Administrator 
Alfreda Davis, Chief of Staff to the Mayor
Arte Blitzstein, Budget Director, Council of the District of Columbia

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Office of the Chief Financial Officer
Government of the District of Columbia

Recommendation for Financing of Baseball Stadium
April 2005

Overview

  • On September 29, 2004, the Mayor, DC Sports and Entertainment Commission and Major League Baseball signed the Baseball Stadium Agreement.
    • Major League Baseball agreed to move a baseball team to Washington, DC
    • Mayor and the Sports and Entertainment Commission agreed to renovate RFK stadium for the new team and to build a new ballpark for the 2008 season.
  • On December 21, 2004, the Council passed the Ballpark Omnibus Financing and Revenue Act of 2004.
    • Authorized the District to issue up to $534.8 million in bonds to pay for the RFK renovation and new ballpark
    • New Ballpark Fee, a utility tax on non-residential customers, and increases in sales taxes at the stadium were imposed to repay these bonds. 
  • On December 21, 2004, the Council passed the Private or Alternative Stadium Financing and Cost Trigger Emergency Act of 2004.
    • Required the Chief Financial Officer (CFO) to request and review supplemental or alternative stadium financing plans and proposals
    • Plans must substantially reduce the annual amount of the Ballpark Fee required to repay bonds issued to construct the baseball stadium.

Financial Certification

  • In order to be certified as a financing alternative, the plans must:
    • Reduce the total amount of bonds the District would need to issue 
    • Reduce the Ballpark Fee needed to support debt service 
    • Provide additional financial benefits with minimal additional risk
  • Certified Plans (March 14, 2005)
    • Deutsche Bank
    • The Gates Group
  • Not Certified Plans (March 14, 2005)
    • Baseball Village Associates
    • DC Baseball Stadium Associates
    • DSG Capital Group
    • The Dubois Group
    • Global Development Partners
    • HooverMilstein

What’s “Best”

  • On March 15, 2005, Council asked the CFO to recommend the “best” financing alternative for the District for a total project cost of $486 million. 
  • The CFO revised the cost estimate for the project on March 30, 2005
  • The new cost estimate for the total project is $533 million.
  • Note that interest rates have increased over the past few months.
  • Criteria for determining “best” alternative for the District:
    • Interest Rate
    • Annual Payments 
    • Total Cost
    • Impact on Debt Capacity of District
    • Likely View of Rating Agencies
    • Effect on Ballpark Fee

District’s Revenue Bond Plan

Original Revenue Bond Financing Plan
(Approved December 21, 2004)

  • Total Proceeds required for Project Costs 
    • $486 million
  • Total Amount of Revenue Bonds Needed to be Issued
    • $535 million
  • 5.21% Interest Rate (on March 8, 2005)
  • Debt Service on Bonds
    • $34 million annually with bond insurance 
  • Sources of Repayment ($47 million) 
    • $14 million annually from Ballpark Fee
    • $14 million average annually from Utility Tax 
    • $19 million average annually from Stadium Taxes and Team Rent 

Original Revenue Bond Financing Plan with Revised Costs and New Interest Rates
(March 30, 2005)

  • Total Proceeds required for Project Costs
    • $533 million
  • Total Amount of Revenue Bonds Needed to be Issued 
    • $537 million
  • 5.36% Interest Rate (on March 30, 2005)
  • Debt Service on Bonds
    • $35 million annually with bond insurance 
  • Sources of Repayment ($47 million)
    • $14 million annually from Ballpark Fee
    • $14 million average annually from Utility Tax
    • $19 million average annually from Stadium Taxes and Team Rent 

A “trigger” may be required by the investment community to increase collections from the Ballpark Fee such that 80% of debt service repayment comes from stable sources.

Financing Options
(Estimated amounts are rounded, in millions)

    Not Recommended Recommended
    CASE 1 CASE 2 CASE 3 CASE 4
    General Obligation Bonds Revenue Bonds1 Gates/Revenue Bond Mix Deutsche Bank/Revenue Bond Mix1
1 Funds Needed for Project $533 $533 $533 $533
2 Cost of Issuance $8 $17 $14 $12
3 Reserves (including Capitalized Interest) 0 $36 $28 $62
4 Total Funds Needed $541 $586 $575 $607
5 Construction Fund Earnings and 2005 Revenues $49 $49 $49 $48
6 Funds Available from Certified Plans 0 0 $100 $246
7 Amount of District Bond Proceeds $492 $537 $426 $313
8 Average Annual District Debt Service $31 $35 $28 $20
9 Average Annual Alternative Financing Repayment 0 0 $112 $18
10 Total Average Annual Debt Service $31 $35 $39 $38
11 Interest Rate3 4.85% 5.36% 6.40% 5.31%
12 Total Cost in Today’s Dollars3 $522 $550 $612 $561
13 Effect on Debt Capacity reduces GO debt capacity limited effect on GO debt capacity limited effect on GO debt capacity most limited effect on GO debt capacity
14 Likely View of Rating Agencies direct debt indirect debt partial indirect debt partial indirect debt
15 Maximum Ballpark Fee Required Per Year for First 10 Years $8 $144 $10 $14
16 Ballpark Fee Required After 10 Years 0 $14 $9 $8
1. A “trigger” may be required by the investment community to increase collection from the Ballpark Fee. 
2. Assumes collections of approximately $11 million in parking revenues.
3. Interest rates and total cost are subject to market conditions, and may change as the financing plan is taken to the market. 
4. May need as much as $16 million in the first 10 years in order to meet requirements of the investment community.

CFO’s Financing Recommendation

RECOMMENDATION

  • Sell $18 million of in-stadium taxes and team rents to Deutsche Bank for an up-front payment of $246 million
  • Issue revenue bonds that will yield $313 million, to be repaid from $12 million of utility taxes and $8 million of the Ballpark Fee

RATIONALE

  • Plan is only slightly more expensive than pure revenue bond option
  • Plan has a highly limited impact on the future direct debt capacity of District
  • District will need $224 million less in bond proceeds than if the District issued revenue bonds for the entire project
  • Rating agencies will likely view the District bond portion as indirect debt and not direct District debt
  • The Ballpark Fee needed to support District debt service is reduced from $14 million to $8 million
  • The remaining $6 million will only be needed for 10 years to create a reserve fund; thereafter it will not be needed so long as team support remains strong

OTHER CONSIDERATIONS

  • With this plan, District can sell the revenue streams that will be most difficult to sell
  • Plan reduces interest rate risk because can be implemented more quickly
  • Plan delivers proceeds more quickly which decreases risk to 2005 revenues
  • A “trigger” may be required by the investment community to increase collection from the Ballpark Fee if team support is not strong 

Flow of Funds
Recommended Case

flow chart of funding

Other Opportunities

Economic Development 

  • The stadium can provide an excellent economic development opportunity in the near Southeast neighborhood
  • Some of the plans that were not certified could provide a vehicle for the District to accelerate the economic development of the area surrounding the stadium. 
  • With defined economic development criteria, the Mayor and the Council may choose to consider some of these plans as the process moves forward

Parking Options

  • The Gates Group plan has been certified as a financial mechanism. Gates would provide the District with up to $175 million.
  • The stadium could utilize additional parking.
  • The Gates Group plan could provide the District with the ability to construct a garage using upfront funds, which could mitigate parking issues during baseball games. 
  • The District could generate new parking revenues.
  • The Mayor and the Council may choose to consider this plan as the process moves forward.

Debt Service on Municipal GO Bonds

$47 Million Average Annual Flow of Funds (Dollars in Millions)

Debt service on municipal GO bonds

Debt Service on Municipal Revenue Bonds1

$47 Million Average Annual Flow of Funds (Dollars in Millions)

1. In order to sell the bonds to the investment community, 80% of the debt service repayment must come from the Ballpark Fee and Utility Tax. 

Debt Services Under Gates Group Plan1

$58 Million Average Annual Flow of Funds (Dollars in Millions)

1. The District would issue revenue bonds for the remaining amount of required project funds. In order to sell the bonds to the investment community, 80% of the debt service repayment must come from stable sources like the Ballpark Fee and Utility Tax.

Debt Service Under Deutsche Bank Plan

$58 Million Average Annual Flow of Funds (Dollars in Millions)

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