DALLAS — When other Arizona cities were taking on long-term debt for professional sports facilities, the Phoenix suburb of Chandler gave Major League Baseball its walking papers and pursued more promising ventures.
In the process, Chandler saw its general obligation bond ratings rise steadily to triple-A, even after the recession cratered Arizona's economy.
"Impressively, the city maintained solid reserve levels throughout the recession, reducing its operating budget without any layoffs or furloughs and by adhering to its comprehensive financial plans," Moody's Investors Service analyst Andrea Unsworth noted in her Sept. 25 report affirming its Aaa rating.
Chandler is one of three cities in Maricopa County rated triple-A, along with Tempe and Scottsdale.
City leaders had a choice to make in the 1990s.
Rather than banking on the fickle fortunes of tourism and entertainment, Chandler dismissed pleas to invest $14 million in a Major League Baseball spring training facility when other Phoenix suburbs were mounting bidding wars for the teams in the so-called "Cactus League."
Seventeen years after the Milwaukee Brewers failed to convince Chandler to sink public money into the team's privately financed Compadre Stadium, the long-vacant site is being cleared for an upscale housing development that will expand the city's tax base.
The practice fields that served the Brewers during spring training in the Cactus League have been converted into the Snedigar Recreation and Sportsplex, a popular park complete with an indoor recreation center, skate park, dog park and fields for soccer, baseball and cricket.
After demolition of the stadium, the 318-home development known as Echelon at Ocotillo will break ground this fall across the street from Snedigar park.
"We were relatively pleased with how they planned to develop the site," said Chandler spokesman Dave Bigos. "We don't have that much vacant land left in the city."
As the stadium site undergoes redevelopment, Chandler's major employer Intel continues investing in its $5 billion campus on the site of former farmland bought without local tax incentives other than streets and other infrastructure.
"We've never offered incentives to Intel," Bigos said.
Intel, which announced expansion of its Chandler plant in 2011, has invested more than $20 billion to build high-tech manufacturing capacity in Arizona. Each year, the company also spends more than $450 million in research and development in Chandler, officials said.
By contrast, the Milwaukee Brewers wanted the city to invest $14 million to remodel Compadre Stadium and training facilities that had been privately financed by local developers in 1985 at a cost of $1.6 million.
The negotiations were "relatively contentious," said Bigos, who was working for the city when the Brewers were threatening to move.
"They kept asking for more," he said.
Ultimately, Chandler officials saw little upside in Cactus League baseball, Bigos recalls.
"We were comfortable with the decision we made at the time," Bigos said. "We were more focused on getting into the tech industry and becoming less of a bedroom community."
While the Cactus League and the Maricopa County Stadium District offered incentives, city officials didn't view the loss of the Brewers as a major economic blow, Bigos said.
"Chandler at that time was a much different place," he said. "We had only two hotels. People were coming to see the Brewers, but they weren't staying in Chandler or going out to eat here. We didn't see a significant increase in our tax revenues during spring training."
Rather than commissioning costly studies, "at that time, I think it was more guesswork," Bigos said.
The city council did face pressure from baseball fans who enjoyed the spring training ritual, Bigos said.
"I seem to recall they got over that fairly quickly," he said.
Chandler Mayor Jay Tibshraeny was not on the city council at the time but said it was the right call.
"The city made the right choice with the Brewers given the economic climate of the time," Tibshraeny said via email. "Moving toward a high-tech job producer and placing resources into employment centers like our Price Road corridor has turned Chandler into the information and technology hub of the Southwest."
Chandler will take its high ratings to investors Sept. 30 when it prices $195 million of general obligation refunding bonds through negotiation with senior manager Wells Fargo Securities. Wells Fargo vice president Tye Burgess and managing director Bob Kinney are lead bankers on the deal. Piper Jaffray managing director Bill Davis is the city's financial advisor.
Chandler's chief financial officer, Dawn Lang, anticipates savings of between $8 million to $9 million.
"The city is in great fiscal health and is taking the opportunity provided by good market conditions for refunding," Lang said. "Because we have quality paper it should be attractive in the market."
Among the cities that border Phoenix in Maricopa County, Chandler's baseball brushoff stands out amid what one official called a "Cactus League arms race."
The neighboring East Valley suburb of Mesa issued $101 million of sales tax-supported bonds to build a new stadium for the Chicago Cubs and to remodel the Hohokam Stadium the Cubs left behind for the Oakland Athletics. To offset the long-term obligation, Mesa sold land it owned in Pinal County to help cover the debt.
To move to Mesa next spring, the A's abandoned Phoenix Municipal Stadium, the oldest in the league, built in 1964.
Phoenix is now in danger of losing its last Cactus League team, as the Brewers are reportedly soliciting offers from Peoria to the northwest. Phoenix and the Arizona Sports and Tourism Authority spent $1.5 million in 2012 to improve Maryvale Ball Park in 2012 for the Brewers, but the team is operating on a year-to-year option. Maryvale was built in 1998 to host the Brewers after they left Chandler.
Peoria built a $32 million stadium for the San Diego Padres and Seattle Mariners in 1994 and is now remodeling the two teams' clubhouses at a cost of $36 million.
No details have emerged on how Peoria would finance a new stadium for the Brewers at a new development known as Vistancia. There is also speculation that the Brewers will move to Florida's Grapefruit League if local offers prove insufficient.
The town of Surprise provided $16.3 million toward a $48.3 million training facility and stadium for the Kansas City Royals and Texas Rangers in 2003, with the remainder of the finance coming from AzSTA.
Goodyear built a $113 million stadium for the Cleveland Indians in 2009. Because of falling revenue from a state tourism tax, an anticipated $57.3 million of funding pledged by AzSTA will likely be unavailable. Despite the stadium challenge, Goodyear earned a general obligation upgrade to AA from Standard & Poor's in February.
Glendale, on the west side of Phoenix, went all-in on professional sports, issuing $200 million of sales-tax bonds for the Camelback Ranch spring training facility for the Los Angeles Dodgers and Chicago White Sox, $180 million for a National Hockey League arena and providing infrastructure for the $455 million state-financed University of Phoenix Stadium that hosts the National Football League Arizona Cardinals.
Chandler's Standard & Poor's general obligation rating rose to AAA from AA-minus since the Brewers' departure, while similarly sized Glendale has gone the other direction, falling to BBB-plus from AA. Analysts have cited the city's deep sports debt and the need to raise sales taxes to cover budget deficits. "Glendale is now in a hole from which it cannot escape, which may carry with it implications for its bond rating," said David Swindell, director of the Center for Urban Innovation at Arizona State University. "That means other capital investments will be even further out of reach as the cost of borrowing goes higher for them."
The deep commitment to professional sports carries a high opportunity cost in other areas, Swindell said.
"Sports investments as a general economic development strategy is simply not a good strategy," Swindell said. "The more frustrating aspect of these kinds of investments by municipal jurisdictions, as in the case of Glendale, is that the jurisdiction making the investment recoups a pretty small portion of the overall return on that investment."
Glendale has not issued any debt since 2007, but spokeswoman Julie Watters said the city still has the capacity to do so.
"The debt service on the arena and spring training stadium does not impact the ability to issue debt for typical city facilities," Watters said. "The only possible impact could be the cost of borrowing, i.e. interest rate, due to the overall level of indebtedness."
When other non-spring training functions such as concerts and events held at the ballparks were included, the estimated annual economic impact grew to $632 million.
However, the studies presented in favor of investing in sports often overstate the case for building stadiums and arenas, Swindell said, ignoring the fact that much of the discretionary spending is diverted from other activities and creating the impression that the host city alone will enjoy those benefits.
Over a five-year period ending in 2012, eight of the nine Arizona cities that host spring-training teams lost money on their stadiums and practice facilities, with combined deficits of more than $10 million annually, according to a study by The Arizona Republic.
"What local leaders should be asking their consultants to do is calculate only that portion of the benefits that will accrue to the host jurisdiction," Swindell told The Bond Buyer. "All the other economic activity is nothing more than a subsidy to surrounding jurisdictions who will be enjoying the benefits the host jurisdiction paid for."
