SAN FRANCISCO - Leaders from the city and county of Spokane, Wash., as well as a publicfacilities district, are pushing for a convention center expansion project that they allsay will require the sale of $96 million of limited-tax general obligation bonds.
What they do not agree on, however, are the mechanics of a loan related to the terms ofthe project.
The three entities worked together on another arena project in 1992. But the currenttalks are being clouded by the memory of a defaulted 1998 deal involving the city.
Supporters said the proposed deal and loan are necessary in order to obtain certainstate funds, and the expansion is needed so the convention center can compete for futurebookings with sites that have larger facilities.
Critics said the deal could potentially cost the city and county millions of dollars ifany shortfall occurs in the revenue streams anticipated to back the bonds. Some loanproposals call for the city, county, and Spokane Public Facilities District to each paya third of any shortfall, and some call for the county to pay a third and the city two-thirds.
| Roy Koegen Lukin & Annis |
Spokane County would sell $96 million of debt using its full faith and credit, possiblyin a two-part deal, but the debt service essentially would be paid from the revenuestream coming from the district, according to Roy Koegen of Lukin & Annis, bond counselfor the county.Of the proceeds, the lion's share, $76 million, would be used to expand the conventioncenter to up to 125,000 from 60,000 square feet in hopes of attracting more conventionbusiness from groups seeking larger venues.
Another $12 million of proceeds go towards renovating the Spokane County Fair and ExpoCenter, while $7 million would pay for a community center in the newly incorporated cityof Spokane Valley.
The city of Spokane owns the convention center and neighboring arena, which are bothoperated and maintained by the Spokane Public Facilities District. As part of theproposed loan agreements, city officials are considering transferring ownership orleasing some of the convention property to the district.
The county this week introduced another proposal under which it would loan $70 millionof bond proceeds to the district, equal to the PFD's debt limit. In return, the countywould expect the PFD to hand over certain convention properties it owns - such asparking areas - as collateral.
"The county must have security in the form of a deed or trust," said John Roskelley, acounty commissioner. "Whether this will pan out, I have no idea, but it will be on thenegotiating table."
The PFD has three potential revenue streams. One of these is a 0.10% sales and use taxthat county voters last spring authorized extending for the convention center. Anotheris a 2% hotel-motel sales tax.
In addition, district officials want to take advantage of a state rebate of $10 millionor more for public facility district projects statewide related to convention centers.As an incentive to get such capital improvement programs underway, state lawmakers in1999 authorized that 0.033% of tax revenues that such districts pay the state bereturned.
The state would kick in an estimated $2 million annually for 25 years for the Spokaneproject, which the PFD is pledging as part of its revenue stream. The state's portionhas a present value of $36 million, according to Shaun Cross, district board president.
Because the capital program for the convention center is $76 million, and the staterebate would account for $36 million of the deal, the facility would obtain nearly"twice the improvements for half of the costs," Cross said.
Still, some are anxious about some of the terms presented.
"If the tax revenues aren't there, it is going to be a hell of a drain on the city'sgeneral fund," said Councilman Steve Eugster. In 2018, debt service on the proposedbonds would rise to $18 million. Eugster also questioned the legality of a provision inone of the proposals that calls for the city to pass its power of condemnation to thedistrict.
Marshall Farnell, the county finance director, said he too is looking for assurances.
"We have some concerns if the [repayment revenue stream] is insufficient that the countywould be protected and would not have to go into the general fund," Farnell said.
"It is complicated and I think the majority of the people involved are still not up tospeed as to the bond capacity of the PFD, and the county's participation," Roskelleysaid.
Others who oppose the matter draw parallels to a bond deal five years ago for a parkinggarage that ended up in default and led to the city's credit downgrade.
The Spokane Downtown Foundation, a public-private partnership, in 1998 sold nearly $32million of revenue bonds for a parking garage adjacent to the River Park Square Mall.Prior to the issuance, the city adopted an ordinance pledging its parking meter revenuesto cover any shortfall between the garage's revenues and what was needed to pay the costof the ground lease for the property, if revenues were not sufficient to pay the leaseand debt service.
After the garage operations failed to generate sufficient revenues, the city refused toloan the parking meter revenues, saying the enterprise would never generate enough moneyto repay the loan.
The situation spawned numerous lawsuits and counter suits, many of which remain in thecourts.
Clark Hager Sr., a Spokane citizen and activist, cites the problems with the River ParkSquare as his reason for opposing the convention center bond sale proposal, with itssupport loan agreements.
"I think [officials] are doing the same thing here that was done in River Park Square,"he said, calling it a scandal.
Carl Lind, a founding board member of the PFD, resigned last month after 14 years ofservice.
Among the reasons for his resignation was the proposed use of the district's reservefund in the event of a shortfall. An estimated $16 million sits in the fund, which isused every five years for maintenance of the center and arena, he said.
"The thing that scares me is that on Jan. 1, 2018, the first principal payment will bedue on the new bond issue, and that is $18 million. I don't know where they are going toget the money. They have pie-in-the-sky ideas where that may come from," Lind said.
But Cross said there is no association between the convention project and the River ParkSquare deal.
Unlike the parking garage transaction, which was a public-private partnership, theconvention center project involves two municipalities, with the PFD acting as amunicipal corporation. Secondly, a countywide vote of the people authorized thisexpansion and the corresponding tax, whereas only the City Council approved River ParkSquare, he said.
"The bottom line is, if we have anything to do with public money, progress, and movingforward, the folks who are negative would love to try to tie it to River Park Square tokeep it from moving forward," Cross said.
Regardless, Sean Keatts, a vice president at Lehman Brothers, underwriter of the plannedtransaction, is both optimistic and practical about any deal.
"The sale will take place as soon as all parties can reach an agreement. It may happensometime this spring," Keatts said.
