A few comments on financing a stadium... in general... Mark Snyder says in part, regarding public financing of stadiums,
>That's why public financing is desired, not because stadium financing such a >"bad deal" that business owners are "too smart" to get involved in it. It's >because the State has a great credit rating that lets it get investment >rates that nobody else can. (MH) The state (or city) gets lower interest rates because the bonds are usually guaranteed by the taxpayer in case of default (general obligation bonds). When revenue bonds are issued they are guaranteed by project cash revenues, and other special assessment obligations rely on taxes levied to finance a particular project. The bottom line is that public bonds hold less risk for purchasers, hence they pay a lower rate-- because they are backed in some fashion by some segment of the public rather than a specific business entity. And as usual, even with state or municipal bonds, the devil's in the details of the indenture agreement. Thus, the business owners (MLB owners in this case) are smart enough to seek public subsidies that reduce their level of risk in the overall project. They seek to maximize their profits while minimizing their risks-- a commendable strategy on their part! In similar fashion, the government can only issue so much debt and assume so much risk without jeopardizing its credit rating which would then result in the public paying higher interest rates for projects across the board, and may in fact necessitate a tax increase. Recall one credit agency lowered Mpls.' credit rating only a few short months ago. This isn't rocket science or wild speculation. There is no free (or reduced price) lunch, unless you own the private sector business being subsidized, in which case the general public or some segment thereof is picking up part of your tab. And since we're talking debt instruments, the public has no equity as part of such a deal, thus remaining potentially liable for shortfalls while reaping no upside gains if the project is successful. A pretty shabby arrangement if you are just a taxpayer and have no equity in the project, or don't own a restaurant across the street from the project, etc. And it's never just 'one' project... there are dozens and dozens of these things on the books! Who's minding the store? Michael Hohmann 13th Ward [Oh yeh, almost forgot-- tell the Osseo school district how insignificant $100 million is in the overall scheme of things... they're desperate for about $9 million in a hurry. Or, consider that MRI picks up and hauls about half the city's solid waste all year for about $5.4 million... a little perspective on these numbers.] > -----Original Message----- > From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED]]On Behalf Of > Mark Snyder > Sent: Sunday, December 09, 2001 6:01 PM > To: [EMAIL PROTECTED]; [EMAIL PROTECTED] > Cc: [EMAIL PROTECTED] > Subject: Re: [Mpls] Paul Ostrow on the Ballpark > > Gary, snip > > And in response to your question for why the public would get > involved in such a > "loser" deal like a ballpark, it's because public financing can > do many things > cheaper than can be done by private financing. > > For example, if a ballpark along the lines of what the > Minneapolis C-17 group > were constructed, a public contribution of $100 million would be > assumed. If > the State (not City of Minneapolis, but State) were to issue > bonds for this > public investment, then doing so would allow the project to take > advantage of > lower interest rates that the State has access to and the private > sector does > not. I spoke with a colleague who's worked on a number of public > financing > projects and percentage-wise, the difference is not huge, maybe > 1/8 (or 0.125) > of a percentage point. However, when you look at numbers like > $100 million, > that little 1/8 means a lot. Assuming bonds were issued for 30 > years, it would > be a savings of about $400,000 annually in interest payments, or > $12 million > overall for the project. That's why public financing is desired, > not because > stadium financing such a "bad deal" that business owners are "too > smart" to get > involved in it. It's because the State has a great credit rating > that lets it > get investment rates that nobody else can. > > When you also look at the fact that the State of Minnesota's > annual budget is > $27 BILLION (not million, BILLION), you notice that $100 million > is about 1/3 of > one-percent of the state's annual budget. You also should > consider that this > investment would be spread out over the number of years for which > the bonds are > issued, making it an even smaller hit. Now throw in that the > bonds would be > paid back by game-day parking surcharges, ticket surcharges > and/or taxes on > concessions, meaning that unless you're a baseball fan who goes > to watch a game, > the cost to you is absolutely nada, zippo, zilch! > snip > So as you see, Gary, there's a lot more involved than just > building a ballpark > to house a billionaire's team. snip > In addition, financing a public contribution through a bond issue > means you get > the money for doing the construction, land purchase and all the > rest up front, > without requiring the full costs of these coming due immediately > - just like if > you or I take out a mortgage or a home equity loan for whatever > reason we might > need to. It doesn't have that large of an impact on keeping up > with our other > responsibilities and in some cases can make it easier snip > > I would personally like to commend Paul Ostrow for not burying > his head in the > sand. Real leadership is shown when a politician recognizes the > broader impacts > of a controversial issue like stadium financing and shows the > courage to work > towards a fair solution instead of hiding behind the "no ballparks for > billionaires" rhetoric spouted by those who are unwilling or > unable to see the > bigger picture. > > Mark Snyder > Ward 1/Windom Park > [EMAIL PROTECTED] snip _______________________________________ Minneapolis Issues Forum - A Civil City Civic Discussion - Mn E-Democracy Post messages to: [EMAIL PROTECTED] Subscribe, Unsubscribe, Digest option, and more: http://e-democracy.org/mpls
