December 25, 2005

You Gotta Comment!?!

COOKING THE NUMBERS: It's true if a falsehood is repeated long enough, it becomes fact. It has been accepted -- by those for and against the new stadium in DC -- that the cost of the facility is $667M. But this estimate factors in many items that should not in all fairness be counted. Instead of the $667M oft repeated price tag, a more accurate estimate comes in about 20% less at $557M.

To overinflate the stadium's cost, opponents have unnecessarily added $110M to the price by incorrectly including:
--$30M in financing costs. (When most people buy a house or car, they dont add in the finance charges. You dont say: I paid $300,000 for a condo; put down $30,000, have a 30-year, $270,000 mortgage that will end up costing, say, $100,000 over the life of the loan, and then add $100,000 to the price for a total of $400,000. Wrong. If you dont do that with a condo or other property, don't do it with the DC baseball stadium.)
--$24 million to renovate RFK. (Whether the lease is approved or not this money was spent in early 2005.)--$3.5 million to build a grand plaza (Developers or the federal government, which pays for DC parks, ultimately will pay this bill.)
--$4 million to build some sidewalks around the stadium, (Same paid by developers or the federal government.)
--$1.5 million for DC to pay its own permitting fees. (The city pays the city and including this amount is double counting.)
--$12.9 million that Pepco is charging DC to pay for utility upgrades. (Ultimately developers will chip in or the cost will be spread out among all.)
--$21 million to improve the Metro. (Historically the feds pay for Metro.)
--$12 million to pave roads. (Again developers or the feds.)This cuts the cost of the stadium to a more manageable $557M.

WHO PAYS HOW MUCH? Borrowing $557M at a rate of 4.5% would create a mortage payment of $3.5M per month. The debt would be serviced by the $3.8M raised monthly by four sources of revenue:
--$1.2M per month ballpark fee, paid by 2,000 of DC's largest businesses,
--$1M per month tax, paid for primarily by the federal government and large businesses,
--$0.8M per month in ballpark taxes, assessed only on people who buy tickets, concessions, etc. (Mostly people from Virginia and Maryland, not DC)
--$0.8M per month in lease payments, paid by the Nats' owners. Theses taxes and fees almost entirely will be borne by institutions and those not living in DC. It should be Virginians and Marylanders who are up in arms not Washingtonians.

WHAT ABOUT PRIVATE FINANCING? The interest rate would rise from 4.5% to 5.5%, and the monthly payment would rise from $3.5M to $3.8M. The whole thing becomes harder to pull off for no reason. Like so many stadiums, including Camden Yards, the public financing is the smart way to go. Again we urge the DC Council to approve the lease.

ONE LINER: It's schools vs. yups as another developer has moved into Southeast by purchasing 770 M Street SE for $20M. Preferred Real Estate Investments Inc. says the location of the 100,000SF building makes it ideal for retail stores such as a Barnes & Noble bookstore or a Whole Foods grocery. Three charter schools currently call the building home.


Colin said...

Wow, what a deal -- only getting raked over the coals for $557 million. And all so that development in one part of town might get sped up a little bit.

This is sick.

Anonymous said...

Colin, what makes you think the area will be developed at the same pace? or with the same mix? W/o the stadium there only will be bars, no restaurants, very little housing.

Colin said...

Not true. Condo developments, bars and restaurants are all already slated to open there. Some have already opened (Capitol Tower for example).

If you really want to see development take off in DC, use the $500+ million for fighting crime, improving schools, improving our parks, infrastructure, libraries or any of the other functions government is meant to handle. Cutting taxes to VA levels would also strike me as a way to attract more residents.

Dave said...

While I am a strong supporter of the stadium project and appreciate your effort to debug the numbers, sadly your analysis is wrong on several points. Firstly, the feds don't pay for DC parks, as you put it. While the National Park Service has jurisdiction over capital matters as concerns the Mall, White House and other areas around the major monuments, the rest of the parks in the city are DC's responsibility. Of course, Ms. Norton might be able to put a line-item to cover the costs for constructing a particular park in a Congressional appropriation bill. But short of that, the city pays for its parks out of its own capital budget.
Including the forgone fee in the calculation of full costs is not incorrect. Forgiving a revenue source has the same impact on the city's budget as allocating operating dollars.
While the original capital costs for the Metro rail system were mostly (but not entirely) paid for by the feds, that isn't the case any longer for mass transit capital improvements. The various jurisdictions served by the Metro system have to cough up lots of matching money now for construction costs. All mass transit projects are now earmarked first by Congress as part of the every 5-6 year reauthorization of the highway and mass transit programs (the latest round was approved this fall -- remember Alaska Senator Stephens' "bridge to nowhere"?). Even if the project is included as an earmark, the locals are still required to come up with matching money. Recently, transit projects have been on a 50-50 match basis, down from the old days of 80-20 (fed-local).
As to street and sidewalk construction in the area of the stadium, the primary responsibility for funding these improvements is the city's. In some cases, the city may be able to require developers to build the sidewalks in cases where the city controls the original disposition of the land. But in instances where the land was private from the start, the city is likely to be on the hook. Moreover, within the Anacostia Waterfront Corporation's footprint, which includes the area around the planned stadium site, the local ordinance that set up the AWC requires the Corporation to self-finance all street and sidewalk construction. Thus, the AWC has to look to profits it makes from the sale of land to cover street and sidewalk work. I can't recall completely but sewer line work may also be on AWC's tab.
The rest of your analysis is sound. Essentially, the core stadium project is to be funded by the owners (through the lease payment), taxes on those who use the stadium (taxes on tickets, concessions and parking), a gross receipts tax on large businesses, and a utility tax (which gets some federal money into the deal since federal facilities in the District pay the utility tax).

dcbubble said...

Hold on DC Bubble still maintains the stadium cost is over inflated by $110M.

DC is negotiating to use a WMATA discretionary fund to pay for the Metro improvements.

Furthermore the need for a mark within the stadium footprint will be diminished by the proposal to develop some of this land. DC Bubble continues to maintain that developers ultimately will flip the bill for the parks.

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Anonymous said...

I just find it sad that businesses in DC are willing to be taxed to have a baseball stadium for a privately owned and operated team and are not willing to be taxed to provide money for schools or other public projects. I wish the same business owners would be willing to get taxed the same amount to fund the combined sewage fix and clean up the water in Rock Creek, the Potomac River and in the Anacostia River. That project would have a much bigger and broader impact on the community and vastly improve the lives of many DC residents and people from MD and VA. Plus, once the sewage is no longer going into the Anacostia River fans attending the games would not have to put up with the smell of sewage wafting over the crowds in the stadium.

Anonymous said...

I think the city should make the lease deal contingent on MLB selling the team to the city. That is the only way that the city can guarantee a return on investment. And it would also guarantee that the team would stay here in DC for the long term.