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Joyce Clark Unfiltered

For "the rest of the story"

It appears that Glendale cannot catch a break financially. Camelback Ranch opened in 2009 as the new Spring Training home of the Dodgers and White Sox at a cost to Glendale of $158 million: The ballpark cost $121 million, plus $37 million for off-site infrastructure. Glendale knew that reimbursement from the Arizona Sports and Tourism Authority (AZSTA) would be a long time in coming but at least it knew that in the future it would be partially reimbursed for its investment (if I remember correctly, it was 70% of the cost) .

AZSTA utilized a 2000 voter approved tax on car and hotel rentals to pay for the construction of the University of Phoenix Stadium and various Spring Training facilities in addition to reserving a portion for youth sports. It issued bonds for stadium construction that are paid from the rental taxes.

On Tuesday, June 17, 2014 Maricopa County Superior Court Judge Dean Fink ruled that the car rental tax was unconstitutional because the tax was being used for what he determined were impermissible uses. Here is the link:  http://www.azcentral.com/story/money/business/consumer/call-12-for-action/2014/06/18/judge-strikes-rental-car-tax-stadiums/10723905/ .

There is a hotel industry suit waiting in the wings claiming that it’s tax is also unconstitutional. No doubt there will be an appeal of all rulings related to this issue so it may be at least a year or more until there is final resolution.

If the car rental industry and the hotel industry finally prevail Arizona will be forced to rebate all of the tax it collected to those industries. It will be an amount way, way north of $150 million. This action raises a host of questions. Will AZSTA come up with another taxing mechanism to replace the unconstitutional one? Will it take it to the voters for approval? Will it renege on its obligations? Will cities with new, spring training facilities be able to sue AZSTA for breach of contract if it fails to reimburse them? The implications of such a ruling, should it be upheld, are breath taking.

For Glendale it is not catastrophic in the short term because it knew AZSTA’s reimbursement was some time off. But, if AZSTA does not fulfill its obligation to reimburse Glendale and it is solely responsible for paying off the construction debt of approximately $17 million a year, it becomes another financial obligation that bond rating agencies will take into consideration when rating Glendale’s ability to pay its massive debt. This result, if not reversed on appeal, provides no light at the end of Glendale’s long and dark financial tunnel.

 © Joyce Clark, 2014

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On April 22, 2014 on a vote of 16-10 HB 2547 was rejected in the Arizona Senate. It would have partially reimbursed Glendale for public safety expenditures related to hosting the upcoming Super Bowl in 2015. This is an event that generates large sales tax revenues all over the state and especially in the Phoenix Metro area.

Here are realities some Arizona senators conveniently ignored. The state, the county, the Arizona Sports and Tourism Authority (AZSTA), the Arizona Super Bowl Host Committee and the Bidwills all breathed a sigh of relief when Glendale stepped up to the tune of $35M for infrastructure improvements surrounding the stadium and accepted construction of the University of Phoenix Stadium in Glendale when no other city in the Phoenix Metropolitan area was willing to do so.  Glendale held its tongue when publicly slapped in the face by the naming of the stadium as the University of Phoenix Stadium.

Glendale looked forward to its first Super Bowl hosting experience and assumed that new sales tax revenues would cover the costs associated with being a host city. It was a pilot project and learning experience. Glendale did an outstanding job of hosting and has been praised as a model experience. Glendale spent $2.2M in 2008 as a host city. It earned sales tax revenue of $1M losing $1.2M in the process. It was an expensive lesson.

If anyone believes that public safety was the only cost to Glendale for hosting the 2008 Super Bowl, they are fools. Don’t forget at a minimum to include sanitation and transportation. Glendale sanitation had extra duties in assuring that the venue was clean and neat for a minimum of two weeks.. Glendale’s transportation staff coordinated all of the transportation logistics during the NFL Experience and on game day. Then there were the countless hours of Glendale staff time in preparation for the event and the countless meetings with NFL and Arizona Host Committee officials. Glendale put a lot of skin into the 2008 game yet it was cities like Scottsdale, Tempe and Phoenix that reaped gorilla sized sales tax revenues.

Some of these Arizona senators were lied to with impunity. They were told that Glendale made money on the 2008 Super Bowl. I was there. I was on the city council. I saw the figures. Glendale did not make money. I was one of only two councilmembers who voted against hosting it again in 2015 for the very reason that Glendale lost money. I said publicly at the time that without a reimbursement mechanism in place I could not support hosting it again.

If anyone believes that $2M will cover the costs of hosting the Super Bowl in 2015, next year, they, too, are fools. City Council intended to build up a fund of $4 to $6M over 6 years to cover the anticipated expenses. Everything from gas, to salaries, to vehicle use, to supplies has gone up. Then council became preoccupied with the Coyotes mess and was raped by the NHL to the tune of $25M a year for two years. The set aside fund never materialized.

Finally, this year Glendale crafted a bill to recapture its costs as a host city. The original figure requested was $4M and it watched as the bill was steadily watered down to $2M accepting that something was better than nothing.  In the meantime AZSTA, the Host Committee and the Bidwills came up with their own bill requesting $10M. It never made it to the Arizona House of Representatives’ floor for a vote. It died an ignominious death.

So where were they? Why didn’t AZSTA, the Host Committee and the Bidwills buck up and support Glendale? When their bill died did they just pick up their marbles and leave the fight? You bet they did. They view Glendale as a red-headed stepchild  – a child that doesn’t play well with others. After all, how dare Glendale not make its hotels bow to the pressure and cap their room rates? They blamed Glendale for not dictating terms to private hotel entities. They also claimed, falsely, that Glendale would not provide the necessary, stipulated parking needed for game day. Not true but in their view Glendale, quite simply, had become a pain in their butts.

Mayor Weiers and Vice Mayor Knaack publicly acknowledged at the April 22, 2014 council meeting that Glendale cannot continue to absorb the costs of hosting the Super Bowl without reimbursement. They made it quite clear that it is an unsustainable proposition. I applaud the fact that they have put everyone on notice and unless a reimbursement mechanism is created Glendale will not be in the business of hosting future Super Bowls. It’s about time. It’s nice to finally have some public company on this issue. Way to go Mayor Weiers and Vice Mayor Knaack. The ball is in AZSTA’s, the Host Committee’s and the Bidwill’s court. It’s their turn to play nicely and to acknowledge that Glendale is a valuable asset to them. After all, they can’t pick up their marbles (er, stadium) and go away, can they? Ironic, isn’t it? They may have cooked their golden goose.

© Joyce Clark, 2014

FAIR USE NOTICE

This site contains copyrighted material the use of which is in accordance with Title 17 U.S. C., Section 107. The material on this site is distributed without profit to those who have not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democratic, scientific and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in Section 107 of the US Copyright Law and who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use,’ you must obtain permission from the copyright owner.

On Tuesday, February 19, 2013 the city council’s afternoon workshop was devoted to an informational presentation by staff on the history of Camelback Ranch. It’s a good a time as any to review what happened and how did Glendale get into this financial sinkhole? For the record, I did support this project and voted in the affirmative.

Camelback Ranch was first discussed in the spring of 2006. Keep in mind, the national economy was booming. Glendale was earning record revenues. That was the character of the economic climate in which the decision was made to move forward. No one had a crystal ball foretelling of the Great Recession about to descend upon the country. There was no issue with the arena. Steve Ellman had just sold his interest in the Coyotes to Jerry Moyes who became the new arena manager. The city was not paying an arena management fee. It would be 2009 when Moyes declared bankruptcy and the national recession hit.

Council had commissioned an economic impact study by Economic Research Associates released in March of 2006 to determine the potential financial impacts of the proposed Camelback Ranch project. It said the potential estimated direct economic impact of the two teams would be $14.9 million a year if used only during the spring training season and $19.2 million if the facility was used year round. Part of that estimate took into account that Right Path Limited would be developing the land surrounding the actual ballpark facilities. It was against this backdrop that council moved forward with approval for the project.

It was a complicated deal. Glendale’s partners were or are: the City of Phoenix; the Arizona Sports and Tourism Authority; the Dodgers and White Sox teams; and Right Path Limited (as the developer).

Camelback Ranch is located physically within Phoenix. Glendale purchased the parcel on which the major league baseball facility (MLB) sits as well as several other parcels for commercial/retail development. Phoenix’s obligation in the deal is to pay 80% of the sales tax it received on this site for 40 years up to a maximum amount of $37 million. It was its contribution toward the development of the site. In return Glendale assumed the obligation of paying Phoenix for a specific right-of-way and land adjacent to that right-of-way. The deadline for that purchase in the amount of $3.7 million is October of this year. If Glendale reneges all terms of the Phoenix/Glendale Intergovernmental Agreement (IGA) become null and void. From 2009 until 2013 Glendale received over $200,000 from Phoenix in sales tax revenues.

Ralph Burton, principal of Right Path Limited, was to be the developer of the land adjacent to the MLB facility. At the time Glendale had a great deal of confidence in him. He had been very instrumental in Cabelas locating in the Westgate area. He had purchased a substantial amount of land along the western side of Loop 101 named “Main Street” and there were plans in the works to site the Olympic basketball training facility and headquarters there. He had taken over the airport fixed base operation (FBO) and had performed major renovations. He unfortunately partnered with Danny Herndon (of Danny’s Car Wash fame and illegal immigrant workers) and Bob Banovach to develop the Main Street project. It wasn’t long before there was in-fighting between them resulting in litigation. In the meantime the recession factored into their development plans. All plans ground to a halt and ended in bankruptcy.

The Dodgers and White Sox agreement with Glendale stipulated that they would operate and maintain the facility. Capital repairs would be Glendale’s obligation. They were required to pay $1 a year for rent. There is no management fee obligation for Glendale. Glendale is responsible for providing public safety services but the revenue it receives appears to cover those costs.

The Arizona Sports and Tourism Authority (AZSTA) pledged to cover 66.7% of the project’s costs as it has historically done with other baseball spring training facilities in Phoenix, Mesa, Peoria and Surprise. Reimbursement was originally scheduled to begin in 2017 but again, the recession destroyed that schedule. AZSTA’s revenues dwindled and the new projection for payments to Glendale is now scheduled for 2025-2026.

The debt service for construction of the project range from a high of $17 million in FY 2014-15 to a low of $9 to $11 million in subsequent years. Glendale is obligated to contribute to a Capital Repair account with annual payments of $400,000 to $800,000.

The financial obligations of Camelback Ranch and Jobing. com Arena are substantial for Glendale. The annual financial requirements of these two city owned facilities are clearly unsustainable.  Camelback Ranch requires infusions ranging from a high of $18 million (debt service and Capital Repair account) to a low of $10 million a year. Jobing.com Arena requires an annual management fee of $15 million and annual debt service of approximately $13 million. Add to those figures the $5 million a year owed to the NHL, the annual contribution to the Capital Repairs account of half a million to a million a year and another million to repay the city’s Enterprise Funds and we’re looking at a low of $28 million a year to a high of $34 million a year. Combined these two facilities require cash infusions each year from a low of $38 million to a high of $52 million. A disclaimer is in order. Since I am no longer on city council I am not privy to current financial information and obligations related to these facilities that may be considered confidential. However, the underlying concepts remain valid. Some of the cash required by these facilities may be offset by revenues they generate. We simply will not know how much offset there is for the arena until the start of the next fiscal year on July 1, 2014.

Is there any solution available? Perhaps yes. The many partners and contractual obligations associated with Camelback Ranch do not lend themselves to a sale by the city of Camelback Ranch. However, Jobing.com Arena is not in the same situation and could be sold. In doing so it removes substantial annual debt service and management fee obligations from the city. It is an option that merits consideration. Personally, I would be sad to see the city lose the arena but sometimes ya gotta do what ya gotta do.

As a side note I am discontinuing my informal polls, at least for now. It is obvious that those for or against an issue are padding the results by voting repeatedly. The results of the poll have now become meaningless.

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© Joyce Clark, 2014

FAIR USE NOTICE

This site contains copyrighted material the use of which is in accordance with Title 17 U.S. C., Section 107. The material on this site is distributed without profit to those who have not always been specifically authorized by the copyright owner. We are making such material available in our efforts to advance understanding of environmental, political, human rights, economic, democratic, scientific and social justice issues, etc. We believe this constitutes a ‘fair use’ of any such copyrighted material as provided for in Section 107 of the US Copyright Law and who have expressed a prior interest in receiving the included information for research and educational purposes. For more information go to http://www.law.cornell.edu/uscode/17/107.shtml. If you wish to use copyrighted material from this site for purposes of your own that go beyond ‘fair use,’ you must obtain permission from the copyright owner.

jobing.com arenaFor months on end during the campaign of 2012, Glendale citizens were told by candidates for elected office, the Goldwater Institute, the opposition to any deal in the form of Ken Jones, et.al., and the media that Glendale would not be paying any Coyotes team buyer/owner a management fee but rather it would be a subsidy to prop up team losses. After all, if all of these entities said that, it must be true.

Oh really?
Having dealt with the ongoing Coyotes saga since Jerry Moyes declared bankruptcy in 2009 (after all, he asked the City for a management fee that would really cover team losses, didn’t he?) I have collected all kinds of information on arena management fees. In fact what I have to share with you may be considered downright boring. So, if you have trouble sleeping at night this could be your cure.
Let’s begin our Arena Operations and Maintenance Course 101 with the management deal between the City of Glendale and Greg Jamison. Not the latest deal renegotiated between the City and Jamison that would have dropped the management fee to $6M for this year but the original deal before finances in the City were discovered to be bad…very, very bad.

Year by year it went like this:                                         COG Ls Mgmt Agree 2012
Year 1……….……………….$17 million
Years 2 thru 4…………….…$20 million
Years 5 thru 7……………….$18 million
Years 8 thru 11………………$16 million
Years 12 thru 14…………….$15 million
Years 15 thru 19………….…$10 million
For an average of $15 million a year.

All of this nifty information can be found in a 90 page document entitled Arena Lease and Management Agreement by and among City of Glendale, an Arizona municipal corporation (the “City”) and Arizona Hockey Arena Manager, LLC, a Delaware limited liability company (the “Arena Manager”)and Arizona Hockey Partners, LLC, a Delaware limited liability company (the “Team Owner”) Dated as of _____________, 2012. The title is almost as long as the document and one of several documents related to the City Council originally approved lease management agreement in June of 2012.

Would the City have received ANY revenue in return? Yes. The team would pay a base rent of:
Years 1 thru 5 –     $500,000 per year
Years 6 thru 12 –   $650,000 per year
Years 13 thru 19 – $800,000 per year
(pp. 49-50, Sec 10.1.1. – 10.1.6.)
If you think that’s not very much, read on. Later we will take a look at the University of Phoenix Stadium, the arena’s southern neighbor.

The City would also have received a City surcharge per ticket of:
Years 1 thru 5 of $2.75 per ticket
Years 6 thru 19 of $3.00 per ticket
(p. 48, Sec 9.1.2.a a and b)
At an average attendance of 10,000 per night for 40 nights at $2.75 per ticket, that’s an additional $1.1M per year and at $3.00 per ticket it’s $1.2M per year. Perhaps you consider this to be chump change.

Then there are the intangibles that are more difficult to estimate. In a recent news article of Nov. 13, 2012 entitled Glendale businesses cope with games lost to NHL lockout by Sarah Pringle of the Cronkite News, Aaron Hernandez, Manager of McFadden’s, stated that his restaurant was losing between $18,000 to $25,000 in revenue per hockey game missed. At a city restaurant tax rate of 3.2% the City loses approximately $23,040 of sales tax revenue for 40 nights of hockey. And that’s just ONE restaurant. Multiply that figure at the Yard House, Kabuki, Margaritaville and the dozen or so other restaurants located at Westgate. Now add another figure from the same news report. The City loses approximately $60,000 per game from the arena alone in sales tax revenue. For 40 games the City would have realized another $2.4M. I cannot even begin to estimate the number of room nights lost and their sales tax impact. The numbers are beginning to grow. Oh, I almost forgot. The City would also have received 15% of the sale of arena naming rights.

After renegotiation with Mr. Jamison, the lease management agreement became even better for the City. It included penalties for games not played in the arena, set a minimum number of events and added an incentive for events achieved over the minimum number. However, my reasoning for looking at the original agreement is that I have a feeling that we may see something very similar if there is an Anthony LeBlanc/Matthew Hulsizer deal.

So, to answer Councilwoman Alvarez’ persistent question, “Does the arena make any money?” The answer, dear woman, is “yes.” What she failed to ask is, “Is the arena profitable for the City?” The answer is clearly “no.”

UofP stadiumHowever, if that is her only measure of success then the University of Phoenix Stadium is in trouble. The UofP Stadium is a Maricopa County facility, voter approved. The County created the Arizona Sports and Tourism Authority commonly known as AZSTA to run the stadium. Each year the State’s Auditor General is charged with auditing AZSTA’s finances. The latest report available is online in the 2010 Audit.

AZSTA receives its operating revenue from normal operations of the facility, including rental payments, concessions commissions, and facility use fees for all events held at the facility, except Cardinals games. It also receives the majority of its revenues from a Maricopa County hotel bed tax AZSTA Cover Sheetand car rental surcharge, state income taxes paid by the Cardinals’ corporate organization, its employees, and their spouses, and sales taxes generated from events held at the facility (pg 4). So it is different from Glendale’s arena as the bulk of it revenues come from a hotel bed tax and car rentals, both of which are fueled by tourism. The majority of Glendale’s arena revenue is generated from sales taxes both inside and outside the arena. Responsibility for payment of operating and maintenance expenses are also different from each other. Glendale’s arena manager would be responsible for payment of operating and maintenance expenses and come from the management fee. If the fee was not adequate the arena manager would be responsible for making up any shortfall. In the case of the UofP Stadium AZSTA pays a management fee to the current manager, Global Spectrum, and AZSTA additionally pays all stadium operating and maintenance costs.

What is the management fee paid to Global Spectrum by AZSTA? An average of $300,000 a year (p. 52 of State Audit Report, 2010). Well, that seems a lot more reasonable than the $17MAZSTA Mgr fee Glendale would pay to an arena manager. Remember, the $17M covers all operating and maintenance costs for the arena. The Global Spectrum fee does not.

Then we must ask what the O&M costs are and who pays them? AZSTA pays them and according to the State Audit Report, Appendix, pg. 12, Table 3 the expenses are considerable and the stadium does not generate enough revenue to cover its expenses.

AZSTA Rev ExpIn 2008 stadium revenues were $13.1M and stadium expenses were $22.7M for a loss of $9.6M.

In 2009 stadium revenues were $10.3M and stadium expenses were $19.9M for a loss of $9.6M

.In 2010 stadium revenues were $23.2M and stadium expenses were $28.2M for a loss of $5M.

As noted previously the Coyotes base rent begins at $500,000 a year. The Cardinals, on the other hand, paid $265,300 in rent for 2010. Their rental payment escalates at the rate of 2% per year. Another interesting bit of information is that in 2007, the year the stadium opened, there were 179 events with a total attendance of 499,699. By 2010 the number of events had dropped to 101 and attendance for the year had also dropped to 325,185 (p. 35 Table 7).

So, there you have it. If it were up to Councilwoman Alvarez and her ilk, the stadium should not host the Cardinals and a new stadium manager, who “would make money”, would be hired.

In Part II I will look at the City of Seattle and their 2012 Memorandum of Understanding for an arena as well as other venues nationally- what they pay and what they don’t pay.

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