Roadblock: Mayor’s $1.4B Coliseum plan hits a financing snag
Jeremy M. Lazarus | 1/4/2019, 6 a.m.
The plan to replace the Richmond Coliseum with a new arena in Downtown appears to be running afoul of the Virginia Public Finance Act.
That state law bars local governments from using real estate and other taxes to repay revenue bonds, the type of funding that Mayor Levar M. Stoney prefers in efforts to ensure the city would not be stuck with the bill if the new arena is less successful than projected.
Real estate taxes can be pledged to repay general obligation bonds, but that would require the city to be on the hook for the repayment.
Revenue bonds are defined as using a specific revenue stream for repayment. The city Department of Public Utilities uses such bonds to borrow money for new pipes for water, sewage and natural gas. DPU repays those bonds from income it receives from customers.
The financing issue may be a key reason the city remains in talks with the Navy Hill District Corp., led by Dominion Energy’s top executive Thomas F. Farrell II, and why Mayor Stoney appears to be stymied on letting Richmond City Council review the planned $1.4 billion project.
The project calls for borrowing to build a new $220 million arena and having private investors develop 2,900 new apartments, along with two hotels, new office buildings, restaurants and other commercial operations on nearby city property to help repay the arena’s debt.
But two reports, one done for the Navy Hill District Corp. and the other by a city consultant, have shown the revenue from the project area would not be enough to ensure investors are comfortable in buying bonds.
To generate more tax dollars for debt repayment, the mayor has talked about creating an 80-block Tax Increment Financing District, or TIF, and using tax income from the projected increase in real estate property values as a main source of repayment.
Taxes collected from the base value of the property would go to the city treasury, while the TIF would collect any increase in real estate taxes above that base value.
That financing approach was outlined in a report that the city’s financial adviser, David P. Rose of Davenport & Co., issued in November.
In the report, Mr. Rose stated that the “public portion of the project will be funded from non-recourse revenue bonds” to be repaid from growth in real estate taxes in the TIF District and new sales tax, parking revenues and other income and taxes created in the arena project area.
The public elements are mainly the proposed 17,500-seat arena and the three-story Blues Armory at 6th and Marshall streets, which is to be converted into a food market, with entertainment center on the second floor and a ballroom for the proposed hotel on the third floor.
The non-recourse bonds he referred to means that investors who buy the bonds would not be able to sue the city if they lost money.
Mr. Rose did not mention the roadblock that the Public Finance Act presents to that approach with its ban on using real estate taxes to repay revenue bonds.