CONVOCATION CENTER Reardon forgoes $4.5M arena loan It's too much for one project, he says
The project's actual cost is fluid, city officials say.
By DAVID SKOLNICK
VINDICATOR POLITICS WRITER
YOUNGSTOWN -- Mahoning County Treasurer John Reardon scrapped a plan to allow Youngstown to borrow $4.5 million from the county to pay for a portion of its convocation center.
The Vindicator reported Saturday that Reardon was giving serious consideration to having the county buy a one-year city note, at 4 percent interest, with the purchase likely occurring in mid-August.
But Reardon said Monday he opted to pass on the offer because a $4.5 million investment is "more than I care to invest in one project."
Reardon said he received several telephone calls over the weekend from friends and family with about 60 percent of them against making the investment.
"It wasn't the overwhelming factor," Reardon said, however, of those opposed to the investment proposal.
Reardon previously had called the proposal a "win-win situation" for the city and the county, and the proposal had the support of the county's three commissioners. As the county's investor, the decision to lend the money to the city rests entirely with Reardon.
The money would have been part of the county's securities investment portfolio, worth about $60 million.
State law doesn't permit the financially challenged county to use its investment portfolio for general fund expenses, Reardon said. The interest collected on the portfolio, about $6 million annually, however, goes into the county's general fund, he said.
City Finance Director David Bozanich said the project will find funding elsewhere. The city is in discussions with a number of banks about loans for the project, he said.
The convocation center, slated to open Nov. 4, is expected to cost about $45 million, but that number is constantly changing, Bozanich said.
When the city signed a deal in March 2004 to have a company build and manage the arena, city officials said the project's cost was $41.25 million.
A review Monday of documents from the city's finance department related to the center showed at least five copies of the $41.25 million budget.
Bozanich said that figure didn't include an unanticipated increase in certain materials, such as steel, as well as blight studies and demolition work. Also, the project has a $1 million contingency, and the city ended up spending $2 million more on water and sewer work than anticipated, he said.
The arena's final figure could end up being $43 million or $44 million depending on change orders, Bozanich said.
The city received a $26.8 million federal grant for the facility, a $2 million commitment from the state, a $550,000 energy grant from Ohio Edison, and used about $4 million in water and sewer work paid through the water and sewer departments, and not the general fund.
The city expects to receive about $1 million in deposits on loges and luxury boxes. The city also anticipates obtaining an additional $3 million from the state.
The city is about $10.65 million short if the project costs $45 million and the $3 million in state funding doesn't come through in the near future.
The city would sell a one-year note, with an interest rate in the low 5 percent range, to fund the rest of the project, Bozanich said.
In a March 28 e-mail to the city's finance department, Lee Esckilsen, a city arena consultant, wrote that the gap needed to be made up for the project is $8.69 million, and the number would "continue to be adjusted."
"A funding gap was always there," Bozanich said.
Mayor George M. McKelvey said he believes the project will cost $42 million.
Any profits made by the city from the arena will go to pay debt service, the mayor said.
He has repeatedly insisted no general fund money would be used to fund the project, and he said Monday that nothing has changed.
After one year, the city plans to convert the note into a 20-year bond, with an interest rate in the high 5 percent range, Bozanich said.
McKelvey has often said private funding would drive the convocation center project.
Those in the private sector will purchase the city notes and bonds, McKelvey said, and the arena will pay for itself even if takes 20 years to retire the bond debt.
Bozanich and McKelvey expect arena profits would lower the amount of money the city would refinance after a year.
The county note would have carried an interest rate of 4 percent. Selling the note on the open market would come with an interest rate in the low 5 percent range.
Bozanich said project critics can celebrate because Reardon's decision to back out of the financing plan will cost the city about $75,000.
Even with anticipated borrowing, Bozanich said the arena is a great success story.
"The city has a project with 75 percent equity and 25 percent debt, unlike every other project of this magnitude in the country that has 25 percent equity and 75 percent debt," he said. "We've accomplished miracles with how this project is being financially done."
The original development agreement in 2004 didn't call for the city to borrow any money for the project, but the city terminated that deal because of a lack of performance by the developer, Bozanich said.